Indonesia's New Rooftop Solar PV Regulation: a

Difficult Balancing Act

March 2024

Introduction

In recent years, the installation of captive rooftop solar photovoltaic (PV) systems (Rooftop Solar Systems) by
commercial and industrial (C&I) market participants and the general public has witnessed remarkable growth
around large parts of the world including Indonesia. The surge in the rolling out of Rooftop Solar Systems follows
trends observed in other markets and reflects a growing desire amongst C&I and residential customers to
procure electricity from renewable sources to reduce their carbon footprint, and in some cases also, achieve a
certain degree of self-reliance from the local grid.

Indonesia has attempted to regulate the development and operation of Rooftop Solar Systems since 2018 to
provide a framework to balance the interests of consumers and investors as well as manage potential impact
on the grid and allow for some level of control and oversight of the national utility, PLN. Over the past 6 years,
not less than 5 regulations have been issued indicating repeated efforts at creating a balance between the
aspirations of users and PLN. Since August 2021, the installation of Rooftop Solar Systems connected to the
grid was regulated under Minister of Energy and Mineral Resources (MEMR) Regulation No. 26 of 2021 on
Rooftop Solar Power Plants Connected to Electrical Power Networks of Holders of Business Licenses for the
Provision of Electrical Power for Public Interests (MEMR 26/2021 – for more detail, refer to our previous article).
Some of the key features of MEMR 26/2021 included the stipulation of a "1 for 1" or 100% net metering multiplier
for the export of excess power from Rooftop Solar Systems to the grid and the related import credit given to
rooftop solar customers of "integrated IUPTLU holders" such as PLN.

While MEMR 26/2021 was initially perceived as an improvement to the then applicable regulatory regime to
ease investments in Rooftop Solar Systems and the sector and supply chain generally, its implementation in
the field was hampered by delays in the issuance of the approvals required for the installation and operation of
Rooftop Solar Systems.

After several years of intensive engagement between MEMR, PLN, market participants and relevant sector and
consumer interests groups, MEMR now makes another attempt at balancing the interests of all parties involved
through the issuance of MEMR Regulation No. 2 of 2024 (MEMR 2/2024), which was promulgated on 31
January 2024 but only made publicly available late February. MEMR 2/2024 revokes MEMR 26/2021 and
introduces new policies for the installation of grid-tied Rooftop Solar Systems in Indonesia.

In this article, we provide an overview of the key new requirements introduced by MEMR 2/2024 for grid-
tied Rooftop Solar Systems highlighting the main changes to the previous regime. For each requirement we
also share a flavour of the initial reactions from the market and additional practical guidance on the new
rules which were shared by MEMR in its "socialization" of the new regulation which took place on 5 March
2024 which was accessible to the public through livestream (MEMR 2/2024 Socialization).

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Scope of the Regulation

The scope of MEMR 2/2024 includes Rooftop Solar Systems connected to the grid of an electricity supply
company that holds an Electricity Supply Business License for Public Interests (Izin Usaha Penyediaan Tenaga
Listrik untuk Kepentingan Umum – IUPTLU) and a designated Business Area (Wilayah Usaha) 1 (IUPTLU
Holder), regardless of whether the system distributes electricity to the grid.2 Rooftop Solar Systems include
solar modules, inverters, electrical connections and safety systems, and must be equipped with an "Advanced
Meter" to be provided and installed by the relevant IUPTLU holder. 3

Accordingly, similar to the scope of MEMR 26/2021, MEMR 2/2024 applies to Rooftop Solar Systems installed
not only by PLN's customers, but also the customers of any other IUPTLU Holders who have a Business Area
(such as certain integrated industrial estates). Furthermore, the regulation specifically pertains to grid-tied
Rooftop Solar Systems and does not extend to behind-the-meter or fully off-grid systems. It is worth noting
however that the number of privately owned business areas remains very limited, and that the relevance of the
regulatory framework overwhelmingly applies to customers of PLN (whether C&I or residential) given PLN's
national Wilayah Usaha.

Key Changes Introduced by MEMR 2/2024

MEMR 2/2024 introduces a number of significant changes to the regulatory framework governing Rooftop Solar
Systems, departing from the provisions established by MEMR 26/2021:

1. Implementation of Quota for the Development of Rooftop Solar Systems

Summary of new requirement:

MEMR 2/2024 requires IUPTLU Holders to prepare a quota for the development of new Rooftop Solar
Systems for each electrical grid within their Business Area. The quota shall take into account (i) the
priorities of the national energy policy, (ii) the realization of the IUPLTU holder's electricity supply
business plan, and (iii) the reliability of the electrical grid in accordance with the grid code of the IUPTLU
Holder.4

Quotas are to be prepared for a 5-year period with an annual (January-December) split. The proposed
quota along with the underlying technical analysis are to be submitted to the Directorate General of
Electricity (DGE) with a copy to the Directorate General of New, Renewable Energy and Energy
Conservation (DGNRE).

