This is an extract from a recent paper “Accelerating renewables investment in Indonesia: Shared use of the transmission network” by Institute for Energy Economics and Financial Analysis (IEEFA) and Institute for Essential Services Reform (IESR).
Accelerating Indonesia’s roll out of renewable electricity is essential to the country’s coal phase out plan , achieving its 2060 net zero target, and to usher in green economic growth as part of President Prabowo Subianto’s “Together Indonesia Advances Towards a Golden Indonesia 2045” vision. As Indonesia strives to drive up its renewable generation capacity, with a target of an additional 75 GW on the grid by 2040, the country must attract private investment to successfully accelerate its energy transition. Several energy policies aim to shape Indonesia’s direction between now and 2040 – the New and Renewable Energy Bill (RUU EBET), the National Energy Plan (KEN), and the state utility’s electricity supply business plan (PLN RUPTL). It’s critical that these initiatives boost renewable energy goals and attract more private investment in the country’s energy system. There are two key barriers currently blocking corporate investment in Indonesia’s renewable future: the limited number of renewable procurement options open to companies, and the geographic distance between Indonesia’s rich renewable resources, which have sufficient scale to supply industrial centres, and the places where these companies are based.
The joint utilisation of transmission and distribution lines, globally known as power wheeling, offers a promising solution that could unlock significant private investment in renewables in Indonesia from large, international companies committed to using 100% renewable electricity. This includes the 130+ businesses in Climate Group’s RE100 campaign that operate in Indonesia, who represent 3TWh of electricity demand per year. Joint transmission network utilisation is a scheme which allows non-utility stakeholders open, non-discriminatory access to public utility grid infrastructure, through which they can deliver electricity from private generation sources to private customers, subject to a transmission service charge. This approach enables different stakeholders to use grid infrastructure owned by the state electricity utility to deliver electricity from generation sources to load centres. The current regulations and laws on the power supply business in Indonesia allow for a basic form of joint transmission network utilisation. However, structured correctly, this platform for corporate renewable procurement in Indonesia would be a win-win, helping corporates achieve their renewable energy targets, while offering a predictable, long-term revenue stream for PT Perusahaan Listrik Negara (PLN), the state utility. Indonesia has immense renewable energy potential, estimated to be close to 3.7TW, but despite this only 0.3% is currently being used within the energy mix. With Indonesia potentially needing investments of at least $1.2 trillion USD between now and 2050 for clean energy, storage, and transmission networks, the country must seek broader investment sources, especially through unlocking access to private capital.
Benefits of joint transmission network utilisation for Indonesia and PLN
The joint utilisation of transmission and distribution lines, or known globally as power wheeling, offers a range of benefits for Indonesia and its state energy utility PLN. Joint transmission network utilisation allows for the efficient integration of renewable energy sources into the national grid through private sector investment in renewable generation plants, helping Indonesia to achieve its renewable energy targets. To achieve the target of 75 GW of renewables by 2040, increased grid integration and investment in new renewable projects will be needed. A recent study from IESR, reveals a total of 333 GW of economically viable solar, wind, and mini-to-small hydro projects, highlighting the readiness of potential projects to supply Indonesia’s renewable demand. With the adoption of a joint transmission network utilisation scheme, the private sector can provide upfront investment in new renewable projects beyond the stated projects in PLN’s electricity supply business plan (RUPTL PLN) while supporting grid infrastructure integration and expansion. This mechanism also supports companies committed to using clean energy in their operations to achieve their commitments, especially global companies such as RE100 members. Through capitalising on new and foreign direct investment opportunities to develop new renewable projects, the reliance on the national budget will be lessened, while supporting the state utility PLN in achieving its renewable targets.
