Indonesia relaxes rules on local content to allow foreign money for renewable energy projects

A government official revealed on Wednesday that Indonesia had relaxed the rules for electricity projects funded by foreign investors, which required them to use locally made parts. This was done to help unlock concessional loan offers from international development bank.

Indonesia pledged to increase the percentage of renewables used in its energy mix, and that foreign lenders would provide financing. This includes more than 20 billion dollars under the Just Energy Transition Partnership led by Group of Seven Countries.

Analysts have partly blamed the local content rule for the limited funding of renewable energy projects.

Rachmat Kamuddin, the deputy minister for maritime affairs and investments, announced that Jakarta would exempt from local content requirements projects which receive a minimum of 50% financing from multilateral or bilateral lenders abroad.

In a presentation for the industry, Rachmat explained that if we use funds from agencies with different rules of procurement, which are members, then we could follow the agreement we have set.

We are doing it because we expect concessions from the development finance institutions.

Solar power plants can also use imported panels under the new regime, as long as the operator of the project obtains ministerial approval and signs an agreement for power purchases before 2024. The plant must be operational by 2026's first half.

Solar panels can only be purchased from firms that have committed to invest in an Indonesian production facility.

The previous rule required that solar energy plants have a minimum of 60% local content.

Rachmat announced that more information on the local content requirement will be released soon. The thresholds for each project or power plant may vary.

According to the current business plan of Indonesian state utility Perusahaan Listrik Negara, it has plans to increase renewable-sourced energy capacity by 20,9 gigawatts from 2021 until 2030. PLN is reviewing the plan and has stated that it would like to invest more in renewable energy. Reporting by Fransiska Naangoy, Writing by Gayatri Suryo. Jane Merriman edited the story.

(source: Reuters)