01. Indonesia assessment and key findings of national enabling environment
Assessment and Key Findings of the Current
National Enabling Environment for Sustainable
Energy
Consultative Workshop on ‘Indonesia National Strategy to Increase Affordability of
Sustainable Energy Options and South-South Cooperation’
12-13 May 2014,
Jakarta, Indonesia
Electricity Business Reforms
1985
Electricity Law
2002
Electricity Law
2009
Electricity Law
• State owned electricity company PLN was given exclusive right for
transmission, distribution & supply of electricity
• IPPs were allowed to generate electricity
• Tried to liberalize the electricity sector by allowing IPPs to sell
electricity directly to the consumers
• However this law has been cancelled by constitutional court in 2004
• IPPs were permitted to generate and sell electricity to “Electric Power
Business License” holders with approval of MoMER
• First right of refusal for carrying distribution business was given to PLN
Important Laws and Regulations
Presidential Regulation No.
5/2006
Law No. 30 (2007)
Presidential Instruction No. 1
(2006)
• Sets a target for share of renewable energy (RE) in the country’s energy
mix at 17% by 2025.
• The target guides in preparing a set of laws and regulations for
encouraging generation from RE sources.
• The central government and local governments to promote use of new and
renewable energy within their authorities.
• They should offer incentives for provision and use of renewable energy till
it become mature.
• This provision makes it more likely that sustainable energy will be
accessible and will be used.
• Provides a framework for coordination among ministries for development,
supply, and use of biofuels.
• This helps in reducing the lack of coordination among various departments
on bio-fuels development.
Important Laws and Regulations (Contd.)
Regulation No. 32 (2008),
MEMR on Production, Trade
and use of Bio-fuels
Law No. 30 (2009) on Electricity
Presidential Regulation No. 4
(2010)
Regulation No. 4 (2012)
• Prepares targets for phased introduction of biofuels up to 2025 in
transport, industry and electricity sector, and provides fiscal and non-fiscal
incentives.
• This encourages the use of biofuels.
• Opened up power supply business to the private sector .
• which is likely to make the distribution business more efficient.
• Gives an opportunity to the state-owned utility (PLN) to build power plants
using RE jointly with the private sector .
• creates opportunities for accelerated private sector investment in RE.
• Mandates PLN to buy the power generated by small-scale and mediumscale (up to 10 MW) RE based power plants
• Enhances the chance of participation of small-and medium-scale
generators in the electricity market.
Important Laws and Regulations (Contd.)
Through various regulations, MEMR has determined the price
for various renewable energy technologies (RETs), which
reduces the risk of investing in the RE sector.
One significant challenge is the lack of coordination among
different ministries in formulating laws. This some times result in
delay, or cancellation of projects. For example, geothermal
development faces barriers from regulations of the forestry
department. More than 30% of Indonesia’s geothermal
resources are in forest conservation areas; but forest
regulations restrict the exploration of these sites.
Sustainable Energy Program
Energy Self-sufficient Village
Program (ESSV)
• Encourages the use of locally available resources, especially biomass for
sustainable energy development.
• It makes sustainable energy options more accessible to rural areas.
• Intends to improve infrastructure and economic condition of the villages
• Challenges facing the ESSV program – Many of the ESSV projects face lack of
working capital, access to market for products, and insufficient managerial
guidance to beneficiaries of the facilities.
Solar Home System Program
• Government run programme which attempts to fulfill the need for providing
electricity to rural households.
• Challenges facing the Solar Home System Program – Lack of after-sales service
and maintenance, and inadequate monitoring and evaluation by the implementing
agencies.
Sustainable Energy Programs
Domestic Biogas Program
• Promotes use of biogas digesters in Indonesia.
• Challenges facing the Domestic Biogas Program – The need to pen
animals for effective collection of cow dung, owning sufficient number of
cattle for continuous flow of raw material to the biogas plants, and high
initial costs are some of the challenges.
The Fast-track Programs
• The first program emphasized on gas and coal based power
generation and second program expand the share of sustainable
energy based capacity addition
• Creates a conducive environment for massive investments in the
sustainable energy sector at a faster pace.
Fiscal Incentives
Income tax exemptions provided by the government encourage
investment in the RE sector.
Examples from many countries like India and USA show that
accelerated Depreciation and Investment Tax Credit benefit
facilitate investment at the early stages of development.
Import duty and VAT exemptions encourage sustainable
energy investment.
Direct subsidies accelerate bio-fuel use in the transportation
sector.
