Indonesia has ambitious renewable energy targets and actively courts foreign investment in solar, geothermal, hydro, and wind projects. The regulatory framework, however, requires careful navigation.
Foreign investors can own up to 100% of an Independent Power Producer (IPP) in Indonesia. The IPP model is the primary vehicle for foreign participation in renewable energy generation — the foreign-owned PT PMA develops, owns, and operates the power plant and sells electricity to PLN (the state electricity company) under a long-term Power Purchase Agreement (PPA).
The Ministry of Energy and Mineral Resources (ESDM) sets energy policy and issues generation licenses. PLN is the offtake counterparty for most grid-connected projects. BKPM (now part of the Investment Ministry) processes investment approvals. Local government (local government) issues land-related permits and certain environmental approvals.
Indonesia passed the New and Renewable Energy Law (EBT Law) in 2024, providing a clearer legal framework for the sector after years of regulatory uncertainty. Key provisions include renewable energy purchase obligations for PLN, a carbon credit framework for clean energy projects, and incentive structures for priority renewable technologies.
European investors in renewable energy should monitor EU-CEPA negotiations closely. A finalized agreement could facilitate EU-Indonesia cooperation on green energy technology transfer, project financing through European development finance institutions, and potentially preferential conditions for EU-linked renewable energy investments. Several EU member states already have bilateral investment treaties with Indonesia that provide baseline protections.
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