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The President has finally issued a long-awaited regulation that maps out the road towards cleaner power generation in Indonesia, in line with the country's international climate-change commitments.
The new regulation, Presidential Regulation No. 112 of 2022 on Accelerated Development of Renewable Energy for Electricity Supply ("PR 112"),1 was issued and entered into force on 13 September 2022.
The key features of PR 112 may be summarized as follows:
To support the transition to greener energy in Indonesia, the Government has stepped in to restrict the development and operation of coal-fired power plants ("CFPPs") by means of the following measures:
Should the accelerated decommissioning of CFPPs require the sourcing of replacement power, this may be done from renewable energy generators, having regard once again to power supply and demand conditions.
The accelerated decommissioning process should take into account the following criteria: (i) capacity; (ii) generator age; (iii) utilization; (iv) greenhouse gas emissions; (v) economic added value; (vi) availability of domestic and overseas financing; and (vii) availability of domestic and foreign technology.
Power purchase based on ceiling price
Purchase price to be determined by negotiation, with upper limit based on ceiling price
Power purchase based on agreed price between the parties
Price to be determined by negotiation and price approval of MEMR required.
Note: An earlier draft of PR 112 included a feed-in-tariff pricing mechanism. However, this has been omitted from the definitive version of PR 112 as the government appears to believe that current market conditions no longer require subsidization of this kind. The purchase price of electricity under PR 112 does not include the price for the use of transmission networks. This price is determined based on the agreement of the parties, up to a maximum of 30% of the power purchase price. An agreed price that does not exceed the 30% cap does not require a further price approval from the MEMR. In the event that the price for the use of a transmission network amounts to more than 30% of the power purchase price, approval must be obtained from the MEMR.
PR 112 provides that the procurement of all forms of renewable energy should be conducted through direct selection, save in certain circumstances where the direct-appointment mechanism may be employed. The criteria and requirements for each type of procurement are as follows:
PR 112 sets out additional procurement requirements for the purchase of power by PLN where it is generated by the following types of power plant:
Hydro peaking power plant, biofuel power plant, or tidal/ocean thermal energy conversion power plant
The purchase by PLN is carried out by way of a capacity-quota offer
Biomass power plant or biogas power plant
IPP must have access to a sufficient supply of feedstock to ensure the continuity of the power plant's operation during the PPA period;
Geothermal power plant in the case of a geothermal license holder, a geothermal resources utilization concessionaire, or the holder of a joint operation contract for the exploitation of geothermal resources
IPP must have completed exploratory work and have proven geothermal reserves that are sufficient to ensure the continuity of the power plant's operation during the period of the PPA or steam sale & purchase contract;
Geothermal power plant in the case of an electricity supply business license holder (IPP) for a geothermal power plant.
The electricity supply business license holder (IPP) must have secured a commitment for the supply of geothermal steam to ensure the continuity of the power plant's operation during the PPA period (this would arise if the electricity supply business license holder / IPP is different from the geothermal license holder)
PR 112 solidifies the government's expressed commitment to energy transition by incorporating a road map for the accelerated decommissioning of existing CFPPs and a prohibition on the development of new CFPPs (subject to a number of exceptions). Further, the procurement process for new renewable-energy power plants by PLN under PR 112 is simpler and more straightforward than that for other types of power plant under the prevailing regulations at ministerial level.
However, it remains to be seen if these changes will be effective in practice, given that PR 112 ties the development of new renewable-energy power plants to the financial capacity of the state, which indirectly relates to the financial capacity of PLN to purchase power from renewable energy power plants at a price that is relatively higher than the price of power from CFPPs.
1 Peraturan Presiden Republik Indonesia Nomor 112 Tahun 2022 tentang Percepatan Pengembangan Energi Terbarukan untuk Penyediaan Tenaga Listrik
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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