How the Waste-to-Energy Sector in Indonesia Presents a Lucrative Opportunity for Japanese Investors?

At the 2nd Indonesia-Japan Business Forum (IJBF), the Indonesian government presented lucrative prospects of investments in three of its renewable energy projects – the Semarang Waste to Energy Project, the Bantar Gebang Refuse-Derived Fuel Plant in Jakarta, and the Banyumas Minihydro Power Plant.

Moreover, the Bank Indonesia and the Capital Investment Coordinating Board representative offices in Tokyo have vetted the projects in a clean and unambiguous way.

The Indonesian Embassy in Japan intends to continue strengthening bilateral ties between the two nations. More than 200 Japanese business players attended the 2nd IJBF. The event was also leveraged to clarify the details of the collaboration strategy with Japanese investors. In this article, we will discuss how investing in Indonesia’s waste-to-energy sector can be a very lucrative investment opportunity for Japanese investors.

The Government’s Roadmap for Indonesia’s Waste-to-energy Sector

Despite the far-reaching repercussions of the Covid-19 outbreak, waste-to-energy (WtE) initiatives are expected to contribute to the government’s renewable energy ambitions.

Some of the notable projects that are currently in tendering progress are located in Legok Nangka, West Java, as well as South Tangerang, Banten. Both projects are expected to have 10-20 MW of capacity.

Moreover, market sounding activities for a proposed WtE facility in Bali took place in November 2020 and steps towards implementation of a number of WtE tender opportunities in Semarang and Jakarta for 2021-22 are also taken.

While the timetable for delivery of these plants has been disrupted by the pandemic, a healthy pipeline of projects, supported by a number of the recent policy reforms, WtE projects in Indonesia are expected to have a long-term bright prospect.

How Regulatory Reform Expands Opportunities in Indonesia’s Waste-to-energy Sector

To foster investment in new WtE power projects, Presidential Regulation No. 35 of 2018 concerning the Acceleration of Municipal Waste to Energy Power Plant Development was enforced. Some of the notable perks this law introduces are:

Expanded project locations

DKI Jakarta and six other cities, namely Tangerang, Bandung, Semarang, Surakarta, Surabaya, and Makassar, were required to develop waste-to-energy projects under Regulation 18. Regulation 35 adds South Tangerang, Bekasi, Denpasar, Palembang, and Manado to the list.

Dual Sector (Waste Management and Power Generation)

The chosen developer will have dual functions as a waste manager and a power generator. For waste management, the developer will be entitled to capital support from the local government. Moreover, additional capital for the payment of this waste management charge may be granted from the state budget (APBN).

For its power-generating activities, the developer will be entitled to payment for energy generated with waste as the feedstock and purchased by PLN.

Foreign Ownership Arrangement

Foreign investment in Indonesia’s power generation projects is permitted, but ownership limits apply.

However, waste management (whether it generates power or not) is covered under KBLI No. 38211 (management and disposal of non-hazardous waste) and is therefore currently available to 100% foreign ownership, eliminating the requirement for foreign investors to find a local partner in Indonesia.

Remaining Challenges in Indonesia’s Waste-to-energy Sector

Beyond the uncertainty on the timing of projects spurred by the pandemic, the resultant downfall in the economic activities will further spike developer concerns regarding the ROI (Rate of Investment) and financiers’ willingness to provide funds for the projects.

Further barriers include transportation costs, ash disposal issues, and technical feasibility concerns including around waste quality, as well as around selecting the appropriate technologies for the project, environmental issues, and the regulatory process.

However, with the government’s effort to develop a better comprehensive regulatory approach, Indonesia’s potential is growing in the waste-to-energy sector and will be viewed as more attractive by overseas developers in light of the recent changes in regulations.

While foreign WtE developers are not required to have a local partner, it may be wise to find a local partner like Cekindo for project success and progression.

How can Cekindo Help?

While making an investment in Indonesia’s waste-to-energy sector, Cekindo will provide you with a seamless company registration experience. Our legal consultants can assist you in staying on top of the legal compliances.

Moreover, if you want to analyze sectors and know more than what the stats say before investing in Indonesia, Cekindo’s market research and due diligence team can assist you to review your possible investments. Furthermore, Cekindo provides tax and accounting services and can act as your HR entity to carry out HR and recruitment services to help cut overhead costs of setting up a department.