Indonesia's energy market is undergoing a profound institutional transformation in 2025. At the beginning of the year, the Ministry of Energy and Mineral Resources (MEMR) officially released the revised MEMR Regulation No. 5/2025. As an upgraded version of the 2024 policy, this regulation centers on the in-depth reshaping of the Power Purchase Agreement (PPA) mechanism and forms a policy combination with the Renewable Energy Investment Acceleration Act and the 2025-2034 Electricity Supply Plan (RUPTL), driving Indonesia to accelerate its transition from a "major coal-exporting country" to a "renewable energy hub". By the third quarter of 2025, Indonesia's photovoltaic (PV) installed capacity has exceeded 8 GW, a growth of over 300% compared with 2023, and the first batch of 1.2 GW coal-fired power units has been shut down in advance. Behind these figures, the new PPA system established by MEMR Regulation No. 5 is becoming the core engine of market transformation. Based on the policy implementation practice in 2025, this article will analyze the core logic of PPA mechanism reshaping, the practical effects of market transformation and in-depth challenges, presenting the real picture of Indonesia's energy transition.

I. Policy Iteration: Evolution Logic and Era Background of MEMR Regulation No. 5 in 2025

The introduction of the 2025 version of MEMR Regulation No. 5 is a strategic choice for Indonesia to address multiple contradictions in the critical period of energy transition. Its policy design not only inherits the market-oriented orientation of the 2024 version but also makes precise upgrades targeting practical pain points, with three core driving factors behind it.

Energy supply-demand contradiction and structural imbalance drive reform: Indonesia's electricity demand grows at an annual rate of 5.2%, and is expected to reach 511 TWh by 2034. However, coal-fired power still accounts for 56% of the total in 2025, while renewable energy accounts for less than 20%, showing a significant gap from the 2030 target of 28%. More prominently, there is a mismatch between resources and load—renewable energy is abundant in regions such as Sumatra, while the Java-Bali load center accounts for 48.2% of the national electricity consumption. Insufficient cross-island transmission capacity leads to both peak-period power shortages and power waste. Due to the lack of supporting measures in the 2024 policy, 15% of renewable energy projects were stagnant, making an urgent upgrade necessary to break the deadlock.

Dual drivers from emission reduction commitments and industrial upgrading: As a signatory to the Paris Agreement, Indonesia has committed to achieving carbon neutrality by 2060. The 2025 National Energy Policy further clarifies that PV and other renewable energy sources will be the main energy sources, making the coal-dominated structure unsustainable. At the same time, the "downstreamization" strategy promotes the expansion of high-energy-consuming industries such as electrolytic aluminum, and the new capacity will consume 45% of the current power generation. The conflict between emission reduction and industrial upgrading has forced the clean transformation of power supply, and the PPA mechanism has become a key starting point.

Precise policy iteration targeting practical pain points: On the basis of the marketization of the 2024 version, the 2025 version has made precise optimizations: it lifts the restriction on 100% foreign ownership of high-efficiency PV projects to solve the problem of insufficient technology introduction; extends the PPA term to 30 years and introduces the Build-Own-Operate (BOO) model to match the investment recovery cycle of energy storage; clarifies that PLN undertakes exchange rate risks in remote areas and provides tax incentives to ease investment concerns and improve policy implementation efficiency.

II. PPA Reshaping Practice: Substantive Breakthroughs in Three Core Mechanisms in 2025

The reshaping of PPA by MEMR Regulation No. 5 in 2025 has moved from institutional design to full-scale implementation, achieving substantive breakthroughs in three dimensions: pricing mechanism, subject structure, and risk sharing, forming a new transaction system characterized by "market-oriented pricing, diversified participation, and full-cycle risk control".

Differentiated pricing mechanism guides optimal resource allocation: A dual-track system of "base load price stabilization + clean energy incentive" is implemented. Traditional energy sources such as coal are linked to the Newcastle Index, with the floating range narrowed to ±8% to ensure base load stability; benchmark prices for renewable energy are set by technology type, with a premium of 0.005-0.01 USD/kWh for high-efficiency technologies such as TOPCon. In addition, electricity transmitted across islands to load centers receives an additional absorption incentive of 0.003 USD/kWh. In the first half of 2025, the utilization rate of high-efficiency PV modules reached 92%, and the conversion efficiency of the 2 GW project invested by China Energy Investment Corporation reached 23.5%, showing remarkable results in technological upgrading.

Diversified subject system activates market competitiveness: A participation pattern of "PLN guarantee + IPP leadership + aggregator supplement" is established. PLN has withdrawn from its leading role and focused on power grid stability and services in remote areas; Independent Power Producers (IPPs) have become the main force, undertaking 73% of the planned 42.6 GW renewable energy installed capacity; aggregators have developed rapidly—Jakarta-based Energy Access integrated 500 small and medium-sized users to sign a 50 MW bulk PPA, with electricity prices 18% lower than the retail price. Industrial direct purchase has expanded significantly, and the 1.2 GW agreement between Indonesia's steel giant Krakatau Steel and Longi has become the largest industrial PPA project in Southeast Asia, driving the clean transformation of high-energy-consuming industries.

