1. Introduction

Indonesia is one of the largest economies in Southeast Asia and has rapidly growing energy demand.
In recent years, with growing global awareness of the environment, the transition to renewable energy (hereinafter referred to simply as "renewable energy") has become an important issue in the country.
Meanwhile, there has been intensifying debate about how the country's electricity supply should be managed, and in 2024 the Constitutional Court issued a ruling (Rights No. 39/PUU-XXI/2023) on the unbundling of the electricity business (separation of generation, transmission, distribution, and sales).
This paper explains the current state of Indonesia’s renewable energy market, the role of independent power producers (IPPs), and the impact of recent Constitutional Court rulings on the power industry.

2. Renewable Energy Situation in Indonesia

(1) Overview of renewable energy in Indonesia

Indonesia has the fourth largest population in the world and its energy demand is increasing along with its rapid economic growth.
In order to move away from traditional energy reliance on fossil fuels and promote sustainable development, the use of renewable energy has become part of the national strategy.
In particular, Indonesia is rich in geothermal energy resources, ranking second in the world in terms of geothermal resources.
There is also great potential to utilize a variety of renewable energy resources, such as hydroelectric, solar, wind, and biomass, and the government is promoting their utilization.

(2) Government targets for CO2 emissions

The Indonesian government has set a goal of achieving Net Zero Emissions by 2050.
As part of this, it has set a target of reducing CO2 emissions by 29% by 2030, with a view to increasing this to 41% through cooperation with the international community.
To achieve this goal, efforts are being made to accelerate the introduction of renewable energy, improve energy efficiency, and develop carbon markets.
In particular, it is expected that encouraging the entry of IPPs will lead to progress in private-sector-led renewable energy development.

(3) Changes in the proportion of renewable energy in total energy

Based on its National Energy Policy (Rencana Umun Enerigi Nasional, often abbreviated as "RUEN"), the Indonesian government aims to increase the share of renewable energy in its total energy supply to 23% by 2025.
However, as of 2023, the figure remains at around 12%, and further policy support and investment promotion will be needed to achieve the target.

(4) Role of Independent Power Producers (IPPs)

IPPs are operators that build and operate power plants independently of the national electricity corporation Perusahaan Listrik Negara (hereinafter referred to as "PLN") and supply electricity to PLN or private companies.
In Indonesia, the role of IPPs is expanding under the government's energy policy, with investments particularly in the renewable energy sector increasing.
The government is promoting energy transition by utilizing private capital while ensuring a stable supply of electricity through long-term power purchase agreements (PPAs) with IPPs.

3. What is unbundling?

Unbundling refers to the separation of the generation, transmission, distribution and sales sectors of the electricity business.
This is expected to promote competition and establish an efficient market structure.
However, Indonesia has a policy of maintaining strong state control over the electricity industry, and is therefore cautious about unbundling.
In particular, from the perspective of national energy security, there are certain constraints on complete liberalization of the electricity industry.

4. Constitutional Court ruling on unbundling of electricity business

(1) Explanation of past precedents

The Indonesian Constitutional Court has previously handed down rulings regarding the unbundling of electricity businesses, including the following cases:

 2004 Judgment (Judgment No. 001-021-022/PUU-I/2003)
"Electricity should be controlled by the state and its operation should not be subject to market competition. Opening up the supply of electricity to competition would weaken state control and risk undermining the fundamental rights of the people." The report concludes that introducing competition into the electricity business through privatization would weaken state control.

2016 Judgment (Judgment No. 111/PUU-XIII/2015)
"Unbundling of electricity businesses will be permitted only under certain conditions and only if it does not undermine national control. However, unbundling will not be permitted if it undermines the integrity of the state-led electricity supply system," the report stated, stating that unbundling will only be permitted under certain conditions.

(2) Impact of this ruling

On November 29, 2024, Indonesia's Constitutional Court ruled certain provisions of the Electricity Business Law unconstitutional, finding that unbundling could weaken the state's control over electricity.
This could have an impact on the role and business structure of IPPs, raising concerns about future changes in the business environment.

5. Future Outlook

(1) Changes in the electricity market and government responses

Indonesia's electricity market is likely to undergo major changes in the future.
The government is expected to take greater control over the electricity market and reassess the role of PLN, which may limit the freedom of private companies and IPPs to supply electricity, changing the competitive landscape of the market.

(2) Promotion of renewable energy and the role of IPPs

On the other hand, the government remains committed to its policy of promoting the introduction of renewable energy, and in particular has plans to expand energy supply utilizing natural resources such as geothermal and hydroelectric power.
For this reason, IPPs will likely be required to strengthen partnerships with governments and develop their businesses in line with national policies.

(3) MEMR Announcement and Policy Uncertainty

On December 9, 2024, the Ministry of Energy and Mineral Resources (MEMR) issued Press Release No. 648.Pers/04/SJI/2024 (hereinafter referred to as "MEMR Statement 648"), in which it acknowledged the Indonesian Constitutional Court's ruling and stated that it is consulting with various stakeholders to interpret its legal impact.
MEMR has advised all parties involved to wait until the government issues a formal policy to be applied.
Furthermore, given the importance of electricity supply to people's lives, MEMR has stated that it will review all electricity-related regulations to ensure that national control over electricity is maintained.

(4) Future challenges and countermeasures

Given these uncertainties, we recommend that companies considering getting involved in renewable energy projects in Indonesia pay close attention to guidelines from the Indonesian government.
The development of new projects and the continuation of existing unbundled operations may be affected in the future, and it remains unclear whether the ruling will apply retroactively.
Therefore, we believe that stakeholders should pay close attention to changes in the regulatory environment and be prepared to respond flexibly.
There is also a possibility that the legal framework may be revised in the future.
In particular, there is a possibility that restrictions on the entry of foreign companies and reviews of PPA terms may be implemented, which could increase uncertainty for IPPs and investors.
On the other hand, it is expected that the new system design will lead to the creation of a more stable electricity supply system.
As such, this ruling may trigger major changes in Indonesia's electricity market over the next few years, and operators will need to be flexible in their response while closely monitoring policy and regulatory trends.