Unlocking Indonesia’s Renewable Energy Investment Potential 2

Contents
Key Findings .................................................................................................................................................. 4
Policy Reformation is Needed to Achieve Renewable Energy Goals ....................................................... 5
Executive Summary ...................................................................................................................................... 5
Introduction ................................................................................................................................................... 8
The Role of Private Investment in the Renewable Energy Sector ......................................................... 10
Risk Factors Affecting Renewable Energy Investment ........................................................................... 12
Opportunities for Renewable Energy Investment.................................................................................... 13
Potential for Economic Growth ............................................................................................................. 13
Untapped Renewable Energy Potential ................................................................................................ 15
Policy and Regulatory Changes to Support Renewables Development ................................................ 16
Mandatory Partner Scheme .................................................................................................................. 18
Restrictions on the Transfer of Ownership Rights ............................................................................... 21
Deliver-or-pay Scheme .......................................................................................................................... 24
Renewable Energy Tariffs ...................................................................................................................... 25
Local Content Requirements (LCRs) .................................................................................................... 26
Carbon Credits Incentives ..................................................................................................................... 28
Procurement Procedures ...................................................................................................................... 30
Conclusion ................................................................................................................................................. 32
About IEEFA ............................................................................................................................................... 34
About the Author ....................................................................................................................................... 34

Figures and Tables

Figure 1: Investment Realization in the Energy and Mineral Resources Sector ...................................... 8
Figure 2: Total Installed Capacity (left) and Additional Capacity (right), 2018 – 2023 ............................ 9
Figure 3: Operating Solar and Wind Power in Southeast Asia.................................................................. 9
Figure 4: Investment Needed to Achieve Indonesia’s 2030 Climate Target ......................................... 11
Figure 5: Additional Electricity Capacity, RUPTL 2021 – 2030 .............................................................. 11
Figure 6: Business Arrangement of an IPP Project ................................................................................. 12
Figure 7: Investment Attractiveness Factors ........................................................................................... 13
Figure 8: Gross Domestic Product Trend ................................................................................................ 14
Unlocking Indonesia’s Renewable Energy Investment Potential 3

Figure 9: Indonesia’s Renewable Energy Utilization ............................................................................... 15

Figure 10: Indonesia’s Renewable Energy Sector Regulations.............................................................. 16
Figure 11: Procurement Mechanism under Presidential Regulation No. 112 of 2022 ......................... 17
Figure 12: Project Structure Under the 51% Mandatory Partner Mechanism ...................................... 19
Figure 13: PLN’s Recent Joint Investments with IPPs in Renewable Energy Projects ......................... 21
Figure 14: Comparison Between Greenfield and Brownfield Investments............................................ 22
Figure 15: Project Milestones ................................................................................................................... 23
Figure 16: Renewable Energy Tariffs (in cUS$/kWh) .............................................................................. 25
Figure 17: Indonesian Local Content Requirements for Solar Photovoltaic (PV) Installation .............. 27
Figure 18: Price of Carbon, 2024 ............................................................................................................. 29
Figure 19: DPT Application Process ........................................................................................................ 30
Figure 20: Overview of the Tender Process ............................................................................................ 31
Table 1: Key Recommendations ............................................................................................................... 33
Unlocking Indonesia’s Renewable Energy Investment Potential 4

Key Findings

Investment in renewable energy in Indonesia has stagnated for the past

seven years. In 2023, it attracted a mere US$1.5 billion, lagging far
behind its Southeast Asian neighbors.

Indonesia needs to attract US$146 billion in near-term renewable energy

investment to meet the country’s 2030 climate target.

Current policies and onerous contractual requirements towards solar and

wind power raise costs and discourage private investment.

Introducing transparent and well-defined procedures in renewable

energy procurement, supported by more commercially balanced
contractual terms and conditions, will provide assurance and certainty
for potential investors.
Unlocking Indonesia’s Renewable Energy Investment Potential 5

Policy Reformation is Needed to Achieve

Renewable Energy Goals
Indonesia’s renewable energy investment has been stagnant for the past seven years. The
latest data shows that the country could only attract around US$1.5 billion (bn) in 2023,
translating into a mere 574 megawatts (MW) of additional renewable energy capacity. To
meet its 2030 climate commitment, Indonesia needs around US$285bn, and private
investment will be vital to fill the US$146bn investment gap.

Indonesia has the ingredients needed to attract more investors in renewable energy projects
due to rising demand from its 270 million population, historically strong economic growth, and
abundant untapped renewable energy sources.

Private investors would be encouraged to enter the Indonesian market if there were
transparent procurement procedures, as well as consistency and reliability in the
implementation of current regulations. By reevaluating the mandatory partner scheme,
electricity purchase tariffs, carbon credits incentives, and the local content requirements
policy, the Government of Indonesia can ensure that the return on investment is appealing for
investors.

By increasing the attractiveness of renewable energy investment and development in the

country, Indonesia can accelerate its transition to clean energy and meet its climate targets.

Executive Summary
Indonesia, the most populous Southeast Asian country, with its abundant solar, wind, and natural
resources, possesses significant potential for renewable energy development. However, it is
struggling to make meaningful progress and needs to attract more investment to increase renewable
energy capacity.

Indonesia’s renewable energy investment has stagnated over the past seven years. The latest data
shows that Indonesia could only attract around US$1.5 billion (bn) in 2023, translating into a mere
574 megawatts (MW) of additional renewable energy capacity; 145MW of which was added in 2023
from the Cirata floating solar project. Meanwhile, Indonesia’s neighboring countries have installed
significant solar and wind capacity. Vietnam, for example, has a solar capacity of 13,035MW and
Unlocking Indonesia’s Renewable Energy Investment Potential 6

6,466MW of wind generation, recording an increase of 1,115MW capacity in solar and wind power in
2023 alone. 1

The Government of Indonesia (GOI) has issued several regulations to promote investment in
renewable energy projects from the private sector or Independent Power Producers (IPPs) to
achieve emission targets. However, due to the slow progress in development, especially in the solar
and wind segments, the attractiveness of investing in renewable energy is in doubt. The
government’s latest regulation in 2022 did not yield the desired result of increasing renewable
energy in the energy mix as investments continued to flow into fossil fuel-based energy sources such
as oil and gas. As a result, GOI has felt compelled to reduce its 2030 renewable energy targets from
26% of the energy supply to 19 - 21%. Such adjustments raise questions about the government’s
commitment to a renewable energy transition.

Indonesia has committed to an unconditional 31.9% reduction target for greenhouse gas (GHG)
emissions and a conditional 43.2% reduction in 2030. 2 To meet its 2030 climate commitments,
Indonesia needs around US$285bn, and private investment will be vital to fill the estimated
US$146bn investment gap. This report analyzes the current situation and makes recommendations
to help boost renewable energy investment. It explores the investment opportunities and challenges
in Indonesia’s renewable energy sector, focusing on government policies, regulations, and
implementation processes.

