TABLE OF CONTENTS ABBREVIATIONS PREAMBLE NATIONAL ENERGY REGULATORY FRAMEWORK FINANCIAL INCENTIVES REGULATORY FRAMEWORK MINI HYDRO POWER GEOTHERMAL

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3 TABLE OF CONTENTS 1 ABBREVIATIONS 1 2 PREAMBLE 3 3 NATIONAL ENERGY REGULATORY FRAMEWORK 4 4 FINANCIAL INCENTIVES REGULATORY FRAMEWORK 5 5 MINI HYDRO POWER 8 6 GEOTHERMAL 10 7 BIOMASS & BIOGAS 13 8 BIOFUEL 15 9 LARGE HYDRO ENERGY EFFICIENCY ELECTRICITY ACCESS 20

4 Pembangkit Listrik Tenaga Surya di Bangli, Bali.

5 ABBREVIATIONS Biodiesel (B108) is a Fatty Acid Methyl Esther (FAME) or Mono Alkyl Esther product generated from plant materials and other biomass processed using esterification method Bioethanol (E100) is a ethanol product generated from plant materials and other biomass processed using biotechnological method Biofuel as other means of fuel is a type of fuel generated from plant materials and/or other organic materials, which categorized as other fuel Biogas is a kind of gas, which is generated as an end product of anaerobic biomass digestion by microorganism inside digester tank with methane 40% to 70% as main component and carbon dioxide Biogas Power plant is a type of power plant that generates electricity by harnessing biogas energy. Biomass Power plant is a type of power plant that generate electricity by harnessing biomass energy COD (Commercial Operation Date) - is the running date of power plant to provide electricity to electrical system owned by PLN DJK (Direktorat Jenderal Ketenagalistrikan) - is a state agency conducting duty an responsible for formulation and implementation of policies and also technical standardization in the electrical power sector Electricity Supply License (Izin Usaha Penyediaan Tenaga Listrik/IUPTL) - is a license to conduct business in supplying electricity for the public interest Energy Management is integrated activities to control energy consumption in order to achieve effective and efficient utilization of energy to produce maximum output through economical and structured technical measures to minimized utilization of energy including energy for production process and minimized raw and supporting materials 1

6 EBTKE (Direktorat Jenderal Energi Baru Terbarukan dan Konservasi Energi) - is a state agency conducting duty an responsible for formulation and implementation of policies and also technical standardization in the new and renewable energy and energy conservation sector Geothermal is heat based energy source contained in hot water, steam, and rocks along with associated mineral and other gasses genetically inseparable inside geothermal Geothermal license is a license for indirect geothermal exploitation in a specific work area Geothermal power plant is a type of power plant that generate electricity by harnessing geothermal power WKP (Wilayah Kerja Pertambangan) - is work areas with coordinative boundaries utilized for indirect geothermal exploitation Hydropower Plant is a type of power plant that generate electricity by harnessing the power of waters stream, waterfalls, dam, or multi purpose irrigation channels MEMR - is Ministry of Energy and Mineral Resources Micro hydro power plant is small scale power plant with less than 1 MW of capacity which may originate from irrigation channels, rivers, and natural waterfalls PLN (Perusahaan Listrik Negara) - is a state owned company established based on government regulation no. 23/1994 on the re-enactment of state electricity public company to limited company PPA (Power Purchase Agreement) - is trade agreement on electricity between holder of electricity supply license and PLN. Pure Vegetable oil (B100) is a product generated from plant materials processed using mechanical and fermentative method. Solar Photovoltaic Power Plant is a type of power plant that generates electricity by converting solar energy to electricity using photovoltaic module. Wind Power Plant is a type of power plant that generates electricity by harnessing wind power. 2

7 PREAMBLE There are ranges of policies and regulations that govern the behavior of the energy sector and significantly impact the decisions of producers, consumers, investors and other stakeholders. These policies and regulations continue to be reviewed and, in the case of new and renewable energy, continue to be developed to address the specific requirements of this emerging source of clean energy. As with policy makers who need accurate and up-to-date information on the factors that influence the decision-making process of the private sector, investors need to be kept informed about changes to policies and regulations. It is in this latter context that this document has been prepared and, in order to support the changes underway for the clean-energy sector, these guidelines will continue to be improved and updated on a regular basis. 3