The proposed quota is to be submitted by each IUPTLU Holder (including PLN) no later than October
of the preceding year. Specifically for the first quota for the period 2024-2028, MEMR 2/2024 mandates
the proposals to be submitted within 3 months from the promulgation of the regulation, i.e., by 30 April
2024.5

1 Business Area of Wilayah Usaha refers to a specific area designated by MEMR where an electricity supply company is authorized to
distribute and/or sale electricity to its customers.
2 Article 2 of MEMR 2/2024.
3 Article 3(1) and 2) of MEMR 2/2024.
4 Article 7(1) and (2) of MEMR 2/2024.
5 Article 8(3) and (4) of MEMR 2/2024.

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 The quota stipulation process can be summarized as follows:6

IUPTLU Holders may subsequently propose amendments to the stipulated quota through the same
process.7 In the event unused quota for Rooftop Solar Systems development remains at the end of the
current year, such excess shall be carried over as additional quota for the following year.8

Previously, MEMR 26/2021 capped the maximum installed capacity to 100% of the connected power
of customers as calculated based on the total capacity of the inverters. 9 The new regime no longer
imposes a cap on the maximum installed capacity of Rooftop Solar Systems. Instead, MEMR
2/2024 now stipulates that the installed capacity shall be adjusted based on the required capacity of
prospective Rooftop Solar System customers as per the quota for development. Practically, this
would seem to mean that prospective customers may request the installed capacity they require but
this being contingent on the available quota for the relevant period. If the quota has not been
stipulated, the installed capacity shall be adjusted based on the IUPTLU Holder's grid condition.10

Initial market feedback:

The market perception of the quota requirement is largely negative due to the 5-year term of the quotas
(which locks-in development projections for a long period of time) and the discretion given to IUPTLU
Holders (including PLN) to propose the quota without any clear oversight or possibilities to challenge
the same.

Further, MEMR 2/2024 does not elucidate on the approach and principles applicable to the
determination of quotas that will be set for specific grid systems, and whether quotas will simply be
allocated on a first-come-first-serve basis or any other criteria. Additionally, consumers call for
transparency in relation to the remaining quota for the current period and any waiting list which may
apply for the subsequent period. Given the lack of requirements or guidance to this effect in MEMR

6 Articles 8-9 of MEMR 2/2024.

7 Article 10(1) and (2) of MEMR 2/2024.
8 Article 11 of MEMR 2/2024.
9 Article 5(1) of MEMR 26/2021.
10 Article 12 of MEMR 2/2024.

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 2/2024, such transparency and disclosure would ultimately be at the discretion of the relevant IUPTLU
Holder.

MEMR 2/2024 socialization:

During the MEMR 2/2024 Socialization, both MEMR and PLN clarified that the quota approach is
implemented due to the intermittent nature of grid-tied Rooftop Solar Systems. These systems require
quick adjustments in the grid's ramp-up capacity to compensate for fluctuations in the amount and of
electricity generated and injected on the grid. PLN highlighted that this could impact grid stability and
reliability, thus requiring a gradual ramp up of rooftop solar installed capacity through grid quotas until
flexible smart-grid infrastructure is developed to accommodate grid-tied Rooftop Solar Systems.

Furthermore, MEMR confirmed that the allocation of quotas shall indeed be on a first-come-first-serve
basis. MEMR also emphasized the importance of transparency in the implementation of such quotas
by relevant IUPTLU Holders. To this effect, MEMR has introduced an application system called
SIMANTAP for the administration of Rooftop Solar Systems connected to the grid of non-PLN IUPTLU
Holders, whilst PLN indicated that the existing PLN Mobile application would provide information on
the remaining grid quotas for the relevant period.