Full-cycle risk sharing mechanism stabilizes investment expectations: A multi-dimensional risk control system is established. PLN undertakes exchange rate risks, and electricity prices can be adjusted proportionally when the exchange rate of Indonesian Rupiah against USD fluctuates by more than 5%; an "energy transition fund" is set up, and the first batch of 1.2 GW shut-down coal-fired power units received approximately 320 million USD in compensation; national insurance is introduced to cover risks such as extreme weather and force majeure. The upgraded risk control has driven foreign investment inflow in the energy sector to 8.6 billion USD in the first half of 2025, a year-on-year increase of 42%, significantly boosting investment confidence.

III. Market Transformation Effects: Structural Reshaping of Energy Pattern in 2025

Driven by MEMR Regulation No. 5, Indonesia's energy market has witnessed structural transformation in 2025. Qualitative changes have emerged in three dimensions: investment structure, energy structure, and industrial ecology, and the transition has moved from the "planning period" to the "sprint period".

Investment structure shows prominent "green prosperity and coal decline" characteristics: In the first half of 2025, the total investment in the power sector reached 15.2 billion USD, with renewable energy accounting for 69%, an increase of 14 percentage points compared with 2024. PV has become the absolute focus, with Chinese investment contributing over 60%—Longi and JinkoSolar jointly built a 3 GW PV module industrial park with an investment of 2.8 billion USD; the 2 GW PV-storage integration project of China Energy Investment Corporation drove a 5 GWh energy storage supporting investment. Coal-fired power investment decreased by 78% year-on-year, with only 3.5 GW of existing projects under construction, in line with the policy orientation of "no new coal-fired power approval after 2025".

Accelerated clean-up of energy structure: By the third quarter of 2025, the installed capacity of renewable energy reached 22.3 GW, a 35% increase compared with the end of 2024, including 8.1 GW of PV, 1.2 GW of wind power, and 4.3 GW of hydropower. The withdrawal of coal-fired power has accelerated, with the first batch of 1.2 GW units shut down and the phase-out plan advanced to 2040. PV-storage integration has become a standard configuration—new PV projects are required to be equipped with 20% energy storage capacity. CATL's 15 GWh and Ruipu Lan钧's 8 GWh factories have been put into operation, with energy storage installed capacity reaching 3.2 GW.

Continuous expansion of inclusive energy coverage: The "Million PV Program for Village Cooperatives" has progressed smoothly. Adopting the standardized microgrid model of "1 MW PV + 4 MWh energy storage", it has covered 2,300 villages, effectively solving the electricity problem in remote areas. The tax incentive of "5-year tax exemption + 5-year half tax" has shortened the PV investment payback period to 6-8 years, making it more attractive than neighboring countries such as Malaysia and promoting the popularization of clean electricity.

Industrial ecology forms a collaborative pattern between Chinese capital and local entities: Chinese capital has extended from investment to the entire industrial chain—on the manufacturing side, it has driven the localization of supporting industries such as modules and inverters; on the construction side, it has undertaken more than 70% of EPC projects for large-scale projects; on the technology side, it has jointly established research institutes to develop high-efficiency PV modules adapted to tropical climates. The "Chinese technology + local resources" model has reduced costs and created over 120,000 local jobs. Clean energy industrial clusters with an annual output value of over 5 billion USD have been formed in regions such as Jakarta-Bandung.

Conclusion: 

The implementation of MEMR Regulation No. 5 in 2025 marks that Indonesia's energy transition has fully entered the deep-water zone from "policy guidance" to "market-driven". Through the systematic reshaping of the PPA mechanism in three dimensions—pricing, subject, and risk control—Indonesia has not only achieved explosive growth in renewable energy installed capacity and fundamental optimization of investment structure but also built a closed-loop system of "clean power generation - grid transmission - industrial consumption", providing a feasible path to resolve the contradiction between "high-energy-consuming industrial upgrading and carbon neutrality goals". Although challenges such as lagging grid upgrading, coal-fired power unit decommissioning and resettlement, and policy continuity guarantee still exist in the future, the institutional innovation centered on PPA has laid a solid foundation for Indonesia to build a "Southeast Asian renewable energy hub" based on the practical results in 2025. For global emerging markets, Indonesia's transition experience—activating social capital vitality through market-oriented mechanism design rather than relying solely on government subsidies—provides valuable reference for balancing energy security, industrial development, and climate goals. With the improvement of subsequent supporting policies and infrastructure upgrading, Indonesia is expected to achieve a qualitative change in its energy structure by 2030 and become a "Southeast Asian model" in the global wave of energy transition.