8 NATIONAL ENERGY REGULATORY FRAMEWORK RegulationDescription Link Key Points Governs prioritization of new renewable energy (NRE) and energy efficiency (EE) by government and local government UU 30/2007 Energy Provides incentives and disincentives for EE and NRE Establishes energy prices based on /document/uu/uu_2007_30.pdf (accessible per 28 July 2015) market mechanism with subsidies still provided for low income groups Establishment of National Energy Council Development of National and Regional Energy Plans Ratio Electrification rate to reach 100% by 2020 National Energy Mix (23% renewable PP 79/2014 National Energy Policy energy, 22% gas, 25% oil, 30% coal) by 2025 National Energy Mix (31% renewable energy, 24% gas, 20% oil, 25% coal) /ken/ppken.pdf (accessible per 28 July 2015) by 2050 Decrease Final Energy Intensity by 1% each year till 2025 Maximizing renewable energy, minimizing use of oil, optimizing use of gas and new energy; and use of coal for domestic purposes. Strengthening financial policy instruments. Decentralized sources of electricity. Bottom up approach. Data Governance. Connecting the research sector with industrial sector. Capacity building. 4

9 FINANCIAL INCENTIVES REGULATORY FRAMEWORK Regulation Description Key Points Link PP 67/2005 as amended by PP 56/2011 PPP in Infrastructure Provision GoI Support to PPP projects includes non-fiscal and fiscal supports Non fiscal support includes licensing, land provision, partial construction support and Fiscal support includes tax incentives and/or fiscal contribution /fulltext/2011/56tahun2011pe RPRES.htm (accessed 2 July 2015) PerMen Keu 225/PMK.011/ 2013 Business Viability Guarantee Letter (BVGL) GoI provides guarantee for PT PLN s financial obligation under default and/or termination risk based on the PPA with IPP BVGL may be given to the following phase: a during project preparation phase b during project construction phase c partial or the entire project operation phase /fulltext/2013/225~pmk.011~2013 Per.HTM (accessed 2 July 2015) PerMen Keu 223/PMK.011/ 2012 Viability Gap Fund (VGF) GoI provides fiscal support to enhance the financial viability but economically viable PPP projects As capital expenditure in the form of cash for a certain portion of the construction cost of the PPP project Requirements for VGF eligibility: a economically viable yet has not met financial viability b the project is a users pay principle project c investment value of IDR 100 billion d the project is operated by PPP business unit based on open and competitive tender e PPP agreement as the basis for asset transfer f Feasibility study d/fulltext/2012/223~pmk.011~20 12Per.HTM (accessed 2 July 2015) PP 18 of 2015 Tax Allowance Income tax facility for certain line of business including NRE industry with overall requirements: a high value investment b high absorption of manpower c high local content in its products Reduction of net income of 30% (thirty percent) of the investment in the form of fixed assets, charged for 6 (six) years respectively at 5% (five percent) each year as of the Commercial Operation Date /fulltext/2015/18tahun2015pp.pdf (accessed 2 July 2015) 5

10 Regulation Description Key Points Link Accelerated depreciation and amortization. Imposition of income tax on dividends which paid to foreign tax subject Compensation losses longer than 5 (five) years but not more than 10 (ten) years with the certain conditions PerMen Keu 76/PMK.011/ 2012 as amended by PerMen Keu 176/PMK.011 /2009 Import Duty Facility Exemption from import duty on the import of machines, goods and materials for production for a period of 2 years. Import duty facility for a period of 4 years is granted to a company using locally-produced machines at least 30% of the total value of machines for its production. Reduction of net income of 30% (thirty percent) of the investment in the form of fixed assets, charged for 6 (six) years respectively at 5% (five percent) each year as of the Commercial Operation Date Accelerated depreciation and amortization. Imposition of income tax on dividends which paid to foreign tax subject of 10% (ten percent), or a lower rate according to the avoidance of double taxation agreement. Compensation losses longer than 5 (five) years but not more than 10 (ten) years with the certain conditions (e.g.: project location in industrial/bonded zone, developing economic and/or social infrastructure, minimum 70% of local material/components, deployment of local manpower, R&D on local product development, expanded business ventures, export) Income tax facilities: a Reduction of net income of 30% (thirty percent) of the investment in the form of fixed assets, charged for 6 (six) years respectively at 5% (five percent) each year as of the Commercial Operation Date b Accelerated depreciation and amortization. file/pmk%20no_%2076% 20tahun% pdf (accessed 28 July 2015) PerMen Keu 89/PMK.010 /2015 PerMen Keu 21/PMK.011/ 2010 Tax Allowance Tax and Custom Facilities for Renewable Energy Activities go.id/fulltext/2015/89~ PMK.010~2015Per.pdf (accessed 2 July 2015) go.id/fulltext/2010/21~pmk. 011~2010Per.HTM (accessed 2 July 2015) 6