Indonesia has the ingredients to attract more investors in renewable energy projects due to rising
demand from its 270 million population, historically strong economic growth, and abundant untapped
renewable energy sources. However, several regulatory challenges create uncertainty for potential
investors and financiers of renewable energy projects.

• Mandatory partner scheme. The government’s strategy in renewable energy asset ownership
places Indonesia’s national electricity utility, PT Perusahaan Listrik Negara (PLN), and its
subsidiaries in the driving seat on renewable energy development through a majority
shareholders’ scheme. This scheme raises risks for potential investors and creates investment
challenges as it negatively impacts equity returns for investors.
• Restrictions on the transfer of ownership rights. This regulation was put in place to ensure the
completion of projects, but conversely, it limits the private sector from obtaining additional capital
and technical expertise during project delivery.
• Deliver-or-pay scheme. The implementation of the new “deliver-or-pay” scheme, replacing the
“take-or-pay” scheme further burdens the private sector with penalties if the IPP fails to meet
availability or capacity requirements.

1
Global Energy Monitor. A Race to the Top: Southeast Asia 2024. January 2024.
2
United Nations Framework Convention on Climate Change. Enhanced Nationally Determined Contribution Republic of Indonesia.
2022. Page 12.
Unlocking Indonesia’s Renewable Energy Investment Potential 7

• Renewable energy ceiling tariff. The new ceiling tariff introduced by GOI is considered too low,
and the competitive method under a direct selection process where the lowest price proposed
makes a bidder successful leads to even lower, unattractive tariffs.
• Local Content Requirements (LCRs). The LCRs policy had the unintended effect of increasing
investment costs, resulting in initial system costs being significantly higher than global market
averages. Low renewable energy tariffs and increased investment costs negatively impact
investor returns and make renewable energy investment unfeasible.

• Carbon credits incentives. Carbon credits have a value that can be sold within the carbon
market and become a source of additional revenue for investors. However, the recent Power
Purchase Agreement (PPA) states that any renewable energy market-based instruments
(including carbon credits and renewable energy certificates) will be fully allocated to PLN.
Consequently, investors can no longer benefit from carbon credits.

• Procurement procedures. Complicated renewable energy procurement procedures hinder

investment inflows. Establishing transparent and clear processes is essential to attract more
investment.

The government should assess and analyze the obstacles to potential private investment. The
establishment of clear and concise procurement procedures, as well as consistent and reliable
implementation of current regulations, will provide stability and certainty for potential investors. The
government should also reevaluate the mandatory partner scheme, electricity purchase tariff, carbon
credits incentives, and the local content requirements policy, which directly impact the financial
viability of renewable energy projects as ultimately, return on investment is the most important factor
in any financing decision.
Unlocking Indonesia’s Renewable Energy Investment Potential 8

Introduction
Global concerns over climate change have led to a major shift from fossil fuels to renewable energy
sources. More money was invested in renewables than fossil fuels for electricity production for the
first time in 2015. 3 Renewable capacity additions increased by almost 50% to nearly 510 gigawatts
(GW) in 2023, the fastest growth rate in the past two decades.4

While the rest of the world has made clear strides towards more renewable energy development,
Indonesia appears to be lagging. Investment in renewable energy has stagnated over the past seven
years. The latest data shows that Indonesia could only attract around US$1.5bn in 2023, translating
into a mere 574MW of additional renewable energy capacity. Meanwhile, Indonesia’s neighboring
countries have installed significant solar and wind capacity. Vietnam, for example, has a solar
capacity of 13,035MW and 6,466MW of wind generation, recording an increase of 1,115MW capacity
in solar and wind power in 2023 alone. 5

Figure 1: Investment Realization in the Energy and Mineral Resources Sector

Note: MEMR defines “New and Renewable Energy” to include solar, wind, hydro, and geothermal, while “Electricity” is defined as
conventional fossil fuels plus transmission infrastructure.
Source: Ministry of Energy and Mineral Resources (MEMR).

The chart above shows that Indonesian investment focused on the oil and gas, and mineral and coal
sectors. The amount of investment translated directly into energy capacity. From 2018 to 2023, while
Indonesia increased its electricity capacity by 21GW, 18.4GW of additional capacity came from fossil
fuels, while only 3.2GW was from renewable energy.

3
The Global Green Growth Institute. Renewable energy is now a commercially attractive investment opportunity. June 2019.
4
IEA, Renewables 2023. 2024.
5
Global Energy Monitor. A Race to the Top: Southeast Asia 2024. January 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 9

Figure 2: Total Installed Capacity (left) and Additional Capacity (right), 2018 – 2023

Source: MEMR; IEEFA.

In 2023, the share of renewable energy in the electricity mix was 13.1%, well below the government’s
target of 17.9%, with a capacity of 13.2GW comprising 94.5% of hydroelectric, biomass, and
geothermal. As an equatorial archipelago of more than 17,000 islands, Indonesia should utilize the
country’s vast solar and wind resources for electricity, especially in remote areas. However,
Indonesia has added only 574MW of solar power out of a possible 3,293GW, just 0.017% of its
potential and one of the lowest rates in the Asia-Pacific region.6

Figure 3: Operating Solar and Wind Power in Southeast Asia

19.5 GW

3.13 GW

3.02 GW

1.58 GW

0.73 GW

0.43 GW

0.19 GW

0.19 GW

Source: Global Energy Monitor. A Race to the Top: Southeast Asia 2024. January 2024; IEEFA.

6
IEEFA. Pathways to Financial Sustainability for PLN through Renewable Energy Development. May 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 10

Due to the slow progress in Indonesia’s renewable energy development, especially in solar and wind
power, the attraction of investing in renewable energy is declining. This is exacerbated by
Indonesia's plans to reduce its renewable energy target from 23% to 17% - 19% in 2025 and from
26% to 19% - 21% in 2030. 7

The Renewable Energy Country Attractiveness Index (RECAI), issued in November 2023 by Ernst &
Young, ranks the world’s top 40 markets on the attractiveness of renewable energy investment.
Indonesia is not featured on this Index, lagging behind the Philippines (ranked 32nd), Vietnam (ranked
33rd), and Thailand (ranked 38th). 8

As a signatory to the Paris Agreement, Indonesia has committed to a 29% reduction in GHG
emissions by 2030 through its independent efforts or a 41% reduction with international support. In
the long term, Indonesia has pledged to reach net-zero emissions (NZE) by 2060 or earlier.
Indonesia stated that it needs more than US$1 trillion (tn) of investment to achieve its NZE target in
2060. This investment cannot be fulfilled solely through the national budget; therefore, the
Government of Indonesia must attract private investment to develop renewable energy projects and
invite private funding through the public-private partnership scheme. Improvements in the
investment environment are needed to attract more renewable energy financing to help Indonesia
achieve its climate targets.

