Regulation of electricity utilities - power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

Construction and operation of a power generation facility requires an IUPTL issued by the relevant provincial or central government authority. Further, since the enactment of Government Regulation No. 24 of 2018 dated 21 June 2018 on the Integrated Electronic Licensing Services for Business (GR 24/2018), the application of IUPTL, whether falling under the jurisdiction of the provincial or the central government, is conducted through the Online Single Submission (OSS) System operated under the supervision of the Coordinating Minister for Economic Affairs (Menko Ekon) (whose authority will be reassigned to the Capital Investment Coordinating Board (BKPM) by January 2019). A power purchase agreement between the IUPTL applicant and its buyer (commonly, PLN) is a prerequisite to obtaining an IUPTL.

In terms of constructing generation facilities, an IUPTL holder may subcontract the construction to a qualified construction service provider through an engineering, procurement and construction (EPC) contract. In addition to the laws and regulations governing construction services in general, providers for electrical installation are also governed by the Electricity Law and its implementing regulations, specifically, MEMR Regulation No. 35 of 2013, as amended by MEMR Regulation No. 12 of 2016, on Electricity Business Licensing Procedures (MEMR 35/2013), which classifies electrical installations as electricity supporting services, which require an Electricity Supporting Services Business Licence (IUJPTL).

Prior to the commencement of construction, an IUPTL holder must secure several licences from the regional or provincial government. These local licences are now regarded as commitments in the relevant IUPTL which must be fulfilled by the holder in a certain period as subsequent conditions, among others, a building permit (IMB), location permit and environmental licence. Compensation to any party whose assets (land, buildings or plants) are directly or indirectly affected must be settled prior to commencing construction.

Further, in accordance with MEMR Regulation No. 5 of 2014, as amended by MEMR Regulation No. 10 of 2016, on Electricity Procedures and Certification (MEMR 5/2014), prior to the operation of generation facilities, the IUPTL holder must obtain an operational feasibility certificate (SLO) issued by the OSS Agency on behalf of an institution accredited by the MEMR and registered with the DGE, subject to a physical assessment by the technical team from the institution.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Generation facilities are connected to the transmission grid subject to a power purchase agreement or a grid lease agreement in accordance with an electricity supply business plan from the transmission operator.

Before connecting to the grid, an electricity installation must satisfy safety and equipment standards determined by the MEMR by securing an SLO from an institution accredited by the DGE.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The use of renewable energy sources is encouraged at the policy level through the endorsement of the National Energy Policy, which aims to achieve the best possible energy mix for power production in Indonesia. The National Energy Policy provides that by 2025, energy consumption from new and renewable energy (biomass, nuclear, solar, wind, etc) should reach more than 23 per cent of total energy consumed and that the use of oil should be reduced to less than 25 per cent.

Since 2010, PLN has been provided with a fast-track programme for the development of coal-fired power plants, as well as the use of renewable energy and gas. Pursuant to MEMR Regulation No. 40 of 2014, there are 58 power plant projects and 40 transmission projects listed as fast-track private public partnerships involving coal, geothermal, water and gas-fired power plants.

Further, Presidential Regulation No. 4 of 2016 on Development of Electrical Infrastructure (PR 4/2016), as last amended by Presidential Regulation No. 14 of 2017, provides that for development of generation facilities using new and renewable energy, the central or regional government may give government support in the form of fiscal incentives, feed-in tariffs and outright subsidies.

Regarding feed-in tariffs, the MEMR recently issued MEMR Regulation No. 50 of 2017 on the Utilisation of Renewable Energy for Electricity Supply (MEMR 50/2017), which regulates a new appointment method and purchase price by PLN from renewable power plants.

MEMR 50/2017 provides that power purchase from power plants utilising renewable energy will be made through direct selection, whereas power purchase from renewable power plants that have high dependency on the weather (solar and wind) will be made through direct selection with capacity quota. The regulation further provides that power purchase prices by PLN from renewable power plants will be determined based on a tariff that does not include the electricity distribution price (BPP). As regulated under MEMR Regulation No. 24 of 2017 on the Mechanism for Stipulation of BPP by PLN, both the Local BPP and the National BPP will be determined every year by the MEMR. The prevailing BPP is currently determined through MEMR Decree No1772 K/20/MEM/2018 on the Amount of BPP by PLN for Year 2017.

For power plants utilising solar, wind, biomass, biogas and tidal or ocean thermal energy conversion, if the local BPP is higher than the national BPP, the maximum power purchase price by PLN is 85 per cent of the local BPP. If the local BPP is equal to or less than the national BPP, the power purchase price may be determined based on the consent of the parties.

For power plants using hydro, municipal waste or geothermal, if the local BPP is higher than the national BPP, the maximum power purchase price by PLN is equal to the local BPP. If the local BPP is equal to or less than the national BPP, the power purchase price may be determined based on the consent of the parties.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

As part of a commitment to reduce the CO2 emissions from deforestation and forest degradation, since 2010 the government has suspended the issuance of new mining licences in areas that are specified as primary natural forest and peat land (including conservation and protected forest areas). This reduced the potential amount of coal that can be produced for coal-fired power plants in Indonesia. However, given the abundance of cheap coal in Indonesia it is arguable whether this policy will have a substantial impact on the construction and use of coal-fired power plants.


Does the regulatory framework support electricity storage including research and development of storage solutions?

There are currently no regulations on electricity storage. In general, the Energy and Mineral Resources Research and Development Body (LITBANG) under the MEMR is responsible for research and development in the fields of oil and gas, electricity, minerals and coal, new and renewable energy, energy conservation and sea geology. The authority of LITBANG includes organising technical policies and implementing research and development.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

Both legislation on nuclear energy and the National Energy Policy encourage and provide the opportunity to develop nuclear power plants. However, to date, Indonesia has no commercial nuclear power plants, mainly owing to public resistance to nuclear power on health, safety and liability issues and the historical recognition of nuclear waste as a hazardous material. The development of nuclear power plants in Indonesia so far goes no further than for research under the supervision of the national nuclear agency (BATAN).