Indonesia's New Regulation on Renewable PPAs – Supporting Renewable Power in a Time of Global Uncertainty

March 2025

Introduction – What you need to know

Following the issuance two and half years ago of Presidential Regulation 112/2022 on Renewable Energy (PR 112/2022 – see summary attached), the Government of Indonesia has just issued Minister of Energy and Mineral Resources (MEMR) Regulation No. 5 of 2025 on Guidelines for Power Purchase Agreements from Power Plants Utilizing Renewable Energy Sources (MEMR 5/2025). 

Prior to this, the guidelines governing Power Purchase Agreements (PPAs) were regulated under MEMR Regulation No. 10 of 2017 on Guidelines for Power Purchase Agreements from Power Plants (MEMR 10/2017) which applied to all types of technologies including conventional power plants (coal and gas). 

With the introduction of MEMR 5/2025, renewable PPAs will be subject to a different and specific set of guidelines (as had been already foreshadowed in PR 112/2022). 

While MEMR 5/2025 provides specific key principles and requirements for PPAs for renewable independent power producer (IPP) projects in Indonesia (for which PLN is the sole offtaker), stakeholders (including developers, investors and financiers) will be pleased to know that the new regulation generally seems to codify the practice which we have seen established in recent PLN PPAs for projects which have successfully been financed and developed, and includes some helpful clarifications on issues which had required a significant amount of discussion and structuring in the past. 

Some of the key changes include:

a. Development Scheme

Whereas BOOT used to apply to IPPs by default, the regulation now clearly presents the Build, Own, and Operate (BOO) scheme as an option, if not the dominant scheme, for renewable projects. This is consistent with the approach we have seen used in Indonesian renewable PPAs in recent years.

b. Environmental Attributes and Carbon Economic Value

MEMR 5/2025 expressly allows for the IPPs and PLN to agree by contract on the allocation of carbon credits and other environmental tradable rights if the allocation is not otherwise determined by applicable regulations. This seems to offer more flexibility than what has been recent PLN PPA practice, whereby PLN's position had been to require for all environmental attributes to be allocated to it pursuant to the PPA terms.

c. PPA Extension

MEMR 5/2025 establishes a maximum PPA duration of 30 years but with possible extensions to be determined by PLN based on the project's economic feasibility and the type of technology (referring essentially to operating life of renewable generation assets). Previous PLN PPAs only permitted extensions in the context of force majeure. This new regime therefore opens up potential for an additional revenue generating period beyond the initial term of the PPA, without limiting this to circumstances where the project has or has not recovered the investment costs.

d. Pre-COD Share Transfers

MEMR 5/2025 now expressly allows lenders to transfer shares in an IPP company pre-COD, albeit subject to being to a sponsor with comparable qualifications and PLN's prior consent. Under another MEMR Regulation (48/2017), share transfers pre-COD (including in case of lender enforcement) had been restricted altogether, resulting in significant additional complexity for project financings.

As is often the case, there are some areas of ambiguity (such as force majeure and grid risk) in respect of which we would need to see whether the language of MEMR 5/2025 is merely short form or intended to reflect changes in the recommended PPA terms. There is also one more problematic potential change to note, which is that MEMR 5/2025 now seems to require that any tariff change due to change in law to be subject to the further approval of the Minister of Energy and Mineral Resources if it would exceed the then applicable benchmark published under PR 112/2022. 

Nevertheless, as a whole, MEMR 5/2025 appears to be a further sign of commitment of the GOI to its energy transition in a period of renewed global uncertainty.

Set out below is an overview of the key provisions and principles of the new regulation and analysis of how this compares to recent Indonesian and broader market practice.

Highlights of MEMR 5/2025 and Changes to the Existing Regime

Whilst MEMR 5/2025 is generally in line with the recent practice and terms observed in PLN renewables PPAs signed over the past few years, the regulation also introduces a number of changes to the guidelines on PPAs as established by MEMR 10/2017.

1. Scope of Coverage of New Regulation - Renewable Technologies and more

Whilst the coverage of MEMR 10/2017 covered all generation technologies including conventional (thermal) sources¹, MEMR 5/2025 focuses on the following renewable energy technologies²:

For solar PV, wind, and tidal energy power plants, these may be equipped with battery facilities or other energy storage facilities and these facilities would also fall under the scope of coverage of MEMR 5/2025.³

Aside from the renewable energy technologies mentioned above, the regulation also applies to waste-to-energy projects.⁴

As there are quite significant differences between the operational characteristics of the abovementioned technologies, and their typical tariff structures, MEMR 5/2025 seeks to differentiate between these, such as with respect to geothermal power plants which have certain dedicated provisions and principles. 