The Role of Private Investment in the Renewable

Energy Sector
Renewable energy investment is urgently required to meet growing energy demand and to focus on
climate action, enabling sustainable development and growth with significant socioeconomic,
environmental, and health benefits. Renewable energy investment is also essential for Indonesia to
meet its NZE targets. In September 2022, Indonesia submitted its enhanced Nationally Determined
Contributions (NDCs), committing to a higher GHG reduction target of 31.9% (unconditional) and
43.2% (conditional) in 2030.9 Indonesia needs around US$285bn to meet its 2030 climate goal,
which the government cannot fund alone. It is estimated that there will be a US$146bn investment
gap, and private investment will be required to make up that difference.

7
IEEFA. The Dark Cloud over Indonesia’s Pledge to Achieve Net-Zero Emissions by 2060. 13 February 2024.
8
Ernst & Young. Renewable Energy Country Attractiveness Index 62 nd edition. November 2023.
9
UNFCCC. Enhanced Nationally National Contribution. Page 12. 2022.
Unlocking Indonesia’s Renewable Energy Investment Potential 11

Figure 4: Investment Needed to Achieve Indonesia’s 2030 Climate Target

Source: Climate Policy Initiative. Landscape of Climate-Aligned Investment in Indonesia’s Financial Sector. Page 8. December 2023.

Private investment through IPPs is crucial during the energy transition. IPPs complement public
budgets, grow the electricity infrastructure, and help the government reduce and share financial risk.

According to the Electricity Supply Business Plan (RUPTL) 2021 – 2030, Indonesia was trying to
achieve an additional capacity of 20.9GW from renewable energy, 56% of which was expected to be
built by IPPs. This plan stipulated the important role of IPPs in achieving renewable energy targets.

Figure 5: Additional Electricity Capacity, RUPTL 2021 – 2030

Source: RUPTL 2021 – 2030.

Within the energy sector, power generation is implemented by the state electricity corporation, PLN,
the sole buyer, transmitter, and distributor of electricity in Indonesia. All renewable energy projects in
the country are developed under the build-own-operate (BOO) or build-own-operate-transfer
(BOOT) schemes, where PLN is the sole off-taker of the electricity produced. The IPP would own and
operate production facilities for a limited period, as decided in the PPA with PLN.
Unlocking Indonesia’s Renewable Energy Investment Potential 12

Figure 6: Business Arrangement of an IPP Project

Source: PLN. IPP Procurement Division.

As the IPPs’ off-taker, PLN plays a vital role in supporting renewable energy development and
promoting investments in the sector. Given the GOI’s substantial financial support of PLN and the
RUPTL 2024 – 2033 plan for 75% additional capacity from renewable energy 10, it is becoming
increasingly urgent to attract private investment to develop renewable energy projects.

Risk Factors Affecting Renewable Energy Investment

Investing in renewable energy offers financial, environmental, and health benefits. Like any other
investment category, renewable energy investing involves evaluating risk factors related to
economics, policy and regulation, and finances.

Through careful assessment, investors can contribute to a sustainable future while securing long-
term financial returns. In Indonesia’s case, various investment risks have been identified, translating

10
CNBC Indonesia. PLN Punya Rancangan Listrik “Paling Hijau” Hingga Tahun 2023. 29 May 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 13

into the stagnancy of renewable energy investment. Addressing those risks and unlocking the
potential for renewable energy is important for Indonesia.

Figure 7: Investment Attractiveness Factors

Source: IEEFA.

Opportunities for Renewable Energy Investment

Potential for Economic Growth
By 2045, Indonesia is expected to become the fourth-largest economy in the world and aims to
develop into a high-income country. It shows strong economic fundamentals with a 5% annual
growth rate, and stable inflation and exchange rates.11

Indonesia is the largest economy in Southeast Asia and the world’s fourth‐most populous country. Its
strong macroeconomic fundamentals, supported by two decades of political stability from 2000 to
2023, have allowed for robust economic growth. While growth slowed during the COVID-19
pandemic from an annual average of 5.0% in 2015 - 2019 to 3.7% in 2021, GDP growth slowly rose
to 5.31% in 2022 and 5.05% in 2023 due to high private consumption. With current growth at 5.1% in
the first quarter of 2024 (Q1-2024), the GDP remains resilient, surpassing the average of middle-
income countries.12 Indonesia’s presumed next president, Prabowo Subianto, set an ambitious 8%
economic growth target in the next 3 - 5 years13, exceeding the previous high economic growth
period of 1994 - 1996 which reached 7% - 8%.

11
McKinsey & Company. Indonesia’s Green Powerhouse Promise: Ten Bold Moves. 22 April 2024.
12
World Bank. Unleashing Indonesia’s Business Potential. June 2024.
13
Jakarta Globe. Prabowo Sets Ambitious 8 Pct Economic Growth Target for Indonesia. 05 March 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 14

Figure 8: Gross Domestic Product Trend

Source: World Bank. GDP Indonesia.

Indonesia also successfully maintained inflation at 2.8% in 2023. In June 2024, consumer price index
(CPI) inflation recorded a deflation of 0.08% (month-to-month) so that on an annual basis it fell to
2.51% (year-on-year) from the previous month's realization of 2.84%. 14

Total investment realization in the first three months of 2024 reached IDR401.5 trillion (tn), 24.3% of
the 2024 investment target of IDR1,650tn. The latest total investment realization rose by 22.1%
compared to the same period in 2023 and was 9.76% higher than the previous quarter. This
indicates that investment realization in Q1-2024 was not impacted by the election period when
investors usually adopt a wait-and-see approach.15

Indonesia’s prudent and consistent macroeconomic policy framework has been a cornerstone of its
successful economic performance and has been acknowledged as such by the markets. For
example, the credit default swap (CDS) rate and the JPMorgan Emerging Market Bond Index (EMBI)
spread for Indonesia have consistently fallen since the pandemic and are lower than several
comparator countries. Credit rating agencies have also maintained investment grades for sovereign
credit, including a stable outlook. As a result, the country has successfully navigated external shocks,
attracted investment, and boosted growth. 16

14
Bank Indonesia. Inflasi Juni 2024 Menurun. 01 July 2024.
15
LPEM FEB UI. Indonesia Economic Outlook Q2-2024. May 2024.
16
World Bank. Unleashing Indonesia’s Business Potential. June 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 15

Untapped Renewable Energy Potential

As an equatorial archipelago of more than 17,000 islands, Indonesia should utilize the country’s
extensive resources of solar and wind for electricity, especially in remote areas. However, it has only
been able to develop 0.4% of its renewable energy potential.

