Indonesian Government Issues New Guidelines for Power Purchase Agreements on Renewable Energy Projects

In March 2025, the Indonesian Ministry of Energy and Mineral Resources (MEMR) issued Regulation No. 5, providing important guidelines for power purchase agreements (PPAs) concerning renewable energy projects. This regulation seeks to establish a standardized framework for the procurement of electricity from various renewable sources, including solar, wind, geothermal, and biomass. It applies to projects that lack signed PPAs as well as those currently undergoing tender processes, marking a significant development in Indonesia's energy landscape.

MEMR Regulation No. 5 codifies prevailing practices in Indonesian PPAs but leaves several ambiguities that could affect future negotiations between PLN, the state-owned electricity company, and project developers. Although the guidelines allow for flexibility in contracting, it is anticipated that PLN will adopt a conservative stance, adhering closely to the established regulations. Stakeholders will need to observe PLN's forthcoming model PPA to gauge the practical implications of the new guidelines.

Key aspects of MEMR No. 5 include provisions for project structures such as Build, Own, Operate (BOO) and Build, Own, Operate, Transfer (BOOT), which are anticipated to align with current market practices. Additionally, the maximum term for PPAs is set at 30 years, with provisions for extensions under certain circumstances, such as force majeure events impacting the project's initial term.

The regulation outlines PLN's obligations regarding the purchase of electricity, yet the specifics remain somewhat vague. It suggests that intermittent energy sources will likely be subject to an energy-based tariff, while non-intermittent projects may receive capacity payments. However, the criteria for these arrangements, particularly regarding availability factors, are yet to be clearly defined.

Uncertainties also loom over grid-related risks. Traditionally, PLN would bear the risk of grid failures, but the new regulation narrows this responsibility primarily to emergency conditions, raising questions about its implications for future contracts. The definition of force majeure has been more restricted, now encompassing only three exhaustive events unless otherwise approved by the MEMR, which may create additional hurdles for project developers.

Other critical elements include the allocation of fuel cost risks to project companies, while currency convertibility risks remain with them, contrasting with PLN's exposure to exchange rate fluctuations. The regulation caps performance guarantees at 10% of total project costs, a consistent measure with regional practices, although the specifics regarding performance securities are still evolving.

Liquidated damages are recalibrated in MEMR No. 5, moving from calculations based on local benchmarks to those based on project costs, aligning more closely with regional norms. The allocation of environmental attributes such as carbon credits is left for negotiation between PLN and independent power producers (IPPs), indicating a shift towards more collaborative arrangements.

The regulation introduces complexities in share transfers, allowing lenders to enforce share security but potentially complicating equity investments. Additionally, it mandates that refinancing issues be addressed in PPAs to maximize the efficacy of electricity supply operations, though the practical implications of this requirement remain unclear.

As stakeholders navigate these new guidelines, the future of renewable energy development in Indonesia hinges on PLN's interpretations and actions in response to MEMR Regulation No. 5. The evolving landscape presents both challenges and opportunities as the country seeks to enhance its renewable energy capacity amidst growing global demand for sustainable energy solutions.