However, it is not always clear what features of MEMR 5/2025 are intended to apply to which types of project. For instance, an Availability Factor-related penalty also seems to potentially apply to intermittent renewable power generation under Article 24(3) of MEMR 5/2025, which would be unusual given the energy-based tariffs typically payable under PPAs for these technologies.

As the regulation purports to set out "guidelines" for renewable project PPAs, it is important to note that the can be supplemented or amended (contracted out) based on agreement between the parties (i.e. PLN and IPPs). Needless to say however that as the bargaining power of the parties is not entirely balanced (given the competitive nature of IPP procurements and PLN being the sole offtaker and an SOE subject to strict supervisory requirements), it may be difficult to alter principles from MEMR 5/2025 which lean in favour of the offtaker.

2. PPA Term and Development Scheme

MEMR 5/2025 establishes a maximum PPA duration of 30 years from COD, and now expressly allows (at least in principle) for PPA extensions without considering the initial investment cost of a given project (i.e. including whether the project has been fully amortized).⁵ Each PPA's initial duration is determined by PLN, taking into account the project's economic feasibility and the type of power plant.⁶ If the PPA is extended, the tariff during the extension period will be based on the highest tariff which would apply based on the benchmark published from time to time under PR 112/2022. 

This differs from the regime under MEMR 10/2017 which did not include any provisions allowing for extensions.⁷ In fact, most PLN renewable PPAs have tended to have a term of 25 years from COD (except hydro and geothermal where 30 years is the norm), with occasional extension rights for force majeure events, but usually capped at 30 years from COD.

MEMR 5/2025 still allows for a possible extension of the PPA due to the occurrence of a force majeure event⁸, but it also opens up potential for an additional revenue generating period beyond the initial term of the PPA and without limiting this to circumstances where the project has or has not recovered the investment costs.

Consistent with this approach the development scheme has also been formally revised from the Build, Own, Operate, and Transfer (BOOT) scheme which was contemplated under MEMR 10/2017 to either a BOO scheme or other development and operation schemes as agreed upon by the parties, taking into account the specific type/technology of the project. The use of a BOO model as the default PPA scheme is consistent with what we have been seeing in recent renewable PLN PPAs and would facilitate monetising the assets following the initial PPA term through a further PPA with PLN or other route to market which may be available at the time the PPA expires.

3. Risk Allocation 

Consistent with the approach adopted by MEMR 10/2017, MEMR 5/2025 also sets out certain principles in terms of the project risk allocation between IPPs and PLN.⁹

 

While the above remain generally consistent with MEMR 10/2017 and the prevailing practice, we would note the following: 

• Foreign Exchange Risk: MEMR 5/2025 expressly allocates currency convertibility risk to the IPP and currency exchange volatility to PLN. This is consistent with the approach taken on the recently banked renewable PLN PPAs, but signifies a formal departure, across all the categories of renewable projects covered by MEMR 5/2025, from the additional conversion risk support mechanisms which had been included in the past in certain Indonesian IPPs, in particular those involving ECAs. For completeness, we also note a minor change to the current practice in terms of the indexation of the US Dollar currency based components as these will be indexed based on the Jakarta Interbank Spot Dollar Rate (JISDOR) applicable one day before the payment date (H-1)¹⁰ as opposed to the JISDOR rate applicable on the payment date (as is currently the practice).

• Grid Risk: The scope of curtailment risk for which IPPs are protected is expressed more narrowly in the regulations than under the most recent PLN PPAs, as it covers only "emergency conditions"¹¹ in PLN's power system as opposed to any curtailment which may be required to "safely and prudently manage the grid". We also note that the force majeure provisions appear to relieve PLN of obligations to purchase electricity "if PLN is unable to absorb electricity" due to force majeure (while this would not usually be the case in PLN's PPAs as, consistent with market practice, PLN would take grid risk). Hopefully these are just short-form expressions of principles and will not translate into a change in the terms of the PPAs with PLN with respect to the grid risk allocation.

• Fuel Cost: MEMR 5/2025 now also specifies that fuel cost is a risk borne by the IPP (feedstock for biomass, biogas and steam for geothermal projects). As the IPPs will have a limited ability to absorb changes to fuel price, we expect that discussion will be required in the fuel supply arrangements and related PPAs to ensure there is as full as possible a pass-through of fuel costs.

4. Tariff Structure

MEMR 5/2025 generally refers to PLN as having obligation to purchase electricity.¹² 

While we would typically expect intermittent renewable power generation sources (including solar, wind and run of river hydro) to be subject to an energy-based tariff, and feed-in-tariffs apply to waste to energy, we would more usually expect certain renewable technologies (such as non-run of river hydropower projects) to have capacity-based tariffs.

