Energy Regulation

Indonesia’s National Energy Policy outlines a bold ambition to transition towards a cleaner energy future. By 2060, the country aims to achieve near-zero emissions in electricity generation through a significant expansion of renewable energy sources. This commitment aligns with Indonesia’s pledge under the Paris Agreement to reduce emissions by 31.89% (or 43.20% with international support) by 2030.
The electricity sector, responsible for 43% of energy sector emissions in 2019, plays a pivotal role in achieving these targets. PLN, Indonesia’s state-owned electricity company, is at the forefront of this transition. While PLN generates a significant portion of its power, it also purchases from independent power producers (IPPs).
To accelerate renewable energy adoption, PLN has set a target to increase the share of renewables in its total generation to 24.8% by 2030. However, this ambitious goal requires substantial investment, estimated at around $3.1 billion per year.
To support PLN’s clean energy transition, a results-based lending (RBL) program has been established. This program prioritizes safeguards and a just transition while encouraging a shift towards large-scale clean energy development. By fostering competition and scaling up the market, the RBL program aims to drive down the cost of renewable energy sources like solar PV and wind power.

Under preparation of the feasibility study, Environmental and Social scoping as well as internal credit approval process within PLN and KfW. Contract is expected to be signed in 2025.

Indonesia has embarked on a critical journey to transition from its traditional reliance on fossil fuels to cleaner energy sources. This shift is vital for achieving sustainable growth and addressing the nation’s energy security challenges.
In 2013, Indonesia’s installed generation capacity was approximately 51 gigawatts (GW), and access to electricity remained a significant concern. By 2022, this capacity had expanded to around 80 GW, a substantial increase. However, the government’s primary focus remained on ensuring universal energy access, which primarily led to an expansion of coal-fired power plants. This expansion saw coal-fired generation capacity increase from 23,813 megawatts in 2013 to 46,014 megawatts in 2022.
While Indonesia’s electrification rate improved significantly from 80.5% in 2013 to 99.6% in 2022, the country’s energy mix remains heavily reliant on fossil fuels. Although renewable energy’s share has increased from 12.3% to 18.2% during the same period, achieving the target of a predominantly renewable energy mix poses significant challenges due to growing energy demand and the relatively slow pace of renewable energy development.
Key obstacles hindering Indonesia’s energy transition include: (1) a lack of a clear roadmap for transitioning to clean energy, (2) insufficient transmission grid capacity, and (3) regulatory barriers that discourage investments in clean energy projects.
To address these challenges, a programmatic approach is necessary. This approach will involves a series of policy-based lending (PBL) programs, focusing on two reform areas: (1) establishing policies and a regulatory framework for clean energy transition, and (2) improving sector governance and financial sustainability. This multi-year approach will be complemented by results-based lending (RBL) and infrastructure-based energy transition investments.

The aim of the project is to sustainably and broadly improve access to a reliable, modern electricity supply for the population and businesses in the five target regions in West and Central Java. The target group is private households and businesses, especially MSMEs, in the project area.
The program’s implementation structure is geared toward achieving concrete results, which determine the disbursement of funds. Target achievement is reviewed annually by an independent consultant. Indicators ( disbursement Linked Indicators (DLIs) were used, e.g. the annual reduction of power outages and their duration as well as the increase in procedures that comply with international environmental and social standards within PLN.

The result-based loan (RBL) program aims to support the development of electricity distribution networks to connect businesses and households and to enhance the quality of life in Eastern Indonesia by the sustainable use of electricity as a key driver of increased economic activity. The program will complement a proposed sector loan for small- to mid-sized natural gas-fired power stations to deliver more sustainable energy services to communities across Eastern Indonesia. Natural gas is a much cleaner fuel compared to diesel and the quick-responding nature of gas-fired engines and turbines make them a good match for intermittent renewable energy sources such as solar and wind. It is an appropriate transition fuel to move towards a low-carbon energy system. The two loans will help enhance access to sustainable energy services and contribute to climate change mitigation.

The primary objective of this Project is to bolster PLN’s technical and human resources to expedite the implementation of Indonesia’s energy transition. By promoting renewable energies and energy efficiency, the Project aims to contribute to the nation’s economic and social development through a sustainable, reliable, and nationwide electricity supply. This initiative is crucial for accelerating Indonesia’s equitable and just energy transition.