Indonesia, ranked third in the region for solar potential, has almost no installed solar capacity.
Despite having 3.294GW of solar potential, Indonesia only added 574MW solar power to the grid, a
mere 0.017% of its potential. This means Indonesia has the lowest rate of solar use in the Asia Pacific
and is also among the lowest globally.17

Additionally, Indonesia has only developed 154MW of wind power from a possible 155GW, or
0.001% of its total potential. Indonesia’s renewable energy sector offers a promising landscape for
investors with its inviting combination of strong economic growth and immense renewable energy
possibilities.

Figure 9: Indonesia’s Renewable Energy Utilization

Source: National Energy Council (DEN); MEMR; IEEFA.

17
IEEFA. The Asia Pacific renewable supply chain opportunity. June 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 16

Policy and Regulatory Changes to Support Renewables

Development
The Government of Indonesia (GOI) has issued several regulations to promote investment in the
development and implementation of renewable energy to support the energy transition and achieve
NZE targets (Figure 10).

Figure 10: Indonesia’s Renewable Energy Sector Regulations

Source: UK Mentari, 2022; Comprehensive Investment and Policy Plan PP JETP, 2023; IEEFA.

Renewable energy is defined in the Ministry of Energy and Mineral Resources (MEMR) Regulation
No. 50 of 2017 on the Utilization of Renewable Energy Sources for Power Supply, amended several
times, lastly by MEMR Regulation No. 4 of 2020 (MEMR Regulation No. 50/2017), as any source of
energy generated from resources that are sustainable if managed properly, including geothermal,
wind, biofuel, solar, hydro, and tidal. 18

The latest policy is the Presidential Regulation (PR) No. 112/2022. It regulates two major issues that
have long been cited as the primary roadblocks to Indonesia’s growth of renewable energy, which

18
Lexology. Renewable Energy Indonesia. August 2023.
Unlocking Indonesia’s Renewable Energy Investment Potential 17

are the procurement mechanism and electricity purchase prices for renewable energy power plant
projects.

Under PR No. 112 of 2022, the renewable energy procurement method has been classified into two
scenarios: (1) direct appointment, where PLN can appoint and negotiate directly with the IPP, and (2)
direct selection or competitive bidding, where PLN can choose the IPP offering a better price.

Figure 11: Procurement Mechanism under Presidential Regulation No. 112 of 2022
Direct Appointment Tender (Direct Selection)

Geothermal Hydropower

MSW Plant Bio Energy

19
Energy Hydro (with Ministry of Public Works) Solar PV

Grant, Excess Power and Expansion Wind

Ocean

Assignment from MEMR DPT

Mechanism PLN Tender

PLN Tender

PLN + PPA PLN + PPA

Tariff is determined based on negotiations but must not Tariff is determined based on negotiations but must not
Tariff
exceed the ceiling tariff exceed the ceiling tariff

Procurement Lead Time 90 days 180 days

Investors interested in participating in PLN’s procurement for IPP schemes can register on the List of Selected Developers (DPT/preapproved).
PLN will invite companies that have registered in the DPT to participate in IPP procurement processes.

Source: PLN; MEMR.

Despite regulatory support, investment in the renewable energy sector was sluggish and remained
relatively stagnant at US$1.5bn from 2018 - 202320, contributing just 0.24% of the total global
investment of US$623bn in 2023. 21 Renewable energy investment in Indonesia is also far lower
compared to the Philippines which gained US$7.8bn investment in the renewable energy sector in
2022. 22

Furthermore, according to Government Regulation No. 79 of 2014, Indonesia set a target of 26%
renewable energy share by 2030. In 2023, the Comprehensive Investment and Policy Plan (CIPP)
working group, under the proposed US$20bn Just Energy Transition Partnership (JETP), increased
this target to 44% for 2030.23 Currently, Indonesia’s National Energy Council (DEN) is working on

19
Although there is a clear criterion regarding which technologies are directly appointed and those directly selected, the
stakeholders must also check the RUPTL for each renewable energy project. PLN will carry out direct appointments for projects in
the PLN project category and directly select projects that fall into the IPP project category in the RUPTL. For example, although wind
power generation projects fall under direct selection procurement, the wind power plant project in Sumatra is included in the RUPTL
as PLN project category, thus the project is being tendered through a direct appointment mechanism instead.
20
MEMR. Capaian Kinerja Sektor ESDM Tahun 2023. January 2024.
21
Bloomberg NEF. Energy Transition Investment Trends. January 2024.
22
Statista. Total Value of Investments in Renewable Energy in the Philippines from 2009 to 2022, by Energy Source. A 2023.
23
JETP Indonesia. Comprehensive Investment and Policy Plan 2023. November 2023. Page 2.
Unlocking Indonesia’s Renewable Energy Investment Potential 18

updating Regulation No. 79 concerning the National Energy Policy (KEN) which proposes lowering
the target to 19 - 21% of renewable energy share. Such planning inconsistencies add an element of
uncertainty for potential investors and financiers in renewable energy development.

The Indonesian government has continued to promote reliance on coal and natural gas by continuing
the Domestic Market Obligation (DMO)24, which has detracted from renewable energy
development. 25 Challenging regulatory policies and lack of fiscal incentives have further suppressed
interest in renewable energy. IEEFA has identified several challenges and barriers regarding
regulations and their implementation that reduce investors’ willingness to participate in the
renewable energy sector:

• Mandatory partner scheme

• Restrictions on the transfer of ownership rights
• Deliver-or-pay scheme

• Renewable energy tariffs

• Local content requirements (LCRs)

• Carbon credit incentives

• Procurement procedures

Mandatory Partner Scheme

During the presidency of Joko Widodo, GOI launched an initiative to build 35,000MW new generation
capacity that would attract billions of dollars of foreign investment. To accelerate the development of
electricity infrastructure, the government issued PR No. 14 of 2017, which allowed IPPs to
collaborate with any PLN subsidiary that had at least 51% of its shares owned by the national utility,
either directly and/or through a subsidiary of PLN.26

There have been differing interpretations of the regulation. PLN has taken it to mean that one of its
subsidiaries must be appointed as a majority partner and have a minimum 51% ownership stake in
the IPP’s renewable energy project company. Alternatively, some stakeholders infer that IPPs can
collaborate with any of PLN’s subsidiaries of which the national utility has at least 51% ownership,
and the ownership will depend on PLN and/or the PLN subsidiary’s financial capability to contribute
to the project. However, that does not mean PLN can own 51% of the shares in the project
company.27

24
Kontan. Up 3.2% Indonesia Targets Coal DMO at 220 Million Tons in 2024. 18 February 2024.
25
IEEFA. Pathways to Financial Sustainability for PLN through Renewable Energy Development. May 2024.
26
A “subsidiary” is any corporate entity, at least 51% of whose shares are owned by PLN, either directly and/or through a PLN
subsidiary. Examples of such entities include, PT Indonesia Power, PT Nusantara Power, PT PLN Batam, or any majority state-held
subsidiary established by PLN.
27
This information was provided to IEEFA on the condition of confidentiality through conversations held with several private
developers engaged in renewable energy projects proposed under current PLN policies.
Unlocking Indonesia’s Renewable Energy Investment Potential 19

Figure 12: Project Structure Under the 51% Mandatory Partner Mechanism

Source: IEEFA.