2. Elimination of Net Metering and Capacity Charges

Summary of new requirement:

Under the previous regime of MEMR 26/2021, a 100% net metering multiplier was stipulated to
calculate credits Rooftop Solar System customers could apply to offset their consumption from the
grid.11

MEMR 2/2024 completely removes net metering incentives and expressly provides that any excess
electricity from Rooftop Solar Systems which is distributed to the grid will not be factored into the
calculation of the relevant customer's electricity bill.12

Conversely, MEMR 2/2024 also removes parallel operation charges for Rooftop Solar Customers,
including capacity charges which applied under the previous regime.13

The decision to eliminate net metering incentives under MEMR 2/2024 was driven by concerns
regarding PLN's capacity to absorb excess electricity from Rooftop Solar Systems and provide credits
for it.

Initial market feedback:

The market perception of this change is that for C&I customers net metering is not the primary driver
of investing in Rooftop Solar Systems but rather a means to reduce overall electricity costs through
direct consumption of the entire production of such systems and to seek to decarbonize their operations.
On the other hand, for residential customers the removal of net metering will affect the attractiveness
of investing in domestic Rooftop Solar Systems as the primary driver there is generally to lower their
monthly electricity bills.

11 Article 6 of MEMR 26/2021.

12 Article 13 of MEMR 2/2024.
13 Article 29 of MEMR 2/2024.

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3. New Mechanism for IUPTLU Holder Approval

Summary of new requirement:

Previously, MEMR 26/2021 required Rooftop Solar System customers to obtain approval from the
relevant IUPTLU Holder for the construction and installation of the Rooftop Solar Systems by submitting
an application form setting out certain details of the planned system. The IUPTLU Holder (PLN in most
cases) was required to grant an approval or issue a rejection to the applicant within 5 business days
from the receipt of the application. However, despite the prescribed timeframe for approval, the
processing of such applications by PLN over the past years since the issuance of MEMR 26/2021 was
often marred by delays.

In an attempt to provide a practical solution to address such delays, MEMR 2/2024 now provides that
the application to develop and install Rooftop Solar System shall be submitted to the relevant IUPTLU
Holder with a copy to the DGE and DGNRE, 14 and that the IUPTLU Holder shall assess the
application and issue its approval or rejection within 30 calendar days. If this period elapses
without the IUPTLU Holder providing approval or rejection, the application to develop and install
Rooftop Solar System will be deemed approved and MEMR through DGNRE will send a notification
to the relevant IUPTLU Holder confirming the deemed approval.15

Importantly for customers and developers, the window to submit applications to procure and install
Rooftop Solar Systems is now limited to twice a year, in January and July. 16 Specifically for the first
application after the issuance of MEMR 2/2024, these are to be submitted within one month from the
publication of the initial quota by the relevant IUTPLU Holder.

The overall application mechanism can be summarized as follows:17

14 Article 14(1) of MEMR 2/2024.

15 Article 15 of MEMR 2/2024
16 Article 14(2) and (3) of MEMR 2/2024.
17 Article 14 of MEMR 2/2024.

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 The development and installation of Rooftop Solar Systems is only permitted upon obtaining approval
from the IUPTLU Holder or a deemed approval. If a Rooftop Solar System is installed and connected
to the grid without prior approval from the IUPTLU Holder, the IUPTLU Holder may issue a warning
letter to the customer, requiring the customer to (i) disconnect their system from the grid and (ii) pay a
penalty calculated based on the total inverter capacity x 240 hours x the electricity tariff. Should the
customer fail to comply with the warning letter within one month of its delivery, the IUPTLU Holder shall
have the right to temporarily suspend its services to the customer until compliance is achieved.18

Initial market feedback:

Despite MEMR 2/2024 allowing for "deemed approval" for development and installation of the Rooftop
Solar Systems, the market remains sceptical whether this actually represents a real improvement in
practice. Firstly, while the deemed approval covers development and installation, it remains uncertain
if a further approval from the IUPTLU holder will be necessary for grid connection. Secondly, the
IUPTLU Holders (including PLN) retain the discretion to reject submissions for any reason they deem
appropriate, and applicants would then only have a limited window to resubmit the application given
the limited time windows available to submit applications (i.e., January and July). Additionally, the
timing of deemed approvals within the new quota mechanism presents challenges. If a project is
deemed approved but the quota has been reached, it's unclear whether the customer will be able to
connect to the grid immediately or be placed on a waiting list to use up the quota for the next period.
The limited windows to submit applications also raises concerns among investors and developers as
it would create limitations to the flow of projects and investment decisions, as well as a potential backlog
in processing the applications.

