Energizing Indonesia: A New Legal Framework for Renewable Power Purchase Agreement

Indonesia is strengthening its energy sector with a clearer framework for Power Purchase Agreement sourced from renewable energy. This development provides stronger legal certainty and paves the way for Indonesia’s sustainable energy future.

A Clearer Framework for Renewable Energy Contracts in Indonesia

As a commitment by the Indonesian government to accelerate the development of renewable energy for electricity supply, the government has issued Minister of Energy and Mineral Resources Regulation Number 5 of 2025 on Guidelines for Power Purchase Agreements from Power Plants that Utilize Renewable Energy Sources (“MoEMR Reg. on Renewable PPA”), which came into effect on 4 March  2025. The MoEMR Reg. on Renewable PPA specifically regulates the implementation of power purchase agreement (“PPA”) sourced from renewable energy between Independent Power Producer (“IPP”) as seller and PT Perusahaan Listrik Negara (“PLN”) as buyer. Previously, the regulation on PPAs, both sourced from renewable and non-renewable energy, was stipulated under the Minister of Energy and Mineral Resources Regulation Number 10 of 2017 on Main Provisions for Power-Purchase Agreements as lastly amended by Minister of Energy and Mineral Resources Regulation Number 48 of 2018 (“MoEMR Reg. 10/2017”).

The MoEMR Reg. on Renewable PPA applies to every PPAs sourced from power plants that utilize:

• geothermal energy;
• water;
• solar photovoltaic;
• wind;
• biomass;
• biogas;
• marine energy; and
• biofuel.

In addition, waste-based power plants are also categorized as power plants that utilize renewable energy. Furthermore, Article 4 of MoEMR Reg. on Renewable PPA stipulates that renewable PPAs must at least stipulates provisions regarding:

• duration;
• rights and obligations of the parties;
• risk allocation;
• performance security;
• commissioning and commercial operation date;
• electricity installations certification;
• electricity sales transactions;
• power system operation;
• power generation performance;
• termination of the PPA;
• rights transfer;
• pricing and price adjustment requirements;
• dispute resolution;
• force majeure;
• use of domestic products;
• environmental attributes or carbon economic value;
• refinancing; and
• language.

Key Points under MoEMR Reg. on Renewable PPA

• Renewable PPAs Scheme
  Under MoEMR Reg. on Renewable PPA, the renewable PPA may be implemented through Build, Own, and Operate (“BOO”) scheme or other construction and operation schemes as agreed upon by the parties. Previously, PPA scheme based the MoEMR Reg. 10/2017 was only allowed to be conducted through the Build, Own, Operate, and Transfer (“BOOT”) scheme. This new provision under the MoEMR Reg. on Renewable PPA provides greater flexibility for IPPs in the renewable energy sector. Through the BOO scheme, renewable energy IPPs are able to retain ownership of power plants and obtain continuous income.

• PPA Duration
  The duration of renewable PPA may be implemented for a maximum period of 30 (thirty) years from the date of commercial operation of the power plant (“COD”) and may be extended. In the event of an extension of the renewable PPA, the electricity sales price shall refer to the highest reference price after the 10th year (staging 2). Previously, based on MoEMR Reg. 10/2017, the maximum duration of the PPA was 30 years from the COD and could not be extended.

• Performance Security
  Based on MoEMR Reg. on Renewable PPA, the performance security shall be provided by the IPP to PLN at a maximum of 10% (ten percent) of the total project cost of the power plant. The performance security may be divided into a maximum of 3 (three) stages of performance security documents, with the distribution and disbursement mechanisms specified in the renewable PPA. Previously, MoEMR Reg. 10/2017 did not specify the maximum value of the project performance guarantee that must be provided by the IPP to PLN.
• Delays in COD Implementation based on PPA
  • Delay caused by IPP
    In the case of a delay in the agreed COD under the PPA which is caused by the IPP due to the IPP power plant not being in a state of deemed commissioning, the IPP will be subject to liquidated damages. Deemed commissioning is a situation where the IPP’s power plant is deemed to have performed testing and commissioning in accordance with the terms and conditions agreed in the PPA. The amount of liquidated damages are calculated proportionally to the costs incurred by PLN due to the absence of the promised energy and can be in the form of a percentage of the project cost divided by the maximum number of days of delay. Liquidated damages are calculated per day of delay with a maximum total of 180 calendar days. In the event that the calculation of liquidated damages have reached the maximum value, PLN has the right to terminate the PPA.
  • Delay caused by PLN
    In the case of a delay in the agreed COD under the PPA which is caused by certain conditions of PLN other than force majeure, the IPP is entitled to payment for the electricity deemed to have been supplied to PLN since the IPP’s power plant is deemed to have been commercially operational (deemed COD) at the time agreed in the PPA. The IPP is only entitled to such payment if the IPP’s power plant is deemed to have undergone testing and commissioning in accordance with the terms and conditions agreed upon in the PPA (deemed commissioning).

