Developments in Indonesia's rooftop solar power regulatory regime

Under a newly issued regulation of Indonesia’s Minister of Energy and Mineral Resources, the solar PV capacity to be installed by PLN’s prospective rooftop solar customers is no longer restricted to a specific capacity limit. Instead, capacity will be based on PLN’s approved five-year solar power development quota, in line with the national energy policy.

Under the updated regulatory framework, PLN will not pay for any monthly electricity surplus produced by new rooftop solar photovoltaic (PV) power system facilities (Rooftop Solar PV). However, PLN will no longer impose monthly capacity charges for new Rooftop Solar PVs for industrial use. As a transitional measure, the corresponding arrangements for existing Rooftop Solar PVs will remain in place for 10 years.

Legal background

Minister of Energy and Mineral Resources (MEMR) Regulation No. 2 of 2024 on Rooftop Solar Power Plants Connected to Electrical Power Networks of Electricity Supply Business Licence Holders in the Public Interest (MEMR Regulation 2/2024) replaces MEMR Regulation No. 26 of 2021 on the same topic (MEMR Regulation 26/2021).

Under this new regulation, prospective rooftop solar customers are still required to obtain an approval from the relevant holder of electricity supply business licences in the public interest (Izin Usaha Penyediaan Tenaga Listrik Untuk Kepentingan Umum – IUPTLU) to connect their Rooftop Solar PVs to the relevant electricity network.

Key changes

We summarise below five key changes under MEMR Regulation 2/2024.

1. Removal of Capacity Limits

MEMR Regulation 26/2021 provided that all Rooftop Solar PVs to be installed by a prospective Rooftop Solar PV customer (Customer) to be connected to the electricity system/network of an IUPTLU holder, would be subject to the following capacity limits:

1. up to 100% of the Customer’s connected electricity from PLN’s electricity system/network, if the Rooftop Solar PV is installed within PLN’s business area; or
2. the local electricity system capacity, to be declared annually by non-PLN IUPTLU holders, if the Rooftop Solar PV is installed in the business area of a non-PLN IUPTLU holder.

Under MEMR Regulation 2/2024, these two capacity limits no longer apply.

Instead, the Rooftop Solar PV capacity to be installed by the Customer within the business area of all IUPTLU holders (including PLN and all other IUPTLU holders) shall be based on the prospective Customer’s needs and aligned with the Rooftop Solar PV development quota (see point 4 for an explanation of these quota arrangements).

If an IUPTLU holder’s Rooftop Solar PV development quota has not yet been determined, the permitted Rooftop Solar PV capacity will depend on the state of the IUPTLU holder’s electricity network. This removal of capacity limits (subject to quota requirements) offers some scope for businesses to increase investments in Indonesia’s Rooftop Solar PV sector (assuming that the development quotas continue to grow in line with Indonesia’s national energy policy). 

2. Excess Electricity Exports and Imports 

Under the previous regulatory regime, electricity exports from Rooftop Solar PV systems to the electricity network of an IUPTLU holder such as PLN were calculated monthly based on 100 percent of the metered export kWh value against the import kWh. In any month where the electricity exported exceeded the electricity imported, this surplus would carry over and be deducted from the next month’s electricity invoice from the IUPTLU holder.

MEMR Regulation 2/2024 now requires that any monthly excess electricity from a Rooftop Solar PV system should no longer be calculated as part of the monthly electricity invoice of the Customer.

However, during the transition period, MEMR Regulation 2/2024 provides that (i) operating Rooftop Solar PVs already connected to the electricity grid of an IUPTLU holder, and (ii) not yet operating Rooftop Solar PVs already approved by the IUPTLU holder, using an export-import mechanism in line with MEMR Regulation 26/2021, will remain valid for 10 years from the issuance of the IUPTLU holder’s approval.

In other words, existing arrangements for approved excess export-import mechanisms will be grandfathered for 10 years from the initial approval by the IUPTLU holder. Going forward, PLN (or the relevant IUPTLU holder) will no longer pay for any monthly electricity surplus produced by new Rooftop Solar PV systems.

