Regulatory Reform to Support Renewable Energy Development
![power grid](/sites/default/files/2024-06/AdobeStock_172743442_edited.jpg)
Last month, the Government of Indonesia announced that it would relax local content requirement regulations (TKDN) for electricity infrastructure development to attract more foreign investment in renewable energy by revoking Ministry of Industry (MOI) Regulation No.54/2012, which promulgates the use of domestic products in electricity infrastructure development. The decision was communicated via a letter to the Coordinating Minister for Maritime Affairs and Investment last month.
This move comes in response to delays in the implementation of renewable energy (RE) projects by the state-owned electricity company, PT PLN, primarily due to financing issues. Development financial institutions which are key funding sources have withheld their support. Asian Development Bank, the World Bank, and Japan International Cooperation Agency do not require minimum TKDN thresholds in their guidelines and, thus, were reluctant to comply with the Indonesian government’s requirements.
However, the impact of revoking MOI Regulation No. 54/2012 alone could still hinder RE investments if MOI Regulation No. 4/2017 and Regulation No. 5/2017 on TKDN for solar modules and solar power plants remain in effect. To effectively support Indonesia’s energy transition, holistic measures are need beyond the single regulation repeal. This includes exploring strategies to foster the growth of the RE industry while finding a balance with local content requirements.