Hopefully the effect of MEMR 5/2025 is not to remove this flexibility when it comes to setting a tariff structure which optimises the value add of the renewable energy asset.  The reference to PLN's purchase obligations being linked to an "Availability Factor" would indicate that capacity-based tariffs should still be possible.

5. Electricity Purchase Obligations and Performance Requirements

MEMR 5/2025 sets PLN's electricity purchase obligations and the performance levels to be met by the IPPs by reference to the concepts of "Contracted Energy" (or CE) and "Availability Factor" (or AF).

 

We understand the CE and AF are alternatives depending on the type of power plant.  We would usually see the AF concept apply in the context of capacity-based PPAs such as non run-of-river hydropower projects, and assume that this is the intention in MEMR 5/2025.

(a) Electricity Purchase Obligations

With respect to PLN's offtake obligations under MEMR 5/2025, PLN is only required to purchase electricity based on the CE or AF. Deemed Dispatch compensation is also capped at the CE or AF (which is generally consistent with current PLN PPA practice).

Above the CE or AF (but not exceeding the plant's rated capacity), if PLN chooses to take power beyond the agreed CE and AF, taking into account the relevant power system's demand, it will be only be required to pay a price which does not exceed 80% of the tariff under the PPA.¹⁵

To optimize utilization of operational plants, PLN may also choose to purchase electricity in excess of the rated capacity of a plant if the electricity price is the lowest available and there is demand on the grid (which we understand would prioritise the lowest cost power plants), up to an amount not exceeding 30% of the CE or AF (as applicable).

While the above mechanisms would put some limits on the "upside" which can be generated by sponsors in the context of projects that are dispatched in excess of their expected levels, we would assume that the base case financial model assumptions for the projects would be to receive tariff payments for amounts not exceeding the CE or AF (as applicable), and that this would not, therefore, adversely affect the bankability of the projects. Indeed, current intermittent renewable energy PPAs already have concepts of maximum contracted energy (usually assessed over a year) above which PLN is not required to purchase electricity, so the above mechanism seems consistent with the current practice (assuming it is given effect to on the same terms).

We would note that – while existing renewable PLN PPAs are generally grandfathered from the provisions of MEMR 5/2025, MEMR 5/2025 contemplates that provisions relating to the purchase of excess energy based on the abovementioned terms could be included in existing PPAs, so holders of existing renewable PPAs may receive requests from PLN to this effect.¹⁶

(b) Performance Requirements and Penalties

Under MEMR 5/2025, IPPs may be liable to performance liquidated damages based on AF, CE, Performance Ratio and/or other technical criteria outlined in the PPA.¹⁷

We would expect that, as has been the PLN PPA practice over the past years, the performance of each IPP is assessed differently depending on its technology. In particular, while the drafting of the regulation sometimes only refers to CE or AF based penalties (as opposed to Performance Ratio based penalties), we assume that the intention is to follow current practice such that, for instance, for solar and wind projects, the assessment of performance would be based on the energy that could have been generated based on the expected performance ratio at the various actual irradiation levels or wind speeds. We also assume the caps on the penalty amounts would continue to apply as has been PLN's consistent practice.

One departure from previous practice under MEMR 5/2025 is that the penalties for run-of-river hydroelectric, solar, wind and tidal energy power plants is calculated by accumulating the energy shortfall specified in the PPA over a period of one year.¹⁸ On most recent solar and wind PLN PPAs, the performance was assessed monthly. Having the assessment done on an annual basis instead – assuming the basis on which the assessment is done remains the same and that a cap continues to apply – could be beneficial to projects so as to allow them to smooth over months of lower productivity, as is more typically the case on PLN run of river PPAs.

6. Tariff Adjustments for Change in Law

While MEMR 5/2025 does not expressly deal with the allocation of Government risks and changes in law (as was the case of MEMR 10/2017 in its amended form), Article 28(2) seems to allow for tariff adjustments due to changes in tax, environmental obligations, non-tax State revenue, and "other terms and conditions agreed upon by the parties in the PPA" which could include general changes in law. However, we understand from a reading of Article 28(3) that this now includes a cap on the revised tariff (to the relevant ceiling tariff applicable to the project given its technology, capacity and location) following the tariff adjustment such that a further approval of the Minister of Energy and Mineral Resources would be required if the adjusted tariff were to exceed the ceiling price cap.

If this were to be the case, this would adversely affect the usefulness of a tariff adjustment mechanism in the PPA as any agreement with PLN to adjust tariffs due to change in law may, in practice, require a further Government approval to be implemented.