Equity co-ownership demands in recent renewable project tenders discourage international bidders.
With a 51% shareholding, PLN would become the de facto owner and the ultimate decisionmaker on
how the project would be developed and financed, as well as on how dividends would be distributed.
IPPs with less than 50% ownership rights, would have less control and limited right to run the project
the way they want.

Though it appears advantageous for GOI and PLN, this scheme has several weaknesses that can
cause problems for the government and the national utility.

First, PLN would have to accept the project’s financing risk. To implement the project and maximize
return on equity for investors, the project needs to raise debt to meet the required investment.
Project level debt is usually aggregated based on the credit quality of the project structure. This
includes the underlying contract’s strength, the off-taker’s credit quality, and the project sponsor’s
quality. The quality of sponsors is measured based on their implementation experience, operational
management, and financial strength. PLN, with a 51% ownership position, would be responsible for
leading debt management and providing representation to lenders.

Second, as the 51% owner, PLN would either have to raise 51% of the cash equity for the investment
or provide some other value-in-kind contribution instead of cash. As PLN has limited cash funds28
and relies heavily on subsidies and compensation from the government, it would be difficult for PLN

28
IEEFA. Pathways to Financial Sustainability for PLN through Renewable Energy Development. May 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 20

to meet the cash equity requirement. PLN would rely on their partner/IPP’s financial capability
through loan mechanisms to meet the 51% requirement. 29

PLN’s value-in-kind contributions instead of cash would also impose a carried interest requirement
for investors as it would seek grants of carried interest and/or shareholder loans from the private
bidder to make up its 51% equity contribution. 30 This is a significant tax on project economics for
private participants.

For investors to achieve a target return, they would either need to charge a higher tariff, cut costs, or
reduce returns in direct proportion to the carried interest requirement. These factors make it
challenging for prospective investors to earn appropriate investment returns. The few projects that
have reached completion indicate that some investors have agreed to PLN’s requests, although the
details of the terms remain undisclosed. Such a lack of transparency makes it difficult for other
investors to weigh the risks or benefits of this framework.

Third, there would also be a conflict of interest between PLN’s role as project owner and off-taker. In
case of any project underperformance, it would be difficult for PLN to impose penalties on the
operating company as it would be penalizing itself as an equity shareholder. Similarly, if PLN is
engaged in a breach of contract as an off-taker, it could prevent the project company from calling an
event of default or enforcing protections since it would be a blocking shareholder in voting. This is an
undesirable situation for both investors and the utility as it encourages overlooking
underperformance and effectively undermines the IPP program premise.

Recently, PLN has applied the same structure with a lower ownership percentage (up to 35% equity)
for renewable energy projects under the direct selection procurement mechanism. PLN would assign
its subsidiary to become the minority shareholder in the project company and develop the project
with the IPP. For example, the recent diesel replacement procurement stipulates that a PLN
subsidiary will take a 15% equity interest in the project company established by a successful
bidder.31

These partnership schemes mean that PLN would become either a minority or a majority
shareholder in all new renewable energy projects. Even if PLN is a minority shareholder, there would
still be a conflict of interest between its role as project owner and off-taker.

29
PLN Nusantara Power. Partnership.
30
This information was provided to IEEFA on the condition of confidentiality through conversations held with several private
developers engaged in renewable energy projects proposed under current PLN policies.
31
JETP Indonesia. Comprehensive Investment and Policy Plan 2023. November 2023. Page 188.
Unlocking Indonesia’s Renewable Energy Investment Potential 21

Figure 13: PLN’s Recent Joint Investments with IPPs in Renewable Energy Projects

Source: PLN; IEEFA.

This arrangement should be adjusted through discussions with stakeholders in the renewable energy
market to find a new strategy where the government can balance its desire for ownership without
limiting the advantages of private sector participation.

Restrictions on the Transfer of Ownership Rights

Since 2017, GOI has prohibited the transfer of project ownership rights before the commercial
operation date (COD). This resulted from previous experiences with IPPs where several could not
reach financial close 32 and sold the project company to third parties not part of the original tender
process. Under the revised policy, transfers are permitted before COD if the transfer is to an affiliate
where the sponsor owns more than 90% of the shares; however, the sale of equity to third parties is
prohibited. In the case of post-COD ownership, a shareholding transfer is also subject to PLN’s
approval and must be reported to the Ministry of Energy and Mineral Resources.

Limited access to supplementary investment capital for projects is one of the challenges arising from
these restrictions. Developers take on substantial costs and risks when putting together projects.
They often seek to sell equity shares to financial investors or partners who are interested in
renewable energy projects but do not want to undertake development risks. With the money raised
from these partial sales, developers often invest the proceeds into new projects, thus continuing the
growth cycle. Equity exits are a key part of the renewable energy investment process.

This regulation has slowed private investment in the renewable energy sector, especially Foreign
Direct Investment (FDI) which seeks to expand its interests by making physical investments and
purchases in other countries. FDI can help accelerate the energy transition by providing the financial
and technological resources needed to support green growth. FDI usually purchases, leases, or
otherwise acquires assets in the host country including facilities such as plants, office space, or other

32
Kontan. Banyak IPP EBT sulit capai financial closing. 10 January 2018.
Unlocking Indonesia’s Renewable Energy Investment Potential 22

buildings. FDI can take two forms, greenfield and brownfield through mergers and acquisitions
(M&A).

Figure 14: Comparison Between Greenfield and Brownfield Investments

Source: IEEFA.

Different financial institutions undertake varying levels of risk, ranging from high-risk greenfield
investing to less risky investment by acquiring established projects through M&A. The type of
investors willing to fund greenfield assets or early-stage infrastructure development expect a higher
return for taking on more risks in developing the renewable energy project at the early stages; before
selling it to other investors when the project obtains the PPA or reaches financial close or the
commercial operation date. Risk-averse investors are usually willing to purchase a project when a
PPA is secured or is nearing its financial close.
Unlocking Indonesia’s Renewable Energy Investment Potential 23

Figure 15: Project Milestones

Source: IEEFA.

FDI is essential to accelerate renewable energy investment as they are willing to invest pre-financial
close when risk is high. Greenfield investment and cross-border M&As are two important entry points
for foreign investors. Therefore, it is crucial for investors to be able to enter the project during the
PPA, financial close, or even during construction.

