Three new regulations have been introduced in Indonesia this year, aiming to standardise and speed up negotiations over power purchase agreements (PPAs), the use of natural gas for electrical power generation, and the use of renewable energy. However, the changes have raised concerns in the power industry.
The first of the three regulations aims to regulate the PPAs between Indonesia's state-owned electricity company PT Perusahaan Listrik Negara (PLN) and independent power producers (IPPs) and covers commercial aspects for all types of power generators including thermal power plants, geothermal power plants, hydroelectric power plants and biomass generators.
The regulations aim to increase standardisation in the negotiation of PPAs across all electricity projects in Indonesia, particularly on smaller non-tendered projects. They impose mandatory requirements which more or less reflect those in existing PLN thermal, geothermal and hydroelectric PPAs. The benefits of saving time and money at the bid and negotiation stage have to be balanced with the restrictions on how IPPs can best design solutions to capacity issues.
All projects must now be based on a build, operate and transfer (BOOT) arrangement, as opposed to the traditional build, own, and operate (BOO) basis and the term of the PPAs must not exceed 30 years commencing on the commercial operation date (COD), taking into account the type of power plant used for a particular project. IPPs would need to assess the risk and economic viability of this model in relation to each of their projects.
