Indonesia RE Law/Policy

Table of Contents

Last updated Aug. 8, 2023.

Electricity Sector Overview

Generation: In 2019, Indonesia’s electricity generation capacity was 62.8 GW. The mix is composed of mostly coal (50.7%), with wind at 0.2% and solar at 0.1%.

The four major systems are, from most to least extensive, Bali-Java-Madura, Sumatra, Kalimantan, and Sulawesi, which together compose 90% of Indonesia’s power generation. The remaining 10% are composed of 600 isolated systems.

The Indonesian government favors energy independence and lowest-cost energy. Coal and diesel power plants are prioritized, as the government has undervalued Indonesia’s renewable energy investment potential. A plan was outlined in 2018 to develop fossil fuel power plants to electrify areas near the source of extraction primarily in Sumatra, Kalimantan, Sulawesi, and Papua as part of a plan to develop 35,000 MW of capacity by 2029. As of 2019, the program has completed 19% of its goal.

Transmission and Distribution: PLN (Perusahaan Listrik Negara aka National Electricity Company) has a de-facto monopoly over transmission and distribution, so the burden of financing upgrades and new construction falls on PLN.

In 2015, a new policy introduced power wheeling, which allows IPPs and private power utilities to use existing PLN transmission and distribution networks, to increase the durability and speed of supplying additional generating capacity. Some small transmission lines have been built by IPPs in remote areas to connect power plants to PLN substations, but private sector investment is still lacking.

Oversupplied areas such as Java face issues including the deterioration of network equipment, overloading, blackouts, and system downtime.

There has been some construction of new microgrids and provision of individual solar home systems to increase electrification.

Note: See GEM report on Bali’s grid infrastructure.1Global Energy Monitor, https://www.gem.wiki/Power_Sector_Transition_in_Bali#Transmission_and_Grid_Infrastructure

The following charts illustrate Indonesia’s electricity mix:

Source: OurWorldinData.org. Click to access interactive graphs.

References:

Summary of RE Laws/Policies

The main laws governing renewable energy in Indonesia are:

  • Law No. 30 of 2007 regarding Energy (“Energy Law”)
  • Law No. 30 of 2009 regarding Electricity, as amended by Government Regulation in Lieu of Law No. 2 of 2022 regarding Job Creation (“Job Creation GRL” and “Energy Law”)
  • Government Regulation No. 14 of 2012 regarding Electricity Business Supply, as amended (GR 14/2012)
  • MEMR Regulation No. 11 of 2021 regarding the Implementation of Electricity Business (MEMR Reg 11/2021)
  • MEMR Regulation No. 50 of 2017 regarding Utilization of Renewable Energy Sources for the Production of Electricity, as amended (MEMR Reg 50/2017) (regarding project tenders and the purchase of electricity from renewable sources)

Laws governing specific renewable sources are:

  • Law No. 17 regarding Water Resources, as amended by the Job Creation GRL
  • Law No. 21 of 2014 regarding Geothermal, as amended by the Job Creation GRL

The Government of Indonesia is also in the process of drafting the New and Renewable Energy Bill (NRE Bill).2Fitriana Mahiddin, Syahdan Z. Aziz & Shafira A. Alif Hexagraha, Indonesia: Renewable Energy Laws and Regulations 2023, Mondaq (Feb. 24, 2023), https://www.mondaq.com/renewables/1286536/renewable-energy-laws-and-regulations-2023.

The regulatory framework for renewable energy development has changed frequently in recent years. The following graphic illustrates the changes:

Source: Mondaq

Microgrids are able to operate in Indonesia and are regulated under MEMR Regulation No. 38 of 2016 regarding the Acceleration of Electrification in Underdeveloped, Remote, Border Villages and Small Islands through Small-Scale Electricity Business Supply (MEMR Reg 38/2016).3Mahiddin et al., supra.

