Being the fourth most populous country in the world and the first in ASEAN, Indonesia has experienced a significant increase in energy consumption in recent years. This need is currently mainly met through fossil fuels, leaving largely untapped the potential for Investment in renewable energies in Indonesia.
Based on these premises, the government has established ambitious objectives through recent regulatory measures to promote the country’s energy transition towards a greater use of green energies in the coming years.
The Indonesian government’s green commitment, combined with the country’s natural resources wealth, represents a significant opportunity for Spanish companies to investment in renewable energies in Indonesia. Before analyzing business opportunities, it is essential to briefly mention the regulatory framework and the involved parties.
Regulations on Investment in Renewable Energies in Indonesia
1. Stakeholders
Starting with these, the main role is played by the Ministry of Energy and Mineral Resources (ESDM), responsible for energy policy, planning, and decision-making. On the other hand, we have the State Electricity Company (PLN), which holds the de facto monopoly on the sale and distribution of electricity to users; and independent power producers (IPPs), who are responsible for generating energy and selling it to PLN for distribution. Finally, it is worth mentioning the existence of self-power producers (PPU), whose energy generation capacity is low and only for local use, in remote areas of the country.
2. Regulations
Regarding the regulatory framework, we can highlight three main pillars:
- Government Regulation 79/2014, which includes the National Energy Policy until 2050 (KEN) and Presidential Regulation 22/2017, establishing its own National Energy Plan (RUEN), both aiming to increase renewable energy production at the expense of fossil fuels;
- The Paris Agreement, which the country joined in 2016, committing to reducing greenhouse gas emissions by 29% by 2030, increasing to 41% with foreign investment;
- Indonesia’s Energy Generation Plan for the period 2021-2030 (RUPTL), approved on October 5, 2021, by the state-owned company PLN, showing a clear commitment to renewable energy investment in Indonesia. It highlights the importance of IPPs and the private sector, which are expected to develop 64.8% of the new total capacity established. This presents numerous business opportunities for Spanish companies in the sector through Power Purchase Agreements (PPA) offered by the government.
With this set of regulations, the Indonesian government aims to achieve two main objectives: in the short to medium term, renewable energy investment in Indonesia is expected to contribute 23% by 2025 and 31% by 2050 (compared to 11.20% in 2020) of the total energy generated, shifting away from fossil fuels. In the long term, the goal is to achieve emission neutrality.
In addition to the aforementioned regulations, recent changes through the Omnibus Law (Job Creation Law 10/2021), Ministerial Regulations ESDM 4/2020 and 26/2021 on renewable energy investment in Indonesia and rooftop solar plants, respectively, and the draft Presidential Regulation on Renewable Energy recently published, indicate Indonesia’s current and specific commitment to renewable energies. This represents an extraordinary opportunity for Spanish companies with experience in the sector.
3. Opportunities
There are five subsectors that present investment opportunities in renewable energies in Indonesia for Spanish entrepreneurs:
Solar Energy
Taking advantage of the country’s great potential in this type of energy, Indonesia has announced the construction of floating solar parks in Cirata (with Arab participation) and Banten (with French involvement), and plans to build another 60 in the coming years.
Electric Vehicles
To make use of the country’s large nickel reserves, a key element in electric vehicle battery production, the Indonesia Battery Corporation (IBC) was recently established. This state-owned company will produce batteries in seven successive phases through Joint Ventures with foreign investors.
Wind Energy
One of the country’s least exploited resources (currently only 2% of its potential), this sector should attract the attention of Spanish companies. They could follow in the footsteps of Siemens Gamesa, a company from the same country that participated in the construction of Indonesia’s first wind farm.
Hydropower
It is the first action line of RUPTL, aiming to increase the use and investment in renewable energies in Indonesia in the coming years. It is projected that 45% of this increase will be through hydropower.
Waste to Energy
The energy production from waste has recently been regulated by Presidential Decree 35/2018, which envisions the construction of 12 waste management plants across the country, requiring foreign know-how. Construction has begun on the Sunter (with Finnish participation) and Cakung (with German collaboration) power plants.
Indonesia holds significant untapped potential in renewable energies, coupled with a growing energy awareness and recent regulatory trends promoting the country’s energy transition. This situation seems to offer numerous possibilities for Spanish companies. The practical application of the regulation and whether Spanish companies will seize these opportunities for investment in renewable energies in Indonesia, as companies from other countries are beginning to do, remains to be seen.
Sara Boffo
Legal Trainee
AVCO Legal
madrid@avco.legal