Financial Incentives
Introduction and implementation of feed-in tariff and a business
viability guarantee for PLN are good instruments in attracting more
IPPs to the power generation sector in Indonesia.However,the support
of business viability guarantee shall be extended to all type of
projects rather than limited the scope up to projects under the
second fast track crash program.
Geothermal fund facility and infrastructure guarantee funds are
suitable for large-scale deployment of renewable energy.
Subsidized loans can accelerate the growth of biofuels.
Subsidized loans for small-scale investors, especially, for off-grid
solutions, should be encouraged.
Provision of Finance
Green financing benefits sustainable energy projects.
However , size of such fund should be increased. .
Proper use of clean technology fund created by
international donor agencies is improving deployment of
geothermal power plants.
Opportunities of finance from international lenders such as
Japan Bank for International Cooperation (JBIC) and Korea
Export Import Bank (KEXIM) can be used for sustainable
energy development.
Permits and Licenses
An Indonesian power project requires a large number of permits from a variety
of government departments and ministries.
Main permits required are :
Investment principle license
Business license
Approval of the environmental impact assessment (AMDAL)
Location permit
Electricity business license
Certificate of operational worthiness
Licensing procedure is lengthy and it consumes lot of time.
Many times licenses are given to incompetent developers because of
inadequate knowledge and education on the part of the local authorities on
license granting techniques. (iisd investment incentives for RE in Indonesia)
Negative Investment List
Presidential Regulation No.36 (2010) – Regulates
FDI in the power sector.
95% foreign investment is allowed in power plants having more than
10 MW capacity.
For power plants of 10 MW capacity and less, the foreign investor
requires to form a partnership with a domestic entity.
Investments in power plants of less than 1 MW capacity have been
reserved for micro, small and medium enterprises and cooperatives.
The requirement of minimum 5% domestic
shareholding for power plants with more than 10
MW capacity can delay projects.
Bidding Process
Tariff based bidding is used for choosing an
investor for a new project.
Many times, the bidding process fails to take into
account the technical and financial capabilities of
local enterprises while awarding the project.
Consequently, projects are delayed.
Transaction Cost of Project Implementation
Decentralized system of governance is followed in the
country with local governments having the right of
granting licenses to renewable energy developers.
Most local governments have very limited technical
capacity and understanding of the implications of
various energy scenarios.
Consequently,
decision-making
gets
delayed,
increasing transaction cost to investors.
National Enabling Environment for Sustainable
Energy
Consultative Workshop on ‘Indonesia National Strategy to Increase Affordability of
Sustainable Energy Options and South-South Cooperation’
12-13 May 2014,
Jakarta, Indonesia
Electricity Business Reforms
1985
Electricity Law
2002
Electricity Law
2009
Electricity Law
• State owned electricity company PLN was given exclusive right for
transmission, distribution & supply of electricity
• IPPs were allowed to generate electricity
• Tried to liberalize the electricity sector by allowing IPPs to sell
electricity directly to the consumers
• However this law has been cancelled by constitutional court in 2004
• IPPs were permitted to generate and sell electricity to “Electric Power
Business License” holders with approval of MoMER
• First right of refusal for carrying distribution business was given to PLN
Important Laws and Regulations
Presidential Regulation No.
5/2006
Law No. 30 (2007)
Presidential Instruction No. 1
(2006)
• Sets a target for share of renewable energy (RE) in the country’s energy
mix at 17% by 2025.
• The target guides in preparing a set of laws and regulations for
encouraging generation from RE sources.
• The central government and local governments to promote use of new and
renewable energy within their authorities.
• They should offer incentives for provision and use of renewable energy till
it become mature.
• This provision makes it more likely that sustainable energy will be
accessible and will be used.
• Provides a framework for coordination among ministries for development,
supply, and use of biofuels.
• This helps in reducing the lack of coordination among various departments
on bio-fuels development.
Important Laws and Regulations (Contd.)
Regulation No. 32 (2008),
MEMR on Production, Trade
and use of Bio-fuels
Law No. 30 (2009) on Electricity
Presidential Regulation No. 4
(2010)
Regulation No. 4 (2012)
• Prepares targets for phased introduction of biofuels up to 2025 in
transport, industry and electricity sector, and provides fiscal and non-fiscal
incentives.
• This encourages the use of biofuels.
• Opened up power supply business to the private sector .
• which is likely to make the distribution business more efficient.
• Gives an opportunity to the state-owned utility (PLN) to build power plants
using RE jointly with the private sector .
• creates opportunities for accelerated private sector investment in RE.
