Jakarta to ease local content rule on RE projects - Requirement to be introduced in a staged manner


JAKARTA: Indonesia is attempting to ease local content requirements to spur investment in renewable energy (RE) infrastructure but observers say there is more to be done in addition to revoking a single ministerial regulation.

The Industry Ministry said it will revoke an industry ministerial regulation on guidelines for using domestic products for electricity infrastructure development, according to a ministry letter to the Office of the Coordinating Maritime Affairs Minister.

The ministerial regulation stipulates that all electricity for public consumption infrastructure must use domestically produced goods and services with an exemption allowing the import of goods if domestic production is not possible, cannot meet the technical requirements or cannot meet demand.

The Industry Ministry did not immediately respond to The Jakarta Post’s request for comment.

The letter also did not specify when the ministry would officially revoke the regulation. Eniya Listiani Dewi, renewables director-general at the Energy and Mineral Resources Ministry, explained that revoking the regulation would mean the stipulation on local content would refer to a government regulation on industrial empowerment, which pegs local content obligations for renewables at a 25% minimum.

Initially, solar power projects needed to have at least 40% local content, hydro power plants at least 50% and geothermal at least 30%.

“The most current investment (coming into Indonesia) is floating photovoltaic (PV). There are two projects for floating PV, then there are three projects for geothermal,” she told the Post.

“These projects were ongoing but hampered. Hopefully (by revoking the rule), the projects can continue straight away.”

The planned revision came after several renewable energy projects were hampered as some international lenders were unwilling to meet the local content requirements, thereby withholding their funding.

According to state-owned electricity company PLN in January, nine RE projects worth 51.5 trillion rupiah were hindered by a lack of international funding.

Zainal Arifin, PLN’s executive vice-president of RE, said the financing issues had led to delays in the development of the RE capacity in the government’s electricity procurement plan, alongside other factors such as an ongoing oversupply of electricity.

“We are obtaining funding from the Asian Development Bank, World Bank and the Japan International Cooperation Agency but this is currently hindered as local content is not part of their procurement process,” he said, as reported by Kontan on Jan 24.

The local content requirement also received attention from Indonesia’s Just Energy Transition Partnership as shown in its Comprehensive Investment and Policy Plan document released in November last year.

Investment in local renewables manufacturing capacity is still limited, resulting in a lack of scale that has forced projects to face high costs when procuring locally, the document said.

Meanwhile, the cost of components outside Indonesia has fallen rapidly in recent years, which developers can take advantage of if there is no limitation. The document also suggested that the local content requirement should be “introduced in a staged manner” to make time for a sufficient market to form and support domestic supply chains.

The Indonesian Solar Energy Association chairman Fabby Tumiwa suggested that the government push the growth of the RE industry before enforcing the relatively high local content requirements.

“The issue with local content rules must be observed holistically. There would be no problem with such a regulation if Indonesia could produce high-quality materials to build RE infrastructure,” he told the Post last Friday. — The Jakarta Post/ANN

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