The Energy Regulation and Markets Review - Stikeman Elliott

Indonesia
High development risk and the large upfront capital have so far been the main
inhibitors to development by investors. With a development phase of up to 10 years
with commercial production and project financing only available at the end of the phase,
significant upfront equity contribution is required.
As an effort to reduce cost on oil fuel spending and to boost geothermal power
projects, the government now encourages private-sector participation in geothermal
power generation by offering the Second Fast-Track Programme for geothermal power
projects. In this programme there are 33 geothermal power projects allocated to
independent power producers and 11 allocated to PT PLN.
To help investors, the government has issued a regulation which caps the price
that PT PLN can pay at 9.7 cents per kWh.
For geothermal projects there are a number of tax incentives and facilities such as
investment credits, accelerated depreciation or amortisation rates, reduced tax rates on
dividends paid to non-residents and tax loss carry-forward for up to 10 years. Import
duty exemptions also apply, as well as exemption of VAT on import of capital goods
during construction.
Feed-in tariff systems have been endorsed by studies conducted by international
agencies.
ii Energy efficiency and conservation
Currently, the government is trying to change the paradigm of national energy
management, which was previously focused on the supply side to the demand side.
Energy management used to be based on the supply side where the government tried
to meet energy needs, regardless of the amount or costs, through management of fossil
energy sources. Fossil energy continued to be subsidised in order to meet energy needs,
but exploration and utilisation of alternative and renewable energy was not prioritised.
The use of energy by the household, industrial, commercial and transportation sectors
was very wasteful due to the lack of emphasis on energy efficiency.
The government now manages energy demand by ensuring that the needs and
use of energy in the household, industrial, commercial and transportation sector are
increasingly efficient. This can take place by energy users adopting more energy-efficient
behaviour and starting to use more efficient technologies. In addition, the supply and
use of renewable energy is maximised and if necessary, subsidised. Fossil energy is only
used as a counterweight and sources of untapped fossil energy can be used as a reserve
for future generations.
In an effort to develop the area of energy efficiency and conservation in Indonesia
various agencies from developed countries are lending support to the system.
iii Technological developments
The Clean Energy Initiative by the government is an integrated effort to achieve energy
efficiency and reduce greenhouse gas emission from fossil fuel burning. The Clean
Energy Initiative, as part of Indonesia’s participation in mitigating climate change,
by the MEMR is not only aimed at reducing national emissions but also at achieving
sustainable national energy security.
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