Attracting new investment, and boosting economic growth: After the launch of Direct Power Purchase Agreement (DPPA) and Corporate Renewable Energy Supply Scheme (CRESS) joint transmission network utilisation type schemes in Vietnam and Malaysia, multinational companies, such as Google, Oracle, Alibaba, NVIDIA, Intel, and Samsung made significant investments in those countries. Investors are increasingly looking to expand in markets like Indonesia, moving away from places like Singapore, where there are restrictions on the construction of new data centres and limited renewable electricity availability. Indonesia has an opportunity to provide large-scale access to renewable electricity, offering the private sector more options to invest and grow, whilst meeting their sustainability goals. Currently, neighboring countries in the region, such as Vietnam and Malaysia, have already established a clear, competitive ecosystem around renewable energy access, positioning themselves as attractive destinations for investors seeking reliable and sustainable energy sources. In contrast, Indonesia faces falling behind on this golden opportunity. A clear mechanism for private investment in renewable energy projects can attract both domestic and international investors, boost economic growth, and create job opportunities for Indonesia.
Establishing an additional revenue stream for PLN: PLN stands to benefit significantly from a joint transmission network utilisation mechanism. Through renting its grid transmission facilities to private electricity suppliers through a transmission charge, PLN can establish another revenue stream. Given PLN’s ongoing investments in grid modernisation and expansion, preserving its funds for these priorities is critical. At the same time, private industry has a strong demand for renewable electricity to power their operations, and are willing to invest directly in generation given the opportunity. Recent BloombergNEF research highlighted that in Japan, since 2008, private corporates have invested in and added over 220GW of clean power through offsite Power Purchase Agreements (PPAs), growing at an annual average of 43%. A joint transmission network utilisation mechanism would enable PLN to unlock this private investment, accelerating Indonesia’s energy transition whilst alleviating further financial responsibility. Indonesian energy demand is predicted to at least triple by 2050 and grow by 5% annually, partially driven by increased electrification and industrial growth. To accommodate this, the grid must both modernise and expand. Renewable energy projects, especially onshore wind and solar, can be built and commissioned relatively quickly, meaning significant progress can be made in the short-term towards meeting projected energy demand.
Overview of Indonesia’s existing position on joint transmission network utilisation
Currently, regulations and laws overseeing the power supply business within Indonesia allow for the implementation of a joint transmission network utilisation mechanism. The Government of Indonesia regulates the electricity power supply business through Law No. 30/2009 on Electricity (Law 30/2009), stating that power supply for public interest is managed by state and regionally owned enterprises (SOEs and ROEs respectively) with priority given to the state utility provider PLN (Article 11). The law also stipulates that the private sector, cooperatives, and communities can participate in the power supply business, by providing electricity for either public or private interest. Alongside this, the law regulates the authority of the Government to determine policies and plans, grant permits, guide and supervise, impose sanctions, and determine electricity and grid tariffs – underpinning the authority of the Government in decisions on power system infrastructure. This was detailed further in the Government Regulation of the Republic of Indonesia No. 14/2012 on Business Activities of Electricity Supply (GR 14/2012), which was later amended by the Government Regulation of the Republic of Indonesia No. 23/2014 (GR 23/2014).
Barriers to joint transmission network utilisation
Indonesia’s state utility PLN provides integrated utility services across generation, transmission and distribution. Under the current format, no direct electricity sales from private generators to corporate consumers are permitted. The private sector can only produce, distribute, and sell electricity directly to the consumer if they hold Electricity Supply Business Area (Wilus) and UPTLU permits. Yet the Wilus scheme is designed for the private sector to participate in supplying electricity to areas that cannot be reached by PLN or areas such as industrial centres. Participation from the private sector, cooperatives, and communities in the power supply business is allowed, but common practice obligates private energy producers and suppliers to sell electricity to PLN as a single off-taker.
Given high corporate demand for clean energy and the Government’s aspiration to achieve the additional 75GW renewable energy capacity by 2040, PLN would need to develop or procure greater numbers of renewable energy projects year-on-year. However, PLN currently faces significant capital and resource constraints, which hinder its ability to provide a steady supply of renewable energy. Furthermore, current regulations require PLN to participate in many aspects of the renewable energy transaction. This not only adds layers of administrative complexity but also creates a transparency barrier between the cost of renewable power generated, and the cost at which customers must purchase it.