11 Regulation Description Key Points Link c Imposition of income tax on dividends which paid to foreign tax subject d Compensation losses longer than 5 (five) years but not more than 10 (ten) years with the certain conditions VAT facility: a. VAT free for importing Taxed Goods (machineries and equipment) for Renewable Energy Import duty facility (as regulated by Permenkeu 76/PMK.011/2012 and PMK 154/PMK.011/2008 as amended by PMK 154/PMK. 011/2012 Tax facilities borne by the GoI PMK 154/PMK.011 /2008 as amended by PMK 128/PMK.011 /209 and PMK 154/PMK.011 /2012 PerMen Keu 130/PMK.01 1/2011 as amended by PerMen Keu 192/PMK.01 1/2014 Import Duty Facility for Importing Capital Goods for the Construction and Development of Power Generation Industry for Public interest Tax Holiday Free of Import Duty for power generation industry: a PT PLN (persero) b Holder of Public Electricity Business License (Izin Usaha Ketenagalistrikan untuk Kepentingan Umum/IUKU) which has business area c Holder of IUKU that has signed PPA with PLN with 100% purchasing commitment or signed a Financial Lease Agreement with PT PLN (Persero) Requirement of Free Import Duty Goods: a Goods not yet produced domestically b Goods that are produced domestically yet have not met the required specification c Goods that are produced domestically yet have not met the required quantities *The Free Import Duty Goods must be needed in the power generation Industry A taxpayer can be granted a tax relief facility for a period of between 5 and 10 years, starting from the commencement of its commercial production. After the expiration of the tax holiday, the taxpayer will be entitled to an income tax reduction of 50% for a further 2 years. Duration of the tax relief and reduction can be extended based on a decision by the Minister of Finance. /fulltext/2012/154~pmk.011~2012 Per.HTM (accessed 20 July 2015) ERATURAN%20MENTERI%20KEUA NGAN%20NOMOR.pdf (accessed 28 July 2015) 7

12 MINI HYDRO POWER Regulatory Framework Regulation Description Key Points Link PerMen ESDM 19/2015 The purchase of electricity from hydropower plants (hydropower) with capacity up to 10 megawatts (MW ) by the State Electricity Company ( PLN Persero) Provides the latest pricing on hydropower plants <10MW based on the water utilization (river or multi-use facility such as irrigation canals) Provide a way for some types of existing projects to get a price adjustment to this new tariff ation/8/peraturan.menteri (accessed 25 July 2015) PerPres 39/2014 List of Business Fields Closed to Investment and Business Fields Open, with Conditions, to Investment Projects of less than 1 MW are closed to foreign investment. Projects of between 1 and 10 MW are limited to a maximum 49% foreign investment. _No_39_2014.pdf (accessed 25 July 2015) e/peraturan/bahan%20perpres %2039%20Tahun%202014%20da n%20perbaikan%20kemudahan% 20Berusaha-ed.pdf (accessed 25 July 2015) KepDir PT PLN (PERSERO) 0357.K/DIR /2014 Guideline on connecting renewable energy based power plants to PLN s distribution network Governs the application process for connection and the PJBL process Review and grid study content Specific processes for mini hydro (up to 10MW), waste to energy (up to 10MW), and Solar PV KKO/KKF/K Risk Technical requirements Testing and commissioning procedures /pjbl/lampiran%20pedoman% 20Penyambungan%20PLT%20E BT%20ke%20JARDIS_final_sign ed.pdf (accessed 28 July 2015) Tariff Referring to PerMen ESDM No 19/2015 River flow 10 MW Dam existing 10 MW Adjustment from the last regulation EMR Ministerial Decree Number 22 Year 2014 (Hydro Power 10 MW) Medium Voltage (cent US$/kWh) Medium Voltage (cent US$/kWh) Medium Voltage (cent US$/kWh) 12 ( 1st year to 8th year) 10.8 ( 1st year to 8th year) ( 9th year to 20th year) Low Voltage (cent US$/kWh) 6.75 ( 9th year to 20th year) Low Voltage cent US$/kWh) Low Voltage (cent US$/kWh) 14.4 ( 1st year to 8th year) 13 ( 1st year to 8th year) 11 9 ( 9th year to 20th year) 8.1 (9th year to 20th year) 8