Initial Critique of RE Laws/Policies

EMBER’s 2023 analysis of Indonesia’s current policy framework for renewable energy found that Indonesia is lacking in a coherent and effective framework, the current framework being characterized by sporadic incentives, ad-hoc initiatives, and inchoate programs for promoting RE projects. Between 2015-2021, Indonesia’s share of renewable energy increased from 14%-18%, but its share of coal also rose from 51% to 62%—trends that call into question the efficacy of Indonesia’s existing policy framework for promoting RE.4Towards a coherent policy framework for facilitating electricity transition in Indonesia, EMBER (16 Mar 2023), https://ember-climate.org/insights/policy-responses/coherent-policy-framework-for-indonesias-electricity-transition/

These current policy features of the electricity sector hinder RE development: excess supply capacity backed by PPAs with take-or-pay clauses, leaving limited scope for renewable energy; electricity subsidies that affect PLN’s capacity to fund necessary network augmentation to manage intermittency; PLN potentially disadvantaging renewable projects; and governance complexity that makes a major reorientation of industry development difficult to attain.5EMBER

In recent years, the Provincial Government of Bali has enacted various policies to accelerate the transition to renewable energy. The energy transition in Bali has significance for Indonesia from a policy standpoint because the province is a “pioneer” in setting policy and regulations that can be replicated in other regions.6Bali Provincial Government Accelerates Environmentally Friendly Energy Commitments from the G20 Summit, https://www.indonesia.travel/gb/en/news/bali-provincial-government-accelerates-environmentally-friendly-energy-commitments-from-the-g20-summit; The Influence of Socio-cultural Perspectives on the Energy Transition Narrative in Bali, https://caseforsea.org/wp-content/uploads/2023/01/The-Influence-of-Socio-cultural-Perspectives-on-the-Energy-Transition-Narrative-in-Bali.pdf

The Ministry of Energy and Mineral Resources (MEMR) is allegedly revising the MEMR Regulation No. 26/2021, which provides incentives for rooftop solar PV.7The Amend of the MEMR Regulation on Rooftop Solar PV Has the Potential to Undermine the Interest of the Residential Market, IESR (Jan. 6, 2023), https://iesr.or.id/en/tag/minister-of-energy-and-mineral-resources-regulation-no-26-2021. The government’s target of 450 MWp of additional solar PV capacity in 2022 was not achieved due to PLN’s reluctance to implement the MEMR Reg No. 26/2021.8IESR, supra. According to Fabby Tumiwa of the Indonesian Solar Energy Association (AESI), the revision seems to be a meeting point between the government’s interests and PLN, and has the potential to reduce the economy and interest in residential rooftop solar PV.9IESR, supra. The substantive changes include the implementation of a first come, first serve quota system instead of a capacity limit of up to 100%, eliminating electricity exports to the PLN grid, and the nullification of capacity costs for industrial customers.10IESR, supra.

The frequent changes in the regulatory framework indicated in the above section have posed a challenge for renewable energy, as the changing regulations include tariffs for selling renewable energy, and business parties have needed to make frequent adjustments.11Mahiddin et al., supra.

There are also bankability issues associated with Power Purchase Agreements (PPAs), which govern the sale and purchase of electricity as well as the project terms from construction to termination.12Mahiddin et al., supra. Some commercial banks need to become more acquainted with renewable energy technology (which is translated into the PPA) to determine the bankability of a project.13Mahiddin et al., supra

Another challenge for Indonesia’s renewable energy development comes in the form of competing incentives. Presidential Regulation No. 10 of 2021 regarding Investment Business Fields (PR 10/2021) establishes incentives for renewable energy projects, but the incentives are still insufficient compared to those provided for conventional energy projects, such as those in Law No. 4 of 2009 regarding Mineral and Coal Mining, as amended by the Job Creation GRL (“Mining Law”) and its derivatives.14Mahiddin et al., supra.

There is no particular legal framework and no incentives for distributed or commercial and industrial (C&I) renewable projects.15Mahiddin et al., supra.

2024 Update on Net Metering

In 2018, Indonesia’s Ministry of Energy and Mineral Resources issued MEMR Regulation No. 49/2018, under which residential, commercial, and industrial PV installations are entitled to sell excess power to the grid through a net metering scheme. In 2021, MEMR Regulation No. 26/2021 was issued to replace MEMR Regulation No. 49/2018, extending coverage to non-PLN consumers (discussed above). The regulation was further amended in 2024 by MEMR Regulation No. 2/2024, which went into force on January 30, 2024 and—among other changes—abolished the net-metering scheme for solar rooftop installations.

Fabby Tumiwa, the executive director of the Institute for Essential Services Reform, said that without net-metering, rooftop PV investment will become more expensive and household or small business customers will delay the adoption of rooftop PV.16Patrick Jowett, Indonesian government abolishes net metering, PV Magazine (Feb. 28, 2024), https://www.pv-magazine.com/2024/02/28/indonesian-government-abolishes-net-metering/. Marlistya Citraningrum, program manager for the Institute for Essential Services Reform, hopes that the decision will “trigger more energy storage use and thus contribute to bringing the cost down.”17Jowett, supra.