• Electricity Sales Transactions
  PLN is obligated to purchase renewable power according to the committed energy or energy availability factor at the price agreed under the PPA. PLN may purchase power that exceed the committed energy or energy availability factor, with the limitation of maximum unit rated capacity, subject to following conditions:
  • the power purchase price is a maximum of 80% of the agreed price under the PPA; and
  • the purchase of power in accordance with the power demand in the local power system.

  Furthermore, for the optimalization of power plant, PLN may purchase power from the power plant that has been conducted by PPA and able to produce power beyond the unit rated capacity, subject to the following conditions:

  • the purchase shall be made at the maximum of 30% of the committed energy or energy availability factor;
  • the power purchase price shall be the lowest purchase price; and
  • the purchase of power in accordance with the power demand.
• Transfer of Shares
  Ownership of shares in the IPP may only be transferred after the power plant reaches COD. Transfer of shares in the IPP may be carried out before COD under the following conditions:
  • transfer to an affiliate whose shares are more than 90% owned directly by the sponsoring company that intends to transfer the shares; and/or
  • step-in rights for lenders, in the event of default by PPL, under the condition that the implementation of step-in rights for lenders does not reduce the qualification of the sponsoring company.

The transfer of share ownership shall be reported by IPP to the Minister of Energy and Mineral Resources and copied to the Director General of Electricity and the Director General of New, Renewable, and Conservation Energy.

• Environmental Attributes or Carbon Economic Value
  Environmental attributes or carbon economic value are new provisions regulated in the MoEMR Reg. on Renewable PPA. Based on these new provisions, the MoEMR Reg. on Renewable PPA provides the basis for entitlement to environmental attributes or carbon economic value from power plants that utilize renewable energy, which at a minimum consist of:
  • carbon credits;
  • renewable energy certificates;
  • green labels;
  • other tradable rights; and
  • benefits available or to be available for greenhouse gas emission reductions.
• Refinancing
  This provision is a new provision stipulated in the MoEMR Reg. on Renewable PPA, in which to optimize the implementation of electricity supply activities that utilize renewable energy, IPPs are permitted to conduct refinancing between IPPs and lenders, by informing PLN.

Legal Implications of the MoEMR Reg. on Renewable PPA

The existing renewable PPA, which has already been signed and commenced prior to the enactment of MoEMR Reg. on Renewable PPA will remain valid until the expiration of the renewable PPA. If the renewable PPA is extended, the extension of such PPA shall follow the provisions stipulated under MoEMR Reg. on Renewable PPA.

Furthermore, the provisions in the MoEMR Reg. on Renewable PPA are specifically intended for the implementation of PPA that utilizes renewable energy sources. Meanwhile, for electricity that does not come from renewable energy sources, it still refers to the provisions of PPA regulated under the MoEMR Reg. 10/2017. The MoEMR Reg. on Renewable PPA is an important instrument in encouraging the development of an electricity sector oriented towards sustainable energy in Indonesia. Through these provisions, it is hoped that legal certainty will be created for IPPs, particularly in the implementation of renewable PPA.

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Sources:

• Minister of Energy and Mineral Resources Regulation Number 5 of 2025 on Guidelines for Power Purchase Agreements from Power Plants that Utilize Renewable Energy Sources;
• Minister of Energy and Mineral Resources Regulation Number 10 of 2017 on Main Provisions for Power-Purchase Agreements; and
• Minister of Energy and Mineral Resources Regulation Number 48 of 2018 on the Second Amendment of Minister of Energy and Mineral Resources Regulation Number 10 of 2017 on Main Provisions for Power-Purchase Agreements.