13 Investment Flow Chart Power Sales Project Construction Agreement Development Rights Resource Assessment Investors & Lenders Initial seed capital *developers and investors could also be in one package Loans and/or additional equity Regional Government Process permit applications Developers Other Parties Central Government Survey and site selection Prepare feasibility study and other technical requirements Apply for permits Submit to PLN Apply for temproary supply licence and remaining permints. Submit deposit certificate to MEMR Provide 6 month progress report to MEMR cc: PLN and DJK PLN & Developer finalize PPA Site Preparation and contracts for constructions Financial close & apply supply permanent licences Construct and commission of plant PLN review & acceptance PLN & Developers finalize PPA PLN provides connection standards MEMR approves MEMR appoints developers MEMR issues temporary supply licences issue permanent supply licences Operation and Maintenance Receive loan repayment and dividends Operate Plant Purchase Power 9

14 GEOTHERMAL Regulatory Framework Regulation Description Key Points Link UU No. 21/2014 PP 59/2007 as amended by PP 70/2010 Geothermal Geothermal Activities Classified geothermal as a non-mining activities Central government holds the authority for geothermal licensing. Defines process for licensing and pricing. Provide regulatory assurance for developers Governments hold the authority to determine geothermal prices. Allow higher foreign shareholding limits for geothermal projects between 1 and 10 MW located in eastern Indonesia. Oblige developers to provide collaterals for post-production activities. prokum.esdm.go.id/uu/ 2014/UU%2021% pdf (accessed 25 July 2015) bumn.go.id/data/ uploads/files/1/59.pdf (accessed 25 July 2015) PerMen ESDM 17/2014 Purchase of Electricity from PLTP or Purchase of Geothermal Steam for PLTP Define ceiling prices determination method. Listed applied ceiling prices for geothermal until doc_download/ 1484-peraturanmenteri-esdm-no16-tahun html (accessed 25 July 2015) Tariff Referring to PerMen ESDM 17/2014 PLTP Kamojang - Garut Year of COD Ceiling Price (cent US$/kWh) Region I Region II Region III Note: Region I: Sumatera, Java, Bali Region II: Sulawesi, Nusa Tenggara Barat, Nusa Tenggara Timur, Halmahera, Maluku, Papua, Papua Barat, and Kalimantan Region III: areas in region I & II that is isolated and most of the electricity generated is from diesel power plant 10

15 Investment Flow Chart - Preliminary Assignment Investors & Lenders Regional Government Developers Other Parties Central Government Operation and Maintenance Power Sales Project Construction Development Rights Agreement Resource Assessment 11

16 Investment Flow Chart - Government Designated WKP Power Sales Operation and Maintenance Project Construction Development Rights Resource Assessment Agreement Investors & Lenders Initial seedcapital Exploration funding Loans and/or additional equity Receive loan repayment and dividends Regional Government Process permit application Receive production bonus Developers Other Parties Central Government Submit Proposal Applies for permits Conducts exploration & prepare feasibillity study PLN and developers finalize PPA Financial Close Field development, power plant construction and commisioning Operate plant PLN and developers finalize PPA Purchase Power MEMR complies resource data MEMR designates WKP MEMR conducts tender MEMR awards WKP MEMR issues supply license Receive production bonus 12

