Ensuring the Effectiveness of Renewable Energy Project Procurement

Jakarta, September 20, 2023 – Standardizing Power Purchase Agreements (PPAs) has become one of the ways to expedite negotiations for renewable energy projects and avoid potential legal violations. This was one of the topics discussed at the 2023 Indonesia Energy Transition Dialogue (IETD).

Kirana Sastrawijaya, Senior Partner of UMBRA, highlighted considerations for standardization, including referencing bankable PPAs that have proven successful.

“In addition to referring to successful PPAs, other factors to consider for PPA standardization include providing flexibility clauses to avoid perceived ‘legal violations,’ accommodating advancements in new technologies, conducting financial studies to justify risk allocation, and comparing with other countries,” Kirana explained.

Raditya Wiranegara, Senior Analyst of Institute for Essential Services Reform (IESR) mentioned that,  the challenge in PPA standardization is how to adapt it to market dynamics, possibly through periodic updates of PPA standards, for instance.

“This way, investors are prepared and maintain certainty. Moreover, as mentioned by Ms. Kirana, this standardization also needs to consider the power generation technology. In other words, PPA standards for fossil fuel-based power generation should differ from those for renewable energy-based power generation,” said Raditya Wiranegara, Senior Analyst of IESR. 

From the industry perspective, Anthony Utomo, Executive Committee Member of Kadin Net Zero Hub, emphasized the importance of renewable energy project availability in PPA discussions.

“Regarding PPAs involving developers, firstly, existing renewable energy projects must be in place. Secondly, standardizing PPAs would greatly help to speed up negotiations and ensure transparency. Thirdly, concerning carbon rights, especially for ongoing PPAs, it needs to be determined whether they will belong to PLN (the state-owned electricity company) or the developer,” he expressed.

Arjun Dutt, Senior Programme Lead at CEEW Centre for Energy Finance, shared India’s experience procuring renewable energy projects through auctions. He emphasized that creating favorable policy packages for procuring renewable energy projects involves ensuring demand certainty, mitigating land and evacuation risks, network integration, and off-taker risk mitigation.

“To ensure demand certainty, measures like Renewable Purchase Obligation (RPO) standards for renewable energy portfolio determination can be implemented. Additionally, expanding consumer access to promote renewable energy adoption and developing new sources of renewable energy demand, such as electric vehicles and green hydrogen, can be instrumental,” Arjun elaborated.

Zulfikar Manggau, Senior Specialist in Project Management and Power Generation at PT PLN (Persero), acknowledged their desire for more efficient and competitive renewable energy project procurement and PPAs.

“PLN is striving to increase sales through a continuously growing industry, thus expanding demand and adding new renewable energy generators in the future,” Zulfikar stated. He mentioned that PLN is currently finalizing the Ministerial Regulation on Power Purchase Agreements (PJBL).

The Indonesia Clean Energy Forum (ICEF) and the Institute for Essential Services Reform (IESR), in collaboration with the Ministry of Energy and Mineral Resources (KESDM), organized the Indonesia Energy Transition Dialogue (IETD) 2023 from September 18 to 20, 2023.