The Energy Sector

Indonesia’s current electricity sector regulatory framework is provided under Law No. 30 of 2009 on Electricity (the 2009 Electricity Law). Regulations are implemented by a number of ministries, including the Ministry of Energy and Mineral Resources (MEMR), the Ministry of Industry, the Ministry of Finance, and others with relevant responsibilities relating to electricity sector. The MEMR currently acts as the regulator to the electricity sector, which is served by a vertically integrated state-owned electricity company, Perusahaan Listrik Negara (PLN).

As the largest energy consumer in the Association of Southeast Asian Nations (ASEAN), energy demand growth among Indonesia’s ~17,000 islands has risen rapidly in recent years. Although reliance on domestic coal and imported petroleum resources has increased, Indonesia's energy mix has integrated more renewable capacity and aims to reach 31% renewable energy prevalence by 2050 in compliance with its Paris Climate Agreement proposition.[1]

Indonesia is also endowed with some of the world's most robust hydropower and geothermal potential, making it a promising hub for solar and wind development. These circumstances require the Government of Indonesia and the MEMR to prioritize smooth, sustainable system integration of more renewable generation capacity as the national generation portfolio transforms to accommodate diversified renewable generation and the lower prevalence of coal and fossil fuel dependency.

With that said, the country’s electric transmission and distribution systems are already operating close to their limits, and the PLN currently faces challenges such as frequent power outages and low service reliability. In response, the Government of Indonesia (GoI) has prioritized grid modernization initiatives and intends to accelerate the deployment of smart grid infrastructure in order to ensure greater system reliability and efficiency. In doing so, it can better achieve major objectives such as preventing or reducing blackouts and improving energy accessibility, especially for smaller or isolated islands in Indonesia.

 

Our Work

With support from the United States Agency for International Development (USAID), NARUC’s Indonesia Energy Regulatory Partnership is an institutional strengthening program designed to enhance regulatory frameworks governing sector oversight by the MEMR and its capacity to create an enabling environment for investment in Indonesia’s robust energy sector. Additionally, the partnership is designed to help advance the GOI’s goals for increased deployment of clean energy technologies and utility modernization.

 

Focus Areas and Selected Engagements

Energy Regulatory Roles and Responsibilities

In order to support efforts by the GoI to diversify and decarbonize Indonesia’s electricity generation portfolio throughout incoming decades, the MEMR seeks to gain further knowledge on key processes for the electricity sector and the regulator’s role in implementing them. To assist in this effort, NARUC held a webinar series in 2021 on the roles and responsibilities of utility regulators. Through this activity, MEMR staff engaged in open discussion with NARUC experts from the U.S. and Canada on topics such as the principles of economic regulation and price regulation in the energy sector, as well as service quality regulation, tariff setting and review, and revenue requirements. In doing so, they can now apply the best practices that were shared as they work to oversee and establish a regulatory environment for 1) grid modernization, 2) the deployment of smart grid programs, and 3) the integration of renewable energy resources.

Power Wheeling

Indonesia’s low renewable penetration is a result of many challenges in policy, financing, and coal dependency, which also create constraints in achieving renewable energy policy goals. Nonetheless, it is committed to reaching 31% renewable energy prevalence by 2050.[2] By enhancing its power wheeling regulatory framework, Indonesia can create more direct and efficient ways for renewable energy power plants to reach consumers. With this in mind, the MEMR requested NARUC’s technical support with reviewing an existing power wheeling regulation adopted in 2015 (Regulation 01/2015 on Power Wheeling).

In 2022, a team of NARUC experts from the U.S. and Canada reviewed the existing regulation against best practices and lessons learned on power wheeling and provided recommendations on how to improve it in its next iteration. Once implemented, a more comprehensive power wheeling regulation will lead to improved renewable energy policy and thus to greater energy efficiency, reliability, and sustainability. It will also help boost demand for renewable energy, which will in turn help bring investment and enable diversification of the electricity supply, especially for industrial and commercial sectors.

Grid modernization and RE Integration

In the context of Indonesia’s current electrification rate of 99.2%,[3] the country's draft Electricity Supply Business Plan 2021-2020 (RUPTL) proposes additional generating capacity of approximately 40.7 GW to be met through renewable energy power plants.[4] Indonesia is also developing an interconnection acceleration program for 11 transmission segments to connect the electric power systems between separate islands. Key aspects of this program are to increase system reliability, increase variable sources of renewable energy, increase system flexibility to respond to sudden changes, and decrease the costs of electricity.

To assist Indonesia in achieving its energy sector goals, NARUC held a webinar series in 2021 on grid modernization and renewable energy integration. During the series, NARUC experts presented on the topics of grid modernization strategies, renewable energy policy and regulatory frameworks, renewable energy integration challenges, and tariff rate structures to support renewable energy integration in Indonesia. As a result, participants were able to strategize on grid modernization and renewable energy integration mechanisms that are most applicable to the Indonesian context. They also participated in interactive sessions and open discussion forums, which served to identify the existing challenges the MEMR faces in developing and implementing grid modernization strategies and examine actionable next steps to overcome them.

 

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