17 BIOMASS & BIOGAS Regulatory Framework Regulation Description Key Points Link PerMen ESDM 27/2014 Purchase of Electricity from Biomass Power plant (PLTBm) and Biogas Power Generation (PLTBg) by PT PLN (Persero). Regulate assurance of electricity purchase by state owned electricity company (PLN). Regulate Feed in Tariff that must be complied by PLN for electricity generated by biomass and biogas power plant less than 10 MW Defines process for permit licensing men/2014/permen%20esdm% 2027% pdf (accessed 25 July 2015) PerPres 39/2014 List of Business Fields Closed to Investment and Business Fields Open, with Conditions, to Investment Projects of less than 1 MW are closed to foreign investment. Projects of between 1 and 10 MW are limited to a maximum 49% foreign investment. si/peraturan-perundangan/pe raturan-presiden/peraturan-pr esiden-republik-indonesia-no mor-39-tahun (accessed 25 July 2015) KepDir PT PLN (PERSERO) 0357.K/DIR /2014 Guideline on connecting renewable energy based power plants to PLN s distribution network Governs the application process for connection and the PJBL process Review and grid study content Specific processes for mini hydro (up to 10MW), waste to energy (up to 10MW), and Solar PV KKO/KKF/K Risk Technical requirements Testing and commissioning procedures /pjbl/lampiran%20pedoman% 20Penyambungan%20PLT%20 EBT%20ke%20JARDIS_final_sig ned.pdf (accessed 28 July 2015) Tariff Referring to PerMen ESDM 27/2014 Biomass: Biogas: Rp /kWh: Medium Voltage Rp /kWh: Low Voltage Rp /kWh: Medium Voltage Rp /kWh: Low Voltage PLT Biogas (POME) 13

18 Investment Flow Chart (< 10 MW) Power Sales Project Construction Agreement Development Rights Resource Assessment Investors & Lenders Regional Government Developers Other Parties Central Government Operation and Maintenance Detail biomass & biogas investment guideline (accessed 28 July 2015) 14

19 Regulatory Framework BIOFUEL Regulation Description Key Points Link PerPres 191/2014 Provision, Distribution, and Retail Prices of Fuel Oil Obligation to mix biofuel into fuel based in stages Prioritization in utilizing domestic biofuel Government of Indonesia guarantees the availability and distribution of Biofuel Index Market Price of Solar and Index Market Price of Biofuel are stipulated by the Minister fulltext/2014/191tahun2014per pres.pdf (accessed 25 July 2015) PerMen ESDM 32/2008 Provision, utilization and administration Biofuel Governs types of biofuel priorities for development Defines process for licensing and pricing. n/2008/permen-esdm pdf (accessed 25 July 2015) PerPres 61/2015 Collection and Utilization of Palm Oil Plantation Fund Collection and Utilization of Palm Oil Plantation Fund for biodiesel implementation. Obligation for biofuel distribution enterprise to blend biodiesel according to regulation. /Perpres%20No.%2061%20Th% pdf (accessed 25 July 2015) PerMen ESDM 12/2015 The Provision, Utilization, And The Marketing Of Biofuels (Biofuels) As Other Fuels Description of types of biofuel and on which sector it is mandatory in. Timeframe and percentage for biofuel provision /Permen%20ESDM%2012%20Thn % pdf (accessed 25 July 2015) PerMen Keu 114/PMK.05 /2015 Service Tariff of Public Service Agency Amount of export tax levies applied to CPO and its derivatives. Amount of export tax levies applied to CPO-based biodiesel. fulltext/2015/114~pmk.05~2015p er.pdf (accessed 25 July 2015) Photo : Google 15

20 Investment Flow Chart Power Sales Project Construction Agreement Development Rights Resource Assessment Investors & Lenders Regional Government Developers Other Parties Central Government Operation and Maintenance 16