4. Carbon Economic Value

Summary of new requirement:

MEMR 26/2021 provides that Rooftop Solar System customers and IUPTLU Holders may conduct
carbon trading in relation to the reduction in greenhouse gas emissions deriving from the relevant
Rooftop Solar Systems.19 MEMR 2/2024 goes on to provide that the carbon economic value from the
use of Rooftop Solar Systems shall be "in accordance with applicable regulations" and that if there
is no such regulation, it shall belong to the Government.20

Initial market feedback:

The references to the allocation of potential environmental attributes form Rooftop Solar Systems in
MEMR 2/204 raises several concerns in the market. Firstly, it is unclear whether a regulation on carbon
economic value from captive Rooftop Solar Systems will be issued by the Government anytime soon.

Secondly, Rooftop Solar Systems typically aim to reduce customers (especially C&I customers) carbon
footprint by them being able to claim green attributes from their Rooftop Solar Systems (such as I-
RECs). If the Government were now to claim ownership over the carbon economic value associated
with these captive Rooftop Solar Systems, this would raise uncertainties as to whether Rooftop Solar
Systems customers/owners could then also legitimately claim emission reductions from their Rooftop
Solar Systems. If this new principle results in customers losing their rights to claim environmental
attributes from their Rooftop Solar Systems, including the ability to claim carbon emissions reductions
from their business activities, this would clearly affect the attractiveness for most in investing in Rooftop

18 Article 23 of MEMR 2/2024.

19 Article 28 of MEMR 26/2021.
20 Article 40 of MEMR 2/2024.

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 Solar Systems. Further clarification from the Government on this issue seems therefore necessary to
address this concern.

MEMR 2/2024 socialization:

During the MEMR 2/2024 Socialization, questions abounded from the public regarding the
implementation of the new provision on the ownership of carbon economic value. MEMR clarified that
the regulation mentioned in Article 40 of MEMR 2/2024 would be issued by the Ministry of Environment
and Forestry, which supervises the administration and regulatory framework in relation to carbon
emission reduction in Indonesia. However, MEMR did not provide any details on the timeline for issuing
such regulation nor if, in the interim, the Government would seek to assert its rights over the carbon
economic value derived from the use of Rooftop Solar Systems.

5. Transitional Provisions

Upon the promulgation of MEMR 2/2024, the following provisions shall apply to existing Rooftop Solar
Systems:21

a. Rooftop Solar Systems currently operational and connected to the grid, but not yet reported to
the IUPTLU Holder (such as PLN), must be reported by customers to the relevant IUPTLU
Holder within three months of the promulgation of MEMR 2/2024 and he provisions under
MEMR 2/2024 will then apply to the relevant Rooftop Solar System.

b. For:

i. Rooftop Solar Systems that have been approved by the relevant IUPTLU Holder and are
already in operation and connected to the grid before the promulgation of MEMR 2/2024;
and

ii. Rooftop Solar Systems that have been approved by the IUPTLU Holder but are not yet
in operation,

the existing net metering mechanism and capacity charges applicable to them will remain valid
for a period of 10 years from the promulgation of MEMR 2/2024.

c. For prospective Rooftop Solar System customers who have submitted an application to the
IUPTLU Holder before the promulgation of MEMR 2/2024 but not yet approval from the IUPTLU
Holder, the provisions under MEMR 2/2024 will apply.

21 Articles 46-48 of MEMR 2/2024.

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 Conclusion

The issuance of MEMR 2/2024 was long in the making and the market (especially investors, C&I
participants and households) had high expectations for the renewed framework to provide more clarity
and certainty in the requirements and process involved in being able to install and operate Rooftop Solar
System across the Indonesian archipelago.

While it is acknowledged by all that balancing PLN's financial sustainability and grid stability with the need
to incentivize renewable energy adoption requires careful consideration and strategic planning, it is fair to
say that the introduction of the new principles and requirements under MEMR 2/2024 have not been
particularly well received by most private market participants.

The implementation of a quota system, coupled with the elimination of net metering incentives and
uncertainties surrounding the allocation and ownership of green attributes, raises concerns of private
market participants and individual consumers alike about the potential for rapid scaling up of installed
rooftop solar capacity in Indonesia.

As always, time and the practice in the field will tell whether these initial concerns were justified or whether
instead the new framework will provide improved market confidence and support the same organic growth
of rooftop solar self-generation witnessed in other large markets in South-East Asia and other parts of the
world, whilst at the same time allowing PLN to continue to invest in the grid infrastructure required for the
gradual electrification of society.

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Key experts

Frédéric Draps Khairunissa Yuliandhini

Partner / Foreign Legal Associate, Jakarta

Consultant, Jakarta
+62 212 996 9291
+62 212 996 9250 Email Khairunissa
Email Fred

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