Given the US$1tn investment required to meet Indonesia’s NZE targets, the government should
consider encouraging FDI. Green portfolio investors could raise green/sustainability bonds, further
boosting Indonesia’s profile as an attractive sustainable investment destination for recycling capital,
investing in projects, and building portfolios.

While ensuring that the project sponsor can meet its commitments and deadlines leading up to COD
is important, it is also essential to guarantee ease of doing business. Therefore, the relaxation of this
regulation is critical to attract private investment to Indonesia. Given that there are usually four key
timeframes for project development, which are pre-construction, construction, initial operation, and
later, in-operation, IEEFA suggests:

• Maintaining the originating sponsor group as majority shareholders (≥75%) until the financial
close date
• Maintaining the originating sponsor group as majority shareholders (≥51%) through an initial
operation period (say, 2-3 years post-COD) to prove project reliability
• No restriction on later in-operation sales
Unlocking Indonesia’s Renewable Energy Investment Potential 24

Deliver-or-pay Scheme
During President Susilo Bambang Yudhoyono’s term, a contractual ‘take-or-pay’ mechanism was
used to attract power generation project investment to Indonesia. Take-or-pay means that PLN, as
the electricity off-taker, has the obligation of either taking delivery of electricity from the IPP at some
established minimum rate, or must pay a specified penalty amount for not accepting delivery. This
provides the IPP with a guaranteed base cash flow which helps finance the project. However, there is
a downside, particularly for PLN, which must purchase the power generated by the private sector
regardless of demand.

PLN is currently experiencing high excess power generation capacity, with a reserve margin (or
generation above maximum demand) exceeding 40%. With the take-or-pay scheme, PLN has been
burdened for years, and continues to cover the excess supply of electricity generated from IPPs.33
To ease PLN’s financial burden, Indonesia has introduced a new scheme of ‘deliver-or-pay’ with an
annual contracted energy (ACE) arrangement for renewable energy projects. 34

While take-or-pay requires PLN to absorb electricity from the IPP at a certain percentage of the total
electricity generation capacity, deliver-or-pay requires the IPP to supply a certain amount of
electricity to PLN.

Apart from the deliver-or-pay system, GOI also introduced other incentives and penalty schemes.
The IPP must pay a fine to PLN to compensate for the utility’s losses if PPA obligations are not met,
or there is a delay in the COD, or ACE requirements are not met due to generator disruption.35
Similarly, PLN is required to pay a penalty for any failure to absorb electricity based on the agreed
ACE (except under natural force majeure). IPPs also have the right to incentives if PLN requests
reaching COD ahead of schedule.

Although the deliver-or-pay system for renewable energy projects may protect PLN from the greater
financial burden of the take-or-pay scheme36, it is considered less attractive than the take-or-pay
commitment for fossil fuel plants, which compels PLN to purchase excess electricity from those.
Penalties directed at renewable energy investors further increase the risk factor in renewable energy
investment.

Since these regulations have already been announced and implemented, the detailed terms and
conditions, as well as penalty calculations, should be reevaluated with investors involved in
determining related formulas and indicators.

33
IEEFA. Pathways to Financial Sustainability for PLN through Renewable Energy Development. May 2024.
34
MEMR Regulation No. 10/2017, as amended by MEMR Regulations No. 49/2017 and 10/2018.
35
MEMR. Energi Primer Setempat sebagai Efisiensi Pembangkitan Tenaga Listrik. 10 April 2017.
36
IEEFA. Pathways to Financial Sustainability for PLN through Renewable Energy Development. May 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 25

Renewable Energy Tariffs

Power purchase prices are the most significant factor in project investment decisions. Despite the
push to have a feed-in-tariff (FIT) for renewable energy projects, GOI introduced a new ceiling tariff
which varies depending on the type of technology and geographic location. The tariff is staggered
over two periods, with a higher ceiling tariff for the first period (years 1 – 10) to enable the IPP to
recover its costs and pay debts, and then lower for the second period (years 11 – 30).37 There are
several concerns regarding tariffs including an almost 50% reduction of the second period tariff, the
debt tenor may be more than 10 years, and there is no consideration of increasing operational costs
due to inflation.

Furthermore, PLN’s renewable energy project procurement through direct selection or direct
appointment results in even lower tariffs.38 Direct selection is a competitive method in which at least
two offers or bids are compared, and the winner is determined by the lowest tariff proposed, thus
decreasing tariffs even further. Auctions for new renewable energy generation projects are
unpopular because of unattractive electricity prices.39 Under direct appointment, the tariff is
negotiated and should not exceed the ceiling tariff under the stated regulation. Low tariffs make it
difficult for IPPs to achieve return on equity or profit targets and cause projects to be unprofitable.

Figure 16: Renewable Energy Tariffs (in cUS$/kWh)

Source: Presidential Regulation Number 112 of 2022; CNBC Indonesia; Bisnis; CNBC Indonesia; Global Energi.

37
GOI. Presidential Regulation Number 112 of 2022.
38
GOI. Presidential Regulation Number 112 of 2022.
39
Kontan. Lelang Proyek Pembangkit EBT Kerap Gagal Terjegal Harga Listrik yang Rendah. 12 September 2023.
Unlocking Indonesia’s Renewable Energy Investment Potential 26

PLN’s financial situation is affected by its dependence on subsidies and compensation from the
government and its reliance on fossil-fuel generation. PLN is under pressure to rely less on the
government and reduce its overall production costs. These dynamics limit PLN’s ability to sign PPAs
for renewable projects.40 If the PPA tariff is assessed to be higher than the current production cost at
the site, then PLN’s recommendation to MEMR is to reject the project conditionally. If MEMR agrees
to fund the difference between the required tariff and the cost of generation, then PLN will accept the
project, although it is unclear where the funds would come from.41 The renewable energy tariff must
compete with fossil fuel generation which is heavily subsidized and supported by the Domestic
Market Obligation (DMO) regulation which aids coal-fired power plants in keeping generation costs
affordable.42

Current regulation caps renewable energy tariffs which reduce the attractiveness of such projects.
Renewable energy tariff adjustment and DMO reduction are necessary considering regional tariffs.
For example, the Philippines offers around US$16c/kWh for solar projects. 43 GOI should also allow
bidders to compete transparently with other sources of energy, including fossil fuels, on an
unsubsidized basis. Failing to determine competitive tariffs will result in potential investors going to
other countries in the region.

Local Content Requirements (LCRs)

LCRs have been established by the GOI to use domestic energy inputs in industrial production and
encourage the development of the local industry. Renewable energy projects in Indonesia are also
subject to the LCRs with targets set for 2024 for solar power (40%), bioenergy (40%), and
geothermal (35%).44

Even though the LCRs target for solar projects is 40% in 2024, there is a requirement of 41% for
centralized on-grid solar and 44% for centralized off-grid solar (Figure 16).

