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THE URGENCY OF INDONESIA'S NEW AND RENEWABLE ENERGY (EBT) BILL
Although there are several key regulations that exist to govern new and renewable energy in Indonesia, namely Law No. 30 of 2007 on Energy, Law No. 17 of 2019 on Water Resources, Law No. 21 of 2014 on Geothermal Energy, Government Regulation No. 79 of 2014 on National Energy Policy, and other various ministerial regulations, there remains one particular law missing which should address the new and renewable topic in Indonesia. Nevertheless, the government of Indonesia has several energy transition initiatives with the goal of achieving a carbon emission reduction of 29% and 41%, which will receive global support by 2030. Hence, the issuance of a New and Renewable Energy Law is not only anticipated, but also essentialfor stakeholders who are looking to engage in new and renewable related activities in Indonesia.
In an attempt to kickstart the energy transition goal in Indonesia, initiatives of a holistic and centralized regulation on new and renewable energy in Indonesia has been touched upon for years but not recognized until December 2019, where the Commission VII of House of Representatives of Republic of Indonesia formally proposed the Rancangan Undang-Undang Energi Baru dan Energi Terbarukan (Bill of New and Renewable Energy Law, “RUU EBT”). An update on the development of RUU EBT shows that it has undergone the harmonization stage by the House of Representatives on 30 May 2022, and during the 25th House of Representatives Plenary Meeting, RUU EBT is officially accepted as a Proposed Bill by House of Representatives on the 14th of June 2022.
During RUU EBT harmonization process, RUU EBT has been revised several times. The main points of revision and changes in the RUU EBT, as finalized in the latest draft of the bill on 30 May 2022, are as follows:
Licensing of New Energy Businesses
As New Energy is very newly regulated in RUU EBT, it also provides stipulations on licensing for Suppliers and Cultivators of New Energy, while before RUU EBT there has been no regulations to stipulate such matter. Supply of New Energy is prioritized in underdeveloped, remote, and rural areas by using local New and Renewable Energy sources, and areas that produce New Energy sources are also prioritized to receive New Energy. Suppliers of New Energy sources shall be business entities in the form of State-Owned Enterprises, Region-Owned Enterprises, Village-Owned Enterprises, private companies, and other types of business entities as regulated by the law. Suppliers of New Energy sources must obtain a business permit by fulfilling administrative, technical, environmental, and financial requirements. Further regulations that stipulate the licensing for New Energy business entities are not yet present.
Licensing of Renewable Energy businesses
A new stipulation in RUU EBT that is not yet regulated anywhere else before is regarding the licensing for Suppliers and Cultivators of Renewable Energy regardless of the source. Previous regulations differentiate licensing stipulations based on the sources of each Renewable Energy. Unlike Suppliers of New Energy which consists of all business entities, individual persons are allowed to be Suppliers of Renewable Energy. Individuals and business entities in the exploitation of renewable energy are required to have business licenses, which business entities consist of state-owned enterprises, regionally-owned enterprises, village-owned enterprises, cooperatives, private-owned enterprises, and other business entities.
New and Renewable Energy Tariffs
Prior to RUU EBT, Tariffs for New and Renewable Energy is also a new stipulation introduced in the RUU EBT. An existing regulation that stipulates Tariffs for Electricity sourced from Renewable Energy is Ministry of Energy and Mineral Resources Regulation Number 50 of 2017 and its subsequent amendments (“MEMR Regulation 50/2017”), where electricity tariffs are differentiated according to each source of Renewable Energy. Tariffs for New and Renewable Energy is determined by the agreement of the parties considering economic value and reasonable rate of investment return for the business entity, and highest benchmark price determined by the Government considering the economic value and reasonable rate for investment return of Supplier business entities and/or offtakers (both private companies and State-Owned Enterprise). One of the aspects to consider in determining electricity tariff generated from Renewable Energy sources is the rate for investment return for business entities. This aspect was not stipulated in MEMR Regulation 50/2017 and is a new requirement in RUU EBT. Further stipulations on tariffs will be regulated through Government Regulation. Currently, the Ministry of Energy and Mineral Resources is preparing a Presidential Regulation on electricity tariffs generated from Renewable Energy sources. However, a possible issue is there will be a legal uncertainty between the Presidential Regulation and the future Government Regulation on Tariffs for New and Renewable Energy.
Standards of the Renewable Energy Portfolio
Standards of the Renewable Energy Portfolio is a new term in RUU EBT. It refers to the minimum standard for business entities generating electricity from Conventional Energy sources to generate electricity from Renewable Energy sources. This standard is automatically applicable to Conventional Energy-generating business entities signing a Power Purchase Agreement after the passing of RUU EBT. Further stipulations on Standards of the Renewable Energy Portfolio will be regulated through Government Regulation.
Incentives by Central and Regional Government
Incentives may be provided for business entities in the generation and business activities of New and Renewable Energy and business entities using Conventional Energy sources and/or fuel that meets the Standards of the Renewable Energy portfolio. These incentives may be in the form of: (i) ease of production and certification of local biomass-based liquid fuels and biofuels, (ii) tax holiday for import duties and value added tax for using domestic technology and services, (iii) tax holiday for income tax for a maximum period of 10 years; and/or (iv) other types of incentives in accordance with the provisions of other laws and regulations.
New and Renewable Energy Fund
In RUU EBT, a new provision states that Central and/or Regional Governments have an obligation to provide New and Renewable Energy Fund to reach the National Energy Policy targets. New and Renewable Energy Fund is sourced from. including but not limited to, the State and Regional Revenue and Expenditure Budget, Conventional Energy export taxes, carbon trading funds, Renewable Energy certificate funds. The purpose of New and Renewable Energy Fund is to fund infrastructure development of New and Renewable Energy, incentives for New and Renewable Energy, compensation for business entities developing New and Renewable Energy, research and development of New and Renewable Energy, human capital development in the field of New and Renewable Energy, and subsidy of non-competitive New Energy tariffs in comparison to Conventional Energy. Further stipulations of New and Renewable Energy Fund will be regulated through the Government Regulation.
Given this, the Government’s attempts in the drafting and issuance of RUU EBT deserves an appreciation, as there is no centralized and holistic regulation that touches upon the matter of New and Renewable Energy. However, several issues that must be addressed in the current draft of RUU EBT are as follows: (i) RUU EBT has not incorporated provisions regulating technology related to the development of New and Renewable Energy, such as New Energy-based storage facilities (i.e. hydrogen-based energy storage) and carbon capture technology; (ii) Definition for an amount of specific terms in the bill has not been addressed yet, including but not limited to Supply of New and Renewable Energy, Cultivation of New and Renewable Energy, Tariff of New Energy, Tariff of Renewable Energy, and New and Renewable Energy Fund; and (iii) the bill itself has not stipulated clearer provisions particularly in regards to the technical implementation of New and Renewable Energy which makes the technical. This includes provisions on the licensing of New and Renewable Energy which is further regulated by the Government Regulation, and provisions on incentives which will also be further regulated by Government Regulation.
Prepared by:
Endraswari Ening Sayekti I endraswari@bahar.co.id
Naura Nabila I naura@bahar.co.id