A Look at Indonesia’s New Solar Energy Purchase Regulations

Markus Schlueter, Rödl & Partner

Markus Schlueter of the law firm Rödl & Partner in Cologne, Germany, outlines the necessary steps to take part in Indonesia’s newly introduced renewable energy capacity auction program.

The generation of renewable energies has become a core focus in Indonesia’s recent energy policies. In this light the Ministry of Energy and Mineral Resources has issued Regulation 17 concerning the purchase of energy from Solar Photovoltaic Power Plants by the National Electric Company. The regulation became effective in June 2013 and appears of significant relevance for solar energy producers, including foreign investors.


Over the last years Indonesia’s legislative bodies have enacted various regulations regarding the diversification of energy utilization. An important milestone was the issuance of a presidential decree introducing in 2006 a National Energy Policy (known as Kebijakan Energi Nasional, or KEN) defining the envisaged and further debated increase of the renewable energy ratio in Indonesia as well as the Energy Law from 2007, being the umbrella regulatory framework for the energy sector that sets out the guiding principles of national energy management which contains some further provisions concerning the increase of renewable energy by central and provincial governments.

To implement the renewable energy utilization policy, the Ministry of Energy and Mineral Resources (MEMR) has issued several regulations pertaining to different aspects of this matter, one of them being Regulation 17, which was issued in June.

General provisions of Regulation 17

Under Regulation 17 the PLN is obliged to purchase electricity generated by a solar photovoltaic power plant based on the capacity quota offered through online public auction by the Directorate General of New Renewable Energy and Energy Conservation. The business entity that wins the auction will sign a power purchase agreement with the National Electric Company (PLN) at the price determined by Regulation 17. This leads to better pricing transparency than in past case-by-case negotiations. The maximum purchase price is US$0.25 per kilowatt hour or US$0.30 per kilowatt hour if local components in a solar photovoltaic power plant amount to at least 40 percent. The composition of local components is subject to a valuation done by the Directorate. For 2013, quota capacity was set to be auctioned in some 80 locations throughout Indonesia.

Business entities eligible to participate in the capacity auction

Regulation 17 defines eligible business entities as either state owned enterprises, local government owned enterprises, limited liability companies owned by private parties which may be individual or juristic persons or a cooperation that carries out electricity-provider business. Foreign investors who intend to participate in the capacity auction must establish a foreign investment company, known as a limited liability PMA, subject to Investment Law 25/2007 and the Indonesian Negative List set out in Presidential Decree 36/2010. The latter provides the list of businesses being closed and open with conditions for investment.  Pursuant to the Negative List, the maximum share ownership by a foreigner or foreign entity in the limited liability company that carries out electricity-provider business is 95 percent while 5 percent of the shares needs to be owned by an Indonesian natural person or legal entity.

To participate in the capacity quota auction, the business entities shall meet certain administrative, technical and financial requirements. The administrative requirements cover at least a statement of integrity, an evidence of company identity with deed of establishment, a business entity profile, tax payer registration number and a joint operation or partnership agreement if business is conducted in form of a consortium.

In addition, there are technical requirements such as the development plan that has been calculated in connection with the technical requirements, complete with map and coordinates of the location and a schedule of the photovoltaic development as well as the commercial operation date. The production and sales have to be projected for 20 years, a detailed engineering design of the solar photovoltaic power plant, a list of experts involved in it, an organization chart as well as  technical specification of the plant have to be provided as well.

Further documentation include a supporting letter from the producer of the photovoltaic modules and inverters and a statement letter that the imported photovoltaic module meets international standards, which is to be evidenced by a product certificate issued by an independent agency. If domestic products are used, the exact components and their matching with applicable standards need to be stated.

Finally, the required financial documentation include the latest audited financial statement, except for new companies, which are only required to submit the financial statement, a bank guarantee in the amount of 2 percent of the total investment from state owned bank or prime bank domicile in Jakarta and a statement letter according to which the applicant is capable to open a joint escrow account on behalf of the Directorate with the amount of 20 percent from the total investment (at latest 15 working days after being determined as winner of the auction by the Directorate).

Capacity auction process

The Directorate initiates the proceedings by announcing the capacity auction on its website, where the participant needs to register (latest one day before the uploading-period of offering document ends). The uploaded documents include the administrative, technical and financial documents (attachment  I) and the price quotation (attachment II).

The auction committee will review and evaluate attachment I on the day following the end of the uploading period. After this review the committee will select participants who passed the evaluation of attachment 1. In the next step the auction committee will review the price quotation offered by the remaining participants and rank them based on the lowest price quotation being set out in the minutes of the attachment II evaluation. Within five further days the committee invites the three participants with the lowest price quotation for document verification and clarification. Participants providing fake documents or misleading information will be disqualified. The auction committee will eventually deliver the list of candidates to the Directorate which then determines the winner of the auction.

Power Purchase Agreement and capital injection

After the winner of the auction has been determined and no objection has been submitted or accepted, the winner must transfer 20 percent of the total investment capital to the joint escrow account. The MEMR will then issue a letter assigning the PLN to purchase the electricity at the price resulting from the auction. This purchase price will be integrated in the power purchase agreement (PPA) and is valid for 20 years. The standard text of the PPA is prepared by the PLN.

Within three months after the signing of the PPA the winner must reach the financial closing, i.e. the settlement with the financial institution that will finance the project or another financing arrangement. The development of the solar photovoltaic generation facilities begin at latest three months after the financial closing has been reached.

Markus Schlueter is an attorney-at-law with Rödl & Partner in Cologne.

Contact: markus.schlueter@roedl.pro

Ref: PV Magazine