Indonesia’s Greater Receptivity on Foreign Ownership for Electricity Infrastructure
This September, the Indonesian government has relaxed the local content requirement (LCR) for electricity infrastructure development. The new requirements are as follows: Geothermal (20-29%), Hydropower (23-45%), Solar (20%), and Wind (15%). Additionally, exemptions are provided for projects funded by majority foreign loans, if goods are not available from domestic producers, if domestically produced goods do not meet domestic specifications, or if domestic production is insufficient to meet demand. The stated goal of this change is to boost green energy investments by attracting concessional funding from international development banks and expediting the disbursement of funds from foreign lenders.
This relaxation of LCR represents Indonesia’s increased receptivity towards foreign green energy investments and infrastructure development by effectively opening the door wider for foreign investment and technology transfer. The reduced barriers to entry could lead to increased foreign participation in Indonesia's renewable energy market, as these exemptions encourage international development banks and foreign lenders to increase their involvement in Indonesian green energy projects. Additionally, foreign companies should be prepared for potential policy adjustments as the Indonesian government rarely holds back on making policy adjustments when necessary.