• Mandates PLN to buy the power generated by small-scale and mediumscale (up to 10 MW) RE based power plants
• Enhances the chance of participation of small-and medium-scale
generators in the electricity market.
Important Laws and Regulations (Contd.)
Through various regulations, MEMR has determined the price
for various renewable energy technologies (RETs), which
reduces the risk of investing in the RE sector.
One significant challenge is the lack of coordination among
different ministries in formulating laws. This some times result in
delay, or cancellation of projects. For example, geothermal
development faces barriers from regulations of the forestry
department. More than 30% of Indonesia’s geothermal
resources are in forest conservation areas; but forest
regulations restrict the exploration of these sites.
Sustainable Energy Program
Energy Self-sufficient Village
Program (ESSV)
• Encourages the use of locally available resources, especially biomass for
sustainable energy development.
• It makes sustainable energy options more accessible to rural areas.
• Intends to improve infrastructure and economic condition of the villages
• Challenges facing the ESSV program – Many of the ESSV projects face lack of
working capital, access to market for products, and insufficient managerial
guidance to beneficiaries of the facilities.
Solar Home System Program
• Government run programme which attempts to fulfill the need for providing
electricity to rural households.
• Challenges facing the Solar Home System Program – Lack of after-sales service
and maintenance, and inadequate monitoring and evaluation by the implementing
agencies.
Sustainable Energy Programs
Domestic Biogas Program
• Promotes use of biogas digesters in Indonesia.
• Challenges facing the Domestic Biogas Program – The need to pen
animals for effective collection of cow dung, owning sufficient number of
cattle for continuous flow of raw material to the biogas plants, and high
initial costs are some of the challenges.
The Fast-track Programs
• The first program emphasized on gas and coal based power
generation and second program expand the share of sustainable
energy based capacity addition
• Creates a conducive environment for massive investments in the
sustainable energy sector at a faster pace.
Fiscal Incentives
Income tax exemptions provided by the government encourage
investment in the RE sector.
Examples from many countries like India and USA show that
accelerated Depreciation and Investment Tax Credit benefit
facilitate investment at the early stages of development.
Import duty and VAT exemptions encourage sustainable
energy investment.
Direct subsidies accelerate bio-fuel use in the transportation
sector.
Financial Incentives
Introduction and implementation of feed-in tariff and a business
viability guarantee for PLN are good instruments in attracting more
IPPs to the power generation sector in Indonesia.However,the support
of business viability guarantee shall be extended to all type of
projects rather than limited the scope up to projects under the
second fast track crash program.
Geothermal fund facility and infrastructure guarantee funds are
suitable for large-scale deployment of renewable energy.
Subsidized loans can accelerate the growth of biofuels.
Subsidized loans for small-scale investors, especially, for off-grid
solutions, should be encouraged.
Provision of Finance
Green financing benefits sustainable energy projects.
However , size of such fund should be increased. .
Proper use of clean technology fund created by
international donor agencies is improving deployment of
geothermal power plants.
Opportunities of finance from international lenders such as
Japan Bank for International Cooperation (JBIC) and Korea
Export Import Bank (KEXIM) can be used for sustainable
energy development.
Permits and Licenses
An Indonesian power project requires a large number of permits from a variety
of government departments and ministries.
Main permits required are :
Investment principle license
Business license
Approval of the environmental impact assessment (AMDAL)
Location permit
Electricity business license
Certificate of operational worthiness
Licensing procedure is lengthy and it consumes lot of time.
Many times licenses are given to incompetent developers because of
inadequate knowledge and education on the part of the local authorities on
license granting techniques. (iisd investment incentives for RE in Indonesia)
Negative Investment List
Presidential Regulation No.36 (2010) – Regulates
FDI in the power sector.
95% foreign investment is allowed in power plants having more than
10 MW capacity.
For power plants of 10 MW capacity and less, the foreign investor
requires to form a partnership with a domestic entity.
Investments in power plants of less than 1 MW capacity have been
reserved for micro, small and medium enterprises and cooperatives.
The requirement of minimum 5% domestic
shareholding for power plants with more than 10
MW capacity can delay projects.
Bidding Process
Tariff based bidding is used for choosing an
investor for a new project.
Many times, the bidding process fails to take into
account the technical and financial capabilities of
local enterprises while awarding the project.
Consequently, projects are delayed.
Transaction Cost of Project Implementation
Decentralized system of governance is followed in the
country with local governments having the right of
granting licenses to renewable energy developers.
Most local governments have very limited technical
capacity and understanding of the implications of
various energy scenarios.
Consequently,
decision-making
gets
delayed,
increasing transaction cost to investors.