21 LARGE HYDRO Regulatory Framework Regulation Description Key Points Link PerMen ESDM 04/2007 as amended by PerMen ESDM 01/2006 Power for Power Purchase and/or lease of the network in the electricity supply business for public interest Regulates IPP procurement process consist of a) direct appointment, b) direct selection, and c) open tender Regulates PPA negotiation process en/2007/permen-esdm pdf (accessed 28 July 2015) PP 14/2012 Electricity Supply Business Activities Governs off-grid systems to supply consumers. Defines process for licensing and pricing. Per Law No. 23 of 2014 on Regional Government, provincial government holds the authority for licensing and pricing of off-grid systems. 12/PP%2014% pdf (accessed 25 July 2015) PerMen ESDM 05/2009 Guidelines For The Purchase Of Electricity By PT. PLN (Persero)Cooperation From Or Other Business Entities Purchase by PLN can be done by open tender, direct appointment or direct selection. PLN develops its owner estimate based on several standards a) local content, b) price and quality of fuel, c) exchange rate and d) other macro economy indicator. n/2009/permen-esdm pdf (accessed 28 July 2015) Photo : Google 17

22 Investment Flow Chart Power Sales Project Construction Agreement Development Rights Resource Assessment Investors & Lenders Regional Government Developers Other Parties Central Government Operation and Maintenance Detailed IPP guideline (accessed 28 July 2015) 18

23 Regulatory Framework ENERGY EFFICIENCY Regulation Description Key Points Link PP 70/2009 Energy Conservation Governs responsibilities of government, local governments, private sectors, and the society in energy conservation Regulate obligation to establish new energy management system for users with consumption over 6,000TOE Regulate on standards and labeling. Provide facilitation, incentives and disincentives for energy consumer and producer of energy saving technology Direction and supervision of energy conservation go.id/pome/uploads/doc /PP%2070% pdf (accessed 25 July 2015) PerMen ESDM 13/2012 Energy Consumption Savings Governs consumption savings for: Government buildings, State Enterprise buildings, Government officials residence, public lighting. d/popea/live/data/regulasi/ pdf (accessed 25 July 2015) PerMen ESDM 14/2012 Energy Management Governs energy management and use for energy supply and utilization in which the permits was given a government body and/or an object of working agreement under a government body. ad/574/peraturan-menteri-e sdm-no (accessed 25 July 2015) PerMen ESDM 1/2013 Control of Oil Fuel Use Governs use of subsidized fuel by Government-owned vehicles, and transport vehicles of certain classes. ran/permen%20esdm%2001 % pdf (accessed 25 July 2015) 19

24 Regulatory Framework ELECTRICITY ACCESS Regulation Description Key Points Link UU 30/2009 PP 14/2012 PerPres 39/2014 PerMen ESDM 10/2015 Electricity Electricity Supply Business Activities List of Business Fields Closed to Investment and Business Fields Open, with Conditions, to Investment Technical Guidance of Utilization of Specifically Allocated Funds in the Field of Electricity at the Village Level in the 2015 National Budget. Governs the development, utilization, supply, and distribution of Electricity Defines delegation of authority between relevant parties Regulates the management and business of electricity Governs off-grid systems to supply consumers. Defines process for licensing and pricing. Per Law No. 23 of 2014 on Regional Government, provincial government holds the authority for licensing and pricing of off-grid systems. Projects of less than 1 MW are closed to foreign investment. Projects of between 1 and 10 MW are limited to a maximum 49% foreign investment. Governs technicalities on how the specific funds available from the 2015 national budget (APBN) can be utilized to fund renewable-energy-based electrical programs like Micro Hydro, Solar Mini-grid, and Solar-Wind Hybrid for village level needs. Aimed to provide reference for Working Units at Local level on how to tap the funds. Regulation specific line of coordination, distribution of tasks and responsibilities, and establish a monitoring/supervising mechanism. /2009/UU%2030% pdf (accessed 25 July 2015) /PP%2014% pdf (accessed 25 July 2015) ontent/uploads/2015/05/perpr es-39_2014-lampiran-negative-li st.pdf (accessed 25 July 2015) n/permen%20esdm%2010%20t hn% pdf (accessed 25 July 2015) Photo : Google 20

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