40
IRENA. Renewable Energy Prospects: Indonesia. March 2017.
41
IRENA. Renewable Energy Prospects: Indonesia. March 2017.
42
Kompas. DMO Bikin RI Ketergantungan Batu Bara, Susah “Move On” Ke Energi Terbarukan. 05 June 2024.
43
Statista. Approved Feed-In-Tariff (FIT) Rates in the Philippines as of January 2024, by Energy Source. March 2024.
44
Ministry of Industry. Buku Pedoman Peningkatan Penggunaan Produk Dalam Negeri (P3DN). 2020.
Unlocking Indonesia’s Renewable Energy Investment Potential 27

Figure 17: Indonesian Local Content Requirements for Solar Photovoltaic (PV) Installation

Source: IEEFA; Mentari.

Though aimed at boosting the local industry, the LCRs have hindered the acceleration of renewable
energy development since the local industry lacks sufficient capacity and relies heavily on imported
materials to manufacture equipment. Additionally, the limited number of renewable energy projects
in Indonesia hampers the development of local production, making it even more challenging and
unfeasible for the renewable manufacturing industry to scale up.

Stringent LCRs, disadvantageous conditions, and limited proposed capacity additions restrict solar
industry development. Some domestic module manufacturing facilities, primarily focused on exports,
could supply the domestic market. However, due to the policy-constrained lack of demand, there are
few balance of systems solar equipment suppliers, manufacturers, and contractors. Consequently,
the LCRs policy has had the unintended effect of increasing investment costs and causing initial
system costs in Indonesia to be significantly higher than global market averages.45

Domestically made solar modules are 30% - 45% more expensive than imported products. Indonesia
also does not have the local capacity to support the LCRs46 conditions, and many solar technology
inputs must be imported. Demand is low and political uncertainty prevents manufacturers from
committing to investing in plants before demand materializes.

Realizing that these strict requirements hinder the acceleration of investment, the Ministry of Industry
has proposed relaxing LCRs. Discussions are currently ongoing with the Ministry for Maritime and
Investment Affairs.47 The relaxation of the LCRs is important to attract investment in the renewable
energy sector and for IPPs to complete projects by using imported materials. GOI should assess the
local market for certain technology based on its availability before determining the minimum
requirement for local content.

45
IEEFA. The Asia Pacific Renewable Supply Chain Opportunity. June 2024.
46
Kontan. Investasi PLTS di Tanah Air Terhambat Kebijakan TKDN. 20 May 2024.
47
The Jakarta Post. Industry Ministry to Ease Local Content Rule on Renewable Projects. 20 May 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 28

Carbon Credits Incentives

Carbon credits are permits that allow companies to emit a certain amount of carbon. High-quality
carbon credits (or carbon offsets) are an increasingly important part of the net-zero toolkit for
organizations, particularly within hard-to-abate, high-emitting sectors such as aviation, cement, steel,
and oil and gas. Indonesia has the largest nature-based solution potential of any country globally,
translating to over 1.5 billion tonnes of carbon dioxide (GtCO2) in carbon credit potential. With an
increasing number of corporations committing to emissions reductions, the demand for all types of
carbon credits in Indonesia is projected to grow tenfold from 2022 to 2030, reflecting a global
trend.48

Indonesia’s carbon market momentum is accelerating with the recent launch of the Indonesia
Carbon Exchange (IDX Carbon) for the issuance of the Carbon Pricing Mechanism 49, marking
another milestone in the country’s commitment to achieve NZE by 2060. 50

Private investors who lead the clean energy transition consider leveraging the carbon credit market
to gain additional revenue streams. Selling carbon credits in both domestic and international markets
from renewable energy generation could enhance returns and become a viable source of extra
income for developers. This extra cash flow could potentially allow developers to lower their tariffs on
power sales to PLN.

Currently, the carbon market in Indonesia is emerging, and prices are low, which is insufficient to
drive investment decisions. However, when examining markets with more mature carbon pricing
mechanisms, there is a clear incentive for Indonesian policymakers to consider carbon credits as a
vital tool in attracting private investors to finance the US$1tn required for clean energy development.

48
McKinsey & Company. Indonesia’s Green Powerhouse Promise: Ten Bold Moves. 22 April 2024.
49
GOI. Presidential Regulation Number 98 of 2021. October 2021.
50
PricewaterhouseCoopers Indonesia. Indonesia’s Carbon Pricing. 2023.
Unlocking Indonesia’s Renewable Energy Investment Potential 29

Figure 18: Price of Carbon, 2024

Source: World Bank.

However, under recent PPAs with PLN, any renewable energy market-based instruments (including
carbon credits and renewable energy certificates) must be fully allocated to PLN, and hence IPPs
cannot benefit from carbon credits. 51

Carbon credits have a value that can be traded within the carbon market. Carbon credit shares
between PLN and the IPP partner could provide additional income that can be included in the
business plan calculation. This may allow developers to offer lower tariffs during the concession
period.

51
Based on discussions with several IPPs during the Solar Week Indonesia 2024 conference held in Jakarta on 06 June, 2024.
Unlocking Indonesia’s Renewable Energy Investment Potential 30

Procurement Procedures
Transparency is a core principle of high-quality public procurement. Since 2017, the procurement of
renewables, especially solar and wind, has been done in two stages: Pre-Qualification (PQ) and
proposal submission.52 This process has several concerns, especially regarding transparency, which
has diminished IPP participation.

Pre-Qualification Process. To be able to participate in the PLN procurement process, IPPs need to
be enrolled on a List of Selected Providers (DPT). The DPT list varies by renewable energy
technology and IPPs must apply separately for different types of renewable energy, meeting certain
administrative, financial, and technical criteria.

The process is similar for all types of renewable energy technologies, with the main difference being
that some applications are open all year long, while some are only available for a specific period.
Under PR No. 112, PLN is required to open a DPT application every three months. Although PLN has
published the DPT process on an e-procurement website, the procedure is complicated.

Figure 19: DPT Application Process

Source: PLN; RUPTL; IEEFA.

There is no clear timeline provided for the application process which makes it difficult to estimate
how long PLN would take to provide feedback. Sometimes, IPPs may receive feedback within a few
weeks, while in some cases, it could take over a year.

Proposal Submission. PLN begins the tender process by issuing a Request for Proposal (RfP) that
is only available to a DPT-registered company. Under PR No. 112, the procurement lead time should
be around 90 days for direct appointment and 180 days for direct selection.