7. Force Majeure Events

With respect to force majeure relief, MEMR 5/2025 defines force majeure as situations beyond the control of the affected party, which include:¹⁹

 

We understand that, while this list is presented as being exhaustive, MEMR may, based on an evaluation of the affected party's request, recognize other force majeure events related to the technical implementation of the power plant project.²⁰ Hopefully this will mean that the typical force majeure definition in PLN PPAs will continue to apply.

8. Pre-COD Share Transfers

A significant headache for investors over recent years has been the restriction on pre-COD share transfers provided in MEMR 48/2017 which only allows for direct share transfers in an IPP to be made to a subsidiary which is more than 90% owned by the transferor, without a carve-out for lender enforcement of share security.

MEMR 5/2025 now specifically contemplates the possibility of a pre-COD share transfer to a lender, subject to PLN's prior approval "on condition that the implementation of the transfer to the lender does not reduce the qualifications of the sponsor".²¹

While the wording of MEMR 5/2025 is somewhat confusing (as it refers to share transfers and lender step-in rights, which are different concepts), we understand the intent is to provide that transfers by lenders under the finance documents would be permitted, on the condition that the transferee has similar capabilities to the current sponsor.

This is a helpful development. As MEMR 5/2025 is a subsequent and more specific legal instrument to MEMR 48/2017, we understand it would take precedence over the provisions of MEMR 48/2017 with respect to renewable projects, which should facilitate the structuring of share security for these projects going forward (although other issues relating to the process for enforcing Indonesian share security would remain relevant).

9. Rights to Environmental Attributes or the Economic Value of Carbon

MEMR 5/2025 introduces a reference to the hotly-debated allocation of environmental attributes or the economic value of carbon reductions, which PLN has sought to claim the value of over the past few years through provisions of its form of PPAs after a period where this was unregulated and de facto rested with the IPPs which could optimize the revenue from the projects, and potentially offer a more competitive tariff as a result of that.

MEMR 5/2025 outlines the rights to environmental attributes or the economic value of carbon for renewable energy power plants, which at a minimum include:²²

 

Helpfully, the regulation does not set out a fixed position on this thorny issue and leaves to the regulator or, in the absence of regulatory requirements, the PPA to determine how these attributes should be allocated between the parties to the PPAs (PLN and the IPPs).²³

10. Co-located Renewable and Storage Projects

In light of the increasing number of co-located intermittent renewable and energy storage projects in Indonesia, MEMR 5/2025 includes specific provisions setting out the treatment of these projects.

Specifically, it provides that if a renewable energy plant includes battery or other energy storage systems, the electricity transaction is based on the total energy recorded at the transaction point, which includes both energy from the plant and the stored energy, with these storage systems treated as an integral part of the plant.²⁴ This is a helpful development and consistent with what we have seen for other co-located solar and BESS projects in Indonesia.

Provision is also made for the need to replace the energy storage systems that have reached the end of their lifespan, requiring the IPP to replace these with new facilities that meet or exceed the previous performance. The cost of replacing these energy storage systems is required to be borne by the IPP. This is consistent with general market practice (including in Indonesia) but will need to be factored into the initial financial model to ensure sufficient cashflows are available to undertake the replacement.

11. Other Key Features

Transitional Provisions

The guidelines on content requirements for PPAs under MEMR 5/2025 will not apply to PPAs that have been signed or in respect of which bids have already been submitted before 4 March 2025, its enactment date, though note our comments above with respect to share security enforcement pre-COD. However, the new regulation would apply to any extension to any such PPAs.

Conclusion

By largely codifying the practices implemented in bankable PPAs by PLN into a renewable-specific regulation which recognises the different characteristics of renewable power projects – including among themselves – MEMR aims to provide greater clarity as to the legal regime intended to apply to them, including following the implementation of PR 112/2022.

The limited changes to the principles applicable to the PPAs (both in practice and based on the previous guidelines of MEMR 10/2017), including as concerns their duration and extension, the treatment of environmental attributes, and share transfers before COD, should all be welcome news to developers, investors and financiers.

While some ambiguity would need to be clarified in future rnewable PPAs on the points we have flagged in this article and that not all changes seem to be positive, as a whole MEMR 5/2025 appears to be a further sign of commitment of the GOI to its energy transition in a period of renewed global uncertainty around the pace of and irreversible nature of the transition. This message was further stressed during the socialization meeting of the new regulation which was organized by MEMR on 11 March 2025, and where senior representatives of the Government of Indonesia and PLN restated their objective to accelerate the development of renewable energy generation capacity over the next years, and suggested again that this would clearly be affirmed in the upcoming (and long-awaited) new PLN RUPTL.

 

Authors: Frédéric Draps, Partner / Foreign Legal Consultant; Jean-Louis Neves Mandelli, Partner; Alfred Ng, Partner and Indriyane Vera Natalia, Associate.