Indonesia eases local content requirements for solar power projects

Indonesia has relaxed its local content requirements for solar power projects financed by foreign investors, as it seeks to expedite renewable energy development in the country and boost the domestic solar panel industry.

Rachmat Kaimuddin, undersecretary for transportation and infrastructure at the Indonesia’s Office of the Coordinating Maritime Affairs and Investment Minister, said that the move will help Indonesia unlock funding from international partners to build its renewable energy supply.

The policy change, enacted through Energy and Mineral Resources Ministerial Regulation No. 11/2024, came into effect on July 30. Article 17 of the regulation exempts electricity projects from local content rules if at least 50% of their funding comes from bilateral or multilateral credit organisations.

The regulation also allows solar power plant projects to use imported panels when approved by the Office of the Coordinating Minister for Maritime Affairs and Investment.

However, project operators are also required to sign power purchase contracts before the end of 2024 and put into operation in the first half of 2026. Moreover, imported solar panels must be purchased from companies that have committed to investing in manufacturing facilities in Indonesia. According to the previous regulation, 60% of the parts of the solar power plant must be produced domestically.

The government also introduced Industry Ministerial Regulation No. 33/2024, which revokes a 2012 rule requiring the use of domestic products for electricity infrastructure development, except when domestic production is not possible, cannot meet the technical requirements or cannot meet demand.

Indonesia has pledged to boost the proportion of renewables in the national energy mix, and foreign lenders have promised to provide funding, including more than $20 billion under the Just Energy Transition Partnership from the International Partners Group, led by the US and Japan.

However, the disbursement of this funding for renewable energy is still limited. One of the reasons given by analysts is the regulations on domestic content.

According to the state-owned power company PLN, nine renewable energy projects, worth about IDR 51.5 trillion ($3.21 billion), have been hampered due to a lack of international funding because of domestic rate regulations.

The executive director of the Institute of Essential Services and Reform, Fabby Tumiwa, said Indonesia will have to develop the domestic solar panel manufacturing sector and attract more Tier 1 solar module manufacturing companies. Indonesia currently has at least two level 1 solar battery and module factories under construction, which are expected to start production in 2025.