52
JETP Indonesia. JETP Comprehensive Investment and Policy Plan. November 2023.
Unlocking Indonesia’s Renewable Energy Investment Potential 31

Figure 20: Overview of the Tender Process

Source: IEEFA.

However, there is no guarantee that the procurement process will adhere to the timeframes
provided. The procurement process from the issuance of an RfP until the signing of the PPA could
happen more than 180 days later, or the tender could be canceled altogether for no apparent
reason. For example, the de-dieselization tender to be held in 202253 was canceled by PLN even
though several investors had submitted proposals. 54 Investors who have incurred tender preparation
costs, providing details such as an initial study, bid bond, and legal documents, would have to record
these expenses as sunk costs.

Furthermore, it is unclear which project tender will be initiated by PLN as several recent open
tenders have not followed the timeline provided in the RUPTL. RUPTL is essential for investors to
ascertain which renewable energy projects the government is encouraging. A project absent from
the approved RUPTL indicates that it could be canceled or disallowed at any time. This makes it
difficult for investors to commit large sums of finance to something that may not eventually be
approved.

Unclear Bid Bond Requirements. An important PLN requirement is that the IPP must submit a bid
bond to participate in the tender process.55 The bid bond acts as a form of insurance for PLN,
guaranteeing that the utility will be compensated if the winning bidder fails to meet obligations. A bid
bond is submitted with the IPP’s proposal. Bid proposals without a valid bond are rejected, and if the
IPP is awarded the project, a performance bond must be provided at the PPA signing.

53
The Jakarta Post. PLN Opens Bid to De-dieselize 212 MW of Power Plants. 28 March 2022.
54
PLN announced an open bid to convert 212MW of diesel power plants spread across 183 locations in the Java-Madura and
Kalimantan Island in early 2022. However, there was no further update after the open bid announcement. In 2023, PLN announced
another de-dieselization 116MW phase 1 program (Kontan. 26 April 2023) which indicated that the previous 212MW de-dieselization
project was canceled.
55
PLN. Kebijakan Strategis Pengadaan Barang Jasa 2023. July 2023.
Unlocking Indonesia’s Renewable Energy Investment Potential 32

IPPs face problems due to unclear procedures and differing bid bond requirements between
tenders. Additionally, to obtain a bid bond from a bank or third-party guarantor, sometimes IPPs need
to provide collateral in the form of cash or deposits of the same amount as the bond, which needs to
be locked in for a certain period. 56

Transparency of the bid bond requirements is crucial to attract investors to participate in the PLN
procurement process. IEEFA suggests that PLN provide clear guidelines regarding the bid bond
requirements for all renewable energy tenders’ procurement.

Transparency and clear procedures are the key aspects to obtaining investors’ trust. Having clear
criteria, consistent requirements, and objective, well-disclosed means for evaluation gives investors’
confidence that a high-quality proposal would be given fair consideration. This encourages them to
invest the money, time, and resources needed to prepare bids.

One-on-one negotiations, unclear timelines, and unapproved projects, undermine the procurement
process, leading to decreased investor interest, less competition, and uneven outcomes. It is also
time-consuming for all parties involved, particularly for PLN. Given the scope, scale, and urgency of
Indonesia’s energy transition needs, PLN and the government should reform procurement
procedures to reassure potential investors and attract more investment.

Conclusion
With its strong economic growth and substantial untapped renewable energy potential, Indonesia has
positioned itself as a contender for investment especially in renewable energy development.
However, while the rest of the world has made clear strides towards renewable energy, Indonesia
has lagged in comparison. Investment in renewable energy has stagnated for the past seven years.
Indonesia was only able to attract around US$1.5bn in 2023 which translated to a mere 574MW of
additional renewable energy capacity.

IEEFA has identified several challenges in Indonesia which raise concerns among potential investors.
The Government of Indonesia should undertake an immediate review of its planning, procurement,
and investment processes to increase the attractiveness of renewable energy development. Private
investors would be encouraged to enter the Indonesian market if there were clear and concise
procurement procedures, as well as consistency and reliability in the implementation of current
regulations. By reevaluating the mandatory partnership scheme, electricity purchase tariffs, carbon
credits incentives, and the local content requirements policy, the government and PLN can ensure
the return on investment is appealing for investors to accelerate the country’s transition to renewable
energy and meet its climate targets.

56
This information was provided to IEEFA on the condition of confidentiality through conversations held with several private
developers engaged in renewable energy projects proposed under current PLN policies.
Unlocking Indonesia’s Renewable Energy Investment Potential 33

Table 1: Key Recommendations

Investment Unattractiveness Factors Key Recommendation

GOI should clarify each of the relevant regulations to provide certainty for
Policy and regulatory unpredictability
potential investors.

Mandatory partner scheme A new strategy should be devised where the government can participate in
ownership without limiting the advantages for the private sector.
Restrictions on the transfer of These rules should be adjusted to aid private sector investors in raising
ownership rights additional capital for projects.

The implementation of penalties on investors increases investment risks. The

terms and conditions of this policy, as well as the calculation of penalties
Deliver-or-pay scheme
should be reviewed. Investors should be involved in determining formulas and
indicators.

Current regulation caps renewable energy tariffs which reduce the

Renewable energy tariffs attractiveness of projects. Tariff adjustment is necessary when comparing the
rest of the Southeast Asia region. Failing to determine competitive tariffs may
drive potential investors to other markets.

Availability of certain renewable energy technology in the local market, such

as solar panels and wind turbines, is limited. However, there are numerous
Local content requirements opportunities to participate in balance of systems supply and project
implementation. GOI should assess the local market before determining the
minimum requirement for local content.

Carbon credits incentives Shared carbon credits between PLN and IPPs would provide additional
income which could be used to lower tariffs during the concession period.
Transparency is the key to obtaining investors’ trust. Transparent and well-
Renewable energy procurement
defined procedures in procurement will provide assurance and certainty for
procedures
potential investors and result in fair outcomes.

Source: IEEFA.
Unlocking Indonesia’s Renewable Energy Investment Potential 34

About IEEFA
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy
markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse,
sustainable and profitable energy economy. www.ieefa.org

About the Author

Mutya Yustika

Mutya Yustika is an Energy Finance Specialist, Indonesia, covering the energy transition, economics,
finance and politics of the Indonesia electricity market. She has experience in accounting, financial
and investment analysis, with a focus on the coal and renewable energy sectors. Prior to joining
IEEFA, she played a key role in overseeing and supporting renewable energy projects in Indonesia
and Vietnam. [email protected]

This report is for information and educational purposes only. The Institute for Energy Economics and
Financial Analysis (“IEEFA”) does not provide tax, legal, investment, financial product or accounting advice.
This report is not intended to provide, and should not be relied on for, tax, legal, investment, financial
product or accounting advice. Nothing in this report is intended as investment or financial product advice,
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and it is subject to change without notice.