Since nearly all Rooftop Solar PV systems in Indonesia (particularly those involving PLN) currently operate on a net-import basis, in practice, the impact of this change on the existing market should be relatively minimal. Nonetheless, this is a new restriction on the future potential of the Rooftop Solar PV sector in Indonesia.

3. Capacity Charge 

MEMR Regulation 26/2021 had imposed monthly capacity charges for Rooftop Solar PVs for industrial use.

Under MEMR Regulation 2/2024, those capacity charges no longer apply going forward. During the transitional period, (i) operating Rooftop Solar PVs connected to the electricity grid of an IUPTLU holder and (ii) not yet operating Rooftop Solar PVs approved by the IUPTLU holder before the issuance of MEMR Regulation 2/2024, and subject to a monthly capacity charge under the 2021 regulation, will continue to face monthly capacity charges for up to 10 years from the issuance of the IUPTLU holder’s approval.

The removal of capacity charges for all new Rooftop Solar PV systems in Indonesia should be welcomed by the industry, particularly those planning to operate on a net-import basis. 

4. Quota for Rooftop Solar PV Development

Under the new regulatory regime, IUPTLU holders must establish a five-year quota for development of Rooftop Solar PV systems in Indonesia. The quota must take into account (i) the national energy policy, (ii) the IUPTLU holder’s electricity supply business plan, and (iii) the reliability of the IUPTLU holder’s electricity network.

To set the quota, the IUPTLU holder must submit its quota proposal and technical assessment documentation for evaluation by the Director General of Electricity (DGE) and Director General of New, Renewable Energy and Energy Conservation (DGNRE) at the Ministry of Energy and Mineral Resources.

The quota proposal for 2024 to 2028 must be submitted to the DGE (copied to the DGNRE) within three months after the enactment of MEMR Regulation 2/2024 (ie, by 1 May 2024), while quota proposals for future years should be submitted by October of the preceding year.

Once the quota for the specific IUPTLU holder has been confirmed by the DGE, the IUPTLU holder must promptly establish its Rooftop Solar PV development quota for the relevant cluster, referencing the electricity network of the IUPTLU holder’s customer service unit.

Within 10 business days of the stipulation of the quota by the DGE, the clustered quota must be reported to the DGE and DGNRE, and announced on the IUPTLU holder’s website, application and/or official social media account.

In our view, the requirement for the government to establish a quota system is indicative of the Indonesian government’s desire to increase supervision of the Rooftop Solar PV sector, while also encouraging its development.

It is notable that the quota system must take into account the reliability of the IUPTLU holder’s electricity network, as we understand that this is a continuing area of focus for PLN. Of course, it remains to be seen whether the DGE will approve ambitious or modest development quotas, and that will need to be monitored over the coming months.

5. Carbon Economic Value

The 2021 regulation did not provide detailed arrangements on carbon credits generated from the operation of Rooftop Solar PVs. Instead, the 2021 regulation only provided that Customers and IUPTLU holders could carry out carbon trading as a result of utilisation of Rooftop Solar PV, with further details on the ownership and carbon trading mechanism to be regulated subsequently.

In contrast, MEMR Regulation 2/2024 expressly states that the carbon economic value from utilisation of Rooftop Solar PV should follow applicable laws and regulations. However, if the relevant laws and regulations are not yet in place, then the carbon economic value will be owned by the Government.

In our view, until the regulations expressly dealing with ownership of carbon economic value are issued, the provisions in MEMR Regulation 2/2024 on ownership of carbon economic value may lead potential Customers to further consider the economic benefits of developing Rooftop Solar PV projects.

Conclusion

In our view, the removal of capacity limits and the exemption of capacity charges demonstrates a commitment from the Government to further encourage the widespread adoption of solar energy. Additionally, the introduction of a five-year quota system, taking into account national energy policy and the reliability of the respective IUPTLU holder’s electricity systems, adds a forward-looking dimension to the regulation, encouraging sustainable and strategic development in the Rooftop Solar PV sector and associated electricity transmission infrastructure.

While MEMR Regulation 2/2024 has only been newly issued, we are continuing to monitor any developments in this sector, and we expect that further implementing regulations could be issued in the years ahead, particularly regarding carbon credits generated from Rooftop Solar PV projects.