Electricity Law (No. 30/2009)

According to Indonesia’s Electricity Law, the government’s objective for electricity development is to ensure the availability of good quality electricity in sufficient quantity, and at reasonable prices in order to improve the welfare of the people. As such, domestic and foreign primary energy sources will be used optimally in accordance with the National Energy Policy to ensure a sustainable supply of electricity. Furthermore,
government policy for the power sector specifies that the use of domestic energy sources will be prioritised in the national interest.

Electricity Law No. 15 of 1985 allowed for the initial, but limited participation of IPPs in the electricity generation market.

This law was replaced by Electricity Law No. 20 of 2002, which allowed for greater private participation in the electricity sector. In addition, Electricity Law No. 20 introduced an independent market regulator through the establishment of the Electricity Market Supervisory Agency. The Constitutional Court, however, revoked this law in 2004 when the provisions for a competitive electricity market and unbundling of PLN were deemed unconstitutional. At the same time, Electricity Law No. 15 was re-instated. The view that the reforms were unconstitutional was based on the interpretation of the law that electricity is a public commodity and its generation and distribution should remain under the exclusive control of the government. As one of many factors, this constitutional interpretation has contributed to preventing the further introduction of competition and independent regulatory measures in Indonesia’s electricity market.

Electricity Law No. 30 of 2009 established that PLN would remain vertically integrated and control the national transmission network, such that it is the main provider of generation and the sole provider of transmission and distribution networks (although some transmission lines in remote locations can be owned by IPPs). In addition, unlike the previous law, this law did not provide for an independent system operator within Indonesia. This law also clarified that PLN would no longer have a monopoly on supply and distribution to end customers. In this regard, a licence to provide electricity for public use (IUPTL) may be granted to privately owned businesses, although in practice PLN has the “right of first priority” to supply electricity to customers and generally exercises this right.

The government also implemented new regulations in 2006, 2009, 2012, and most recently in 2013, which introduced feed-in tariffs (FiTs) for the sale of electricity generated from small- and medium-scale renewable energy to PLN. These apply to power plants with technologies that use biomass, photovoltaics, sanitary landfill, zero waste and geothermal energy.