Indonesia’s renewable energy bill: An ambitious attempt at energy transition
THE Indonesian government is preparing to pass a new energy and renewable energy bill known officially as Rancangan Undang Undang tentang Energi Baru dan Terbarukan, or RUU EBT. This will create a regulatory framework for renewable energy projects that incentivises the transition to green energy. While better late than never, RUU EBT has some shortcomings and missed opportunities that are worth examining.
During COP21 in 2015, the Indonesian government set policy targets to increase the use of alternative energy sources. As of 2021, Indonesia’s renewable energy generation capacity stands at 11.4 per cent and is still far behind the mandated minimum target of 23 per cent by 2025, despite the fact that Indonesia is on the frontline of climate change.
This must be considered in light of recent events where the European Union and several G20 governments signed a non-binding declaration at the Nov 15 G20 summit, pledging up to US$20 billion to help Indonesia phase out coal-fired power plants (CFPPs) and achieve net-zero emissions in the power sector by 2050. This supports the newly-enacted Presidential Regulation 112/2022, which mandates the development of a road map to retire CFPPs earlier.
Indonesia has made green energy one of the key pillars of its 2022 G20 presidency, and it is apt that Indonesia walks the walk by passing RUU EBT. This would be a significant milestone on Indonesia’s path towards green energy, and would also underscore its commitment to net-zero emissions.
Key benefits of the renewable energy bill
Policy guidance and funding are crucial in developing Indonesia’s green energy potential, with the country estimated to require US$200 billion yearly to reach net zero. As such, RUU EBT increases incentives for embracing green energy, such as creating an ecosystem for green energy research and education, and supporting state-owned power companies in purchasing green energy.
Supporting state-owned power companies in purchasing green energy is especially relevant, because Indonesia’s green energy prices are around 10 per cent to 65 per cent higher than other Asian countries. Consumers will be more inclined to move away from cheaper fossil fuels if the cost of green energy can be reduced through state support.
Another barrier to the adoption of green energy is the critical shortage of skilled personnel in Indonesia for green energy projects. Supporting research and education will certainly encourage more companies to invest in Indonesia and, in turn, create more training and job opportunities, bringing tangible socio-economic benefits to communities.
The missed opportunities
Although RUU EBT is ambitious and forward-looking, it is still lacking in some areas. While Article 59 of the new bill recognises public involvement in Indonesia’s green energy transition, it is unclear how this will be implemented. Since the energy sector is dominated by large companies, a more robust legal framework is needed to give the public an effective voice.
It is unclear how red tape will be reduced. Red tape such as overlapping regulations at the regional level and at ministries amount to nearly 40 per cent of Indonesia’s green energy costs. Indonesia should draw inspiration from commitments by Vietnam to reduce or simplify “by half” business and investment conditions, and Thailand to restructure its administrative bodies, which helped Vietnam and Thailand become the top 10 producers of solar photovoltaic modules worldwide.
The definition of new energy sources also appears to conflict with the objective and spirit of the bill. While RUU EBT aims to transition away from all diesel-fuelled power plants by 2024, Article 6 of the bill allows transition not only to renewable energy but also to “new energy”, which includes coal-derived products with relatively high carbon emissions like liquefied coal and gasified coal. There will be less incentive to phase out polluting technologies, given that coal-fuelled companies would still be eligible to receive incentives from RUU EBT. One might argue that “renewable energy sources” (under Article 30 of RUU EBT) should receive more funding than “new energy sources” since “renewable energy sources” – such as wind and solar energy – have significantly lower carbon emissions.
RUU EBT is also a missed opportunity for Indonesia to lead South-east Asia’s green energy evolution. Article 23 of RUU EBT paradoxically imposes export levies on green energy, which will put off investors who might otherwise export green energy outside Indonesia if not for these restrictions. The levies put green energy at a comparative disadvantage to its conventional energy counterparts which, under the current regulations, receive much more fiscal incentives.
In the current climate of volatile oil prices, there is no better time to gain a foothold in the green energy sector. South-east Asia is especially vulnerable as an aggregate oil importer, and green energy can reduce exposure to volatile prices. Green energy exports can help mould Indonesia into a major green energy player in South-east Asia, just like how Australia is projected to achieve annual exports worth A$1 billion (S$903 million) from the proposed Australia-Asia Power Link. Furthermore, a competitive export market brings lower domestic green energy prices for Indonesians.
Future-proofing legislation
RUU EBT is an important step in Indonesia’s transition to green energy. While the bill provides sorely needed support for the green energy transition, lawmakers should reconsider the imposing of export levies and the inclusion of relatively dirty sources of energy. This would align with the recent pledge by the EU and several G20 governments to help Indonesia phase out CFPPs and achieve net-zero emissions by 2050. Together with other ministerial regulations, these changes will future-proof the legislation and unlock growth opportunities for Indonesia’s green energy sector.
Kohe Hasan is a partner in Reed Smith, an international law firm. Denny Rahmansyah is a partner in SSEK Legal Consultants. The other co-authors of the article are Ang Liseah, an associate in Reed Smith; Goh Eng Han, associate in Resource Law; and Shafira A Hexagraha, associate in SSEK Legal Consultants.