Renewable Energy Targets

  • 23% of electricity in Indonesia from renewable sources by 2025 and 31% by 205018Government Regulation No. 79 of 2014 regarding National Energy Policy (NEP)
  • Mandatory phasing out of coal-fired power plants19Presidential Regulation No. 112 of 2022 regarding the Acceleration of Renewable Energy Development of Electricity Generation (PR 112/2022)

Renewable Energy Laws/Policies

General

Bali Laws/Policies

  • Regulation No. 45/2019 Bali Clean Energy
  • Regional General Energy Policy and Planning (RUED), 2020
  • Provincial Regulations No. 9/2020
  • Green Bali Plan with Net Zero Emission (NZE)
  • Nangun Sat Kerthi Loka Bali Principle and Bali Kerthi Ekonomi (adopted by Bappenas)

Incentives for Renewable Energy

  • MEMR Regulation No. 26/2021 (MEMR Reg 26/2021)
    • Incentivizes rooftop solar PV
    • Includes net-metering scheme that was abolished by MEMR Regulation No. 2/2024
  • Renewable Energy Purchase Policy 2017
  • Regulation of the Minister of Finance No. 21/2010
  • Ministerial Regulation No. 31/2009
  • Ministerial Regulation No. 2/2006
  • Ministerial Regulation No. 1122 K/30/MEM/2002
  • Presidential Regulation No. 112/2022 on the Acceleration of the Development of Renewable Energy for the Supply of Electrical Power (“PR No. 112/2022”)
  • Presidential Regulation No. 10/2021
    • Corporate income tax reduction for RE sector
  • Presidential Regulation No. 4/2016 regarding the Acceleration of Electricity Infrastructure Development (PR 4/2016)
    • RE projects may get fiscal incentives, facilities for licensing and non-licensing, and subsidies
  • Regulation No. 12/2017
  • Utilisation of Rooftop Solar Power Generation System by Customers of PT Perusahaan Listrik Negara (Persero)
  • Electricity Supply Business Plan (Rencana Umum Penyediaan Tenaga Listrik — “RUPTL”) 2021-2030
  • Solar Feed-In Tariff of Indonesia (2016)
    • Info
    • Unable to find original document or much information about it. There’s a link to an official PDF in the IEA listing but access is denied.
    • IEA mentions that in 2013 a solar auction programme was declared unconstitutional by the Supreme Court.
  • Power purchase from solar photovoltaic plants (No. 17/2013)
  • Electricity Purchase from Small and Medium Scale Renewable Energy and Excess Power (No. 4/2012)
    • Info
    • The technologies that benefit from the scheme are only biomass, hydropower, municipal waste, and biogas.

Encouragement of MSMEs in RE

  • MEMR Regulation No. 38 of 2016 regarding the Acceleration of Electrification in Underdeveloped, Remote, Border Villages and Small Islands through Small-Scale Electricity Business Supply (MEMR Reg 38/2016)
    • Info / PDF / Backup PDF
    • Provides fiscal incentives to business entities optimizing the use of local new or renewable energy resources.
    • Regulates microgrids21Mahiddin et al., supra.

Safeguards and Standards

  • Ministry of Manpower (MoM) Regulation No. 12 of 2015 regarding Electrical Occupational Safety and Health in the Workplace, as amended (MOM Reg 12/2015)
    • Unable to find the policy document
    • Contains health and safety requirements to cover the full range of the electricity business.22Mahiddin et al., supra.
  • Law No. 32 of 2009 regarding Environmental Protection and Management, a amended (“Environmental Law”)
  • Government Regulation No. 22 of 2021 regarding the Administration of Environmental Protection and Management (GR 22/2021)

Contextual Laws/Policies

  • General Plan for National Energy (Presidential Regulation No.22 Year 2017)
  • Electricity Law (No. 30/2009)
    • Info
    • Provides for private participation in the electricity sector.
    • The article lists related laws and explains context.
    • Addresses feed-in tariffs for the sale of electricity generated from small- and medium-scale renewable energy to PLN. (This article includes photovoltaics among the applicable energy sources.)
  • Ministerial Regulation No. 1/2006
    • Info (BH) / Backup PDF
    • Concerns procedures for purchase of electricity and/or leasing networks in business provision of electricity for public interest.

References