In brief: renewable energy projects in Indonesia

Projects

What government authorisations must investors or owners obtain prior to constructing or directly or indirectly transferring or acquiring a renewable energy project?

For the developer or owner of a renewable energy power plant, the main government authorisations that need to be obtained are:

• a business identification number;
• an electricity business licence;
• a certificate of standard; and
• for geothermal power plants, a geothermal business permit (and a geothermal working area).  

Prior to the construction of the renewable energy power plant, the developer or owner would be required to obtain at least the following government authorisations:

• a location permit;
• an environmental approval;
• a building construction permit;
• evidence of ownership or control over the land. If the land is owned by the developer or owner of the power plant, it must obtain a right-to-build certificate. If it is not owned by the developer, a land utilisation agreement with the landowner and land utilisation permit from the local government is required to apply for the building construction permit;
• for hydropower plants with a dam, separate licences related to the construction and operation of the dam are also required; and
• if the location of the renewable energy power plant is within a forestry area, a permit to utilise the forestry area is required.

For energy storage projects, the regulation categorises energy storage as an electricity supporting business activity and thus the main government authorisations that are required by the owner are:

• a business identification number;
• an electricity supporting business licence; and
• a certificate of standard.

To construct the facilities, the same licences (save for the dam related permit for a hydropower plant) as mentioned above for the construction of renewable energy power plants are generally also applicable for the construction of a facility or plant for energy storage.

What type of offtake arrangements are available and typically used for utility-scale renewables projects?

The typical offtake arrangement for utility-scale renewable projects is a power purchase agreement with PT Perusahaan Listrik Negara (Persero) (PLN) as the offtaker. Certain government support options are available if the project is developed under a public-private partnership scheme or if PLN, when conducting the procurement, asks for government support from the Minister of Finance in the form of a Business Viability Guarantee Letter (BVGL). The BVGL is government support issued in favour of the seller in the power purchase agreement (PPA) in which the Minister of Finance will ensure to support PLN in connection with PLN’s payment obligations under the PPA (which normally also include the termination payment). However, the support is not a direct support in which the Minister of Finance is going to pay any outstanding payment directly to the seller or the independent power producer (IPP). The BVGL only serves as an assurance that the Minister of Finance will make sure that PLN will have the funds to fulfil its payment obligation under the PPA. If the utility-scale renewable project is to be developed with a public-private partnership scheme, the payment obligations of PLN under the PPA will be guaranteed by PT Penjaminan Infrastruktur Indonesia (Persero) (or also known as Indonesia Infrastructure Guarantee Fund) and, in certain cases, co-guaranteed by the Minister of Finance in accordance with the risk allocation in the PPA.

How are long-term power purchase agreements procured by the offtakers in your jurisdiction? Are they the subject of feed-in tariffs, the subject of multi-project competitive tenders, or are they typically developed through the submission of unsolicited tenders?

Other than geothermal power plants, renewable-based power plants are procured by way of direct selection conducted by PLN to appoint or select the developer or IPP. The selected developer or IPP will enter into a PPA with PLN. Before the direct selection process, PLN will conduct a pre-qualification process in which all developers can participate, and developers that pass the pre-qualification stage will be invited to participate in the direct selection. PLN normally conducts separate pre-qualification for each type of renewable energy power plant. Procurement through direct appointment is also possible in certain cases, such as the expansion of existing projects or if there is an electricity crisis in the area.

For geothermal power plants, the tender is conducted by the Ministry of Energy and Mineral Resources (MEMR) for the geothermal working area for indirect use to produce power or electricity. The tender winner will automatically become the IPP for the geothermal power plant and PLN is assigned or mandated by the government to purchase the power. 

In the past, an unsolicited proposal for the development of a renewable energy-based power plant was quite common. However, with the current regulation, PLN must conduct the direct selection and invite other developers (although in a limited number and only those that have already passed the pre-qualification conducted by PLN) to participate in the direct selection. In practice, it is almost certain that the developer submitting the unsolicited proposal will win the direct selection as it has an advantage over other developers in terms of obtaining initial permits from local government and generally the nature of the project itself. Renewable energy power projects are subject to feed-in tariffs by the government. A feed-in tariff is provided in the form of benchmark price and the final price or tariff agreed between PLN and the IPP must be approved by the MEMR.

What government authorisations are required to operate a renewable energy project and sell electricity from renewable energy projects?

The main government authorisations required to operate a renewable energy project and sell electricity are:

• a certificate of worthiness of the power plant or electricity installation; and
• the approval of electricity price or tariff.

The buyer can purchase a Renewable Energy Certificate from PLN.

Are there legal requirements for the decommissioning of renewable energy projects? Must these requirements be funded by a sinking fund or through other credit enhancements during the operational phase of a renewable energy project?

There is no law in Indonesia that specifically regulates or requires the decommissioning of renewable energy projects or power projects.