Indonesia has cut the minimum local content requirement for solar power plants to 20% from around 40%.  (Photo: Unsplash)

Indonesia is set to expand its foreign investment opportunities in the renewable energy sector. Following the recent relaxation of local content regulations for power project financing, the country has announced on August 12 a reduction in local content requirements for three types of renewable energy power plants.

Specifically, the requirement for solar energy plants has been halved to 20%, with the aim of accelerating the nation’s transition to low-carbon energy and further reducing carbon dioxide emissions.

Indonesia's compromise on local content ratios to promote renewable energy

Under the new regulations, operators of solar energy plants using imported solar panels must meet three conditions: first, obtain permission from the Ministry of Energy; second, sign a power purchase agreement by the end of 2024; and third, ensure the plant is operational by the first half of 2026, with the latest deadline being June 2025.

Previously, the requirement for local involvement in solar plants was at least 40%, but the new rule significantly lowers this to 20%. For hydroelectric plants, the local content ratio has been reduced from between 47.6% to 70.76% to between 23% and 45%. Wind power plants now have a local content requirement set at 15%.

Jisman Hutajulu, Director General of Electricity at the Ministry of Energy and Mineral Resources (ESDM), stated, "We have assessed that these measures will speed up the establishment of renewable energy power plants, including hydro, wind, and solar, and reduce the country’s overall carbon footprint."

An onshore wind turbine in Indonesia. Indonesia relaxes local content rules to spur green energy investments. (Photo: iStock)

Indonesia embraces international funds by easing local content requirements

Under the Just Energy Transition Partnership (JETP) led by the United States and Japan, Indonesia secured $20 billion in funding. However, the progress of renewable energy initiatives has been slow. In January of this year, PLN reported that nine renewable energy projects affected by insufficient international funding had a combined value of 51.5 trillion Indonesian rupiah (about $3.7 billion USD).

As a country heavily reliant on coal and oil, Indonesia has seen insufficient green investment. Last year, the share of renewable energy was only 13.1%, below the 17.87% target, making the 23% target for 2025 increasingly difficult to achieve. Officials have admitted that the local content requirements for components have been a significant obstacle.

Prior to this, the Indonesian government had already relaxed requirements for foreign financing in renewable energy projects. On August 7, the Coordinating Ministry of Maritime and Investment Affairs announced that bilateral or multilateral loans for renewable energy projects, if the funding exceeds 50%, would no longer be subject to local content requirements, primarily aiming to secure favorable loans from international development banks.

Source: Reuters(1), (2), The Diplomat, The Star