Under the existing framework, PLN either makes direct investments into renewables or enters into long-term power purchase agreements (PPAs) with independent power producers, thereby assuming long-term liabilities. This model also generates renewable energy certificates (RECs) through transactions that involve PLN’s procurement process, adding further demands on PLN’s capacity. A well-structured joint transmission network utilisation framework would enable third parties to finance and develop renewable projects independently. By doing so, PLN could focus on its role of ensuring grid stability and efficient operations, while investors benefit from a more transparent and streamlined process. This shift is likely to appeal to companies committed to rapid clean energy access – such as members of the RE100 initiative – by reducing administrative burdens, clarifying costs, and enhancing the overall investment climate in Indonesia.
There are ongoing claims that, despite the provision for UPTLS in law, joint transmission network utilisation is not possible due to potential negative impacts that might disrupt power system stability. Although a concern, there are numerous examples across the Southeast Asia region where this has been overcome successfully, such as Malaysia and Vietnam, where suppliers and buyers remain responsible to the Grid Code and respond to orders from the grid operator. These practices could be replicated for Indonesia, and PLN. New renewable generation can be predicted and fed into PLN’s dispatch order, and future grid planning. Such planning would be required in Indonesia regardless of private participation in the power supply, given the Government’s 2040 75GW renewables target and increasing energy demand.
Finally, a lack of transparency in electricity generation costs, tariffs, and potential charges from transmission access is a key barrier. There is no existing document or formula setting out the charges a private entity would have to pay to engage in a joint transmission network utilisation scheme. Without certainty, private power producers are discouraged from participating in the market, and these unclear charges could potentially lead to increased electricity tariffs for consumers if not transparently assessed. Costs for these services should be fair, balanced, and transparently determined, reflecting costs of investment, operations, and services.
Recommendations: A proposed joint transmission network utilisation mechanism for Indonesia
Integrate language supporting a regulated joint transmission network utilisation scheme into relevant national policies and plans: The integration of joint transmission network utilisation into long-term energy planning in Indonesia is key. Therefore language supporting a regulated joint transmission network utilisation scheme is integrated into relevant national policies and plans.
Uphold the key principles of the market: Given PLN’s multiple roles as market operator, grid operator, and utility provider, any joint utilisation of transmission and distribution infrastructure must align with the principles of Law 30/2009 which regulates the electricity power supply business in Indonesia. Alongside this, retaining and clarifying the existing procurement mechanisms for corporate renewable buyers is key to fostering a transparent and efficient market. Introducing a joint transmission network utilisation mechanism alongside such existing mechanisms will diversify the landscape, offering corporates greater flexibility to match their varied energy needs including those from energy-intensive industries.
Develop and implement joint transmission network utilisation principles under existing regulations: To attract private sector participation and enable large-scale renewable deployment, joint transmission network utilisation regulations should allow for open access to the transmission grid. This approach would enable PLN to better mobilise external capital in developing renewable generation projects to reach Government targets, instead focusing its efforts on operating, maintaining and, potentially, expanding the grid while keeping it stable.
Work towards longer term regulatory transformation that maximises the potential of joint transmission network utilisation: Joint transmission network utilisation can be implemented in the short term within the scope of current Indonesian electricity regulations. But to fully maximise joint transmission network utilisation’s potential, a longer-term regulatory evolution could be considered. Under this mechanism, PLN would facilitate transmission between the renewable generator and the renewable buyer through a Transmission Services Agreement (TSA). This idealised, long-term scheme would have two additional benefits for PLN. Firstly, it would lower risk for PLN enabling it to gradually move away from the risks associated with the obligation to buy electricity from Independent Power Producers (IPPs) via current procurement processes. Secondly, it would streamline renewable capacity additions and decrease the manpower needed from PLN in the procurement process, enabling PLN to focus on expanding and optimising the grid.
In conclusion, through the adoption of these recommendations, power wheeling can be a win-win between the public and private sector. PLN retains its central role in Indonesia’s energy system, whilst benefiting from a new revenue stream through the introduction of transmission charges. The private sector can support the development of new renewable capacity, providing investment to do so, allowing PLN to focus on grid planning, transmission, and distribution to enhance Indonesia’s power network. Private sector entities can make progress towards their renewable energy targets, and the Government of Indonesia can make progress towards its economic, national development, and decarbonisation goals.
Access the paper here
