Presidential Regulation 109/2025: Ushering in Indonesia’s Next Era of Waste-to-Energy
Since 2018, Indonesia has shown its commitment to developing Waste-to-Energy (WtE) facilities through Presidential Regulation No. 35/2018. However, challenges such as limited regional fiscal capacity, political hurdles in budget approvals, and uncertainty due to leadership changes hindered progress. The newly enacted Presidential Regulation No. 109/2025 on Urban Waste Management through Environmentally Friendly Technology-Based Waste-to-Renewable Energy Processing (PR 109/2025) seeks to overcome these bottlenecks and accelerate the nation’s transition toward sustainable waste management.
Rational of New Policy
The issuance of PR 109/2025 marks an important milestone in Indonesia’s ambition to WtE projects as a sustainable solution to the country’s waste management crisis. For years, the idea of converting waste into energy has been promoted as a key strategy to reduce landfill dependency and produce renewable electricity. However, despite strong policy intentions, the implementation of WtE projects has faced numerous challenge.
One of the main obstacles has been the complexity and overlapping responsibilities between the waste management and electricity sectors. Previous regulations often created ambiguity between the roles of local governments and PLN, resulting in delays, coordination issues, and legal uncertainties. In addition, the project structure was overly complicated, relying on dual revenue streams, which made financial arrangements more complex.
Local governments also struggled with institutional, fiscal and technical capacity, particularly in ensuring waste supply, preparing land, and allocating sufficient budgets. Many WtE project initiatives stalled because there is no clarity for off-taker absorption, lack of tipping fee payments and land preparation commitment. These barriers collectively hindered the government’s broader goal of accelerating sustainable waste management.
In response to these long-standing challenges, PR 109/2025 is issued to simplify and strengthen the governance framework for WtE development. The new policy clearly delineates responsibilities: local governments are now focused on waste supply and land readiness, while PLN serves as the single off-taker through feed-in tariff payments, which also providing revenue certainty for investors.
Through this policy, the government aims to streamline project preparation, reduce regulatory overlap, and improve investment feasibility, ensuring that WtE projects can finally move from concept to implementation. With a clearer institutional structure, single revenue stream, and stronger coordination between stakeholders, WtE projects are expected to run more smoothly and effectively, transforming waste management challenges into opportunities for clean energy generation and sustainable urban development.
Key Changes under PR 109/2025
Key changes compared to previous framework :
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Aspect
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Previous Framework
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PR 109/2025
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Contracting Agency
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Regional Government
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BPI Danantara through its investment and operational holdings, SOEs, and subsidiaries
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WtE Developer
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Regional-owned enterprises or private entities
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WtE Developer and Operator (BUPP PSEL)
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Eligible Regions
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Limited to 12 municipalities
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Open to all municipalities meeting readiness criteria (waste supply commitment, land, budget, regulation)
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Waste Supply Commitment
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Not specified
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Minimum 1,000 tons/day throughout operation
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Electricity Tariff
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Up to USD 0.1454/kWh
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USD 0.20/kWh flat
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Power Purchase Term
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Not Stipulated
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Maximum 30 years
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Government Support
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Tipping fee subsidy (max Rp500,000/ton)
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Additional fiscal and non-fiscal incentives, VAT exemptions, and PLN compensation for assigned purchases
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Eligibility and Regional Participation
Municipalities across Indonesia can now apply to participate, provided they demonstrate: minimum 1,000 tons/day waste supply assurance; budget allocation for waste collection and transport; available land for WtE facilities; dan commitment to establish sanitation or waste levy regulations.
The Minister of Environment verifies and evaluates proposals, in coordination with the Ministers of Home Affairs and Energy and Mineral Resources. Approved regions are designated by the Minister of Environment. Furthermore, BPI Danantara conducts the selection for developer and project investment.
Currently, the government has determined the initial seven locations for the development of WtE projects. These include Bali Province, the Special Region of Yogyakarta, Greater Bogor, Greater Tangerang, Semarang City, Greater Bekasi and Greater Medan.
BPI Danantara: Driving Investment and Project Structuring
Under PR 109/2025, BPI Danantara serves as a strategic enabler and policy integrator responsible for:
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- Structuring financially viable and technically sound WtE projects.
- Selecting BUPP PSEL developers with proven technology, financial capability, and compliance with environmental standards.
- Ensuring alignment with SOE investment regulations and balanced risk-sharing frameworks.
This approach centralizes project governance under a national investment institution, ensuring accountability, efficiency, and scalability.
Project Selection and Cooperation Framework
PR 109/2025 introduces a centralized, top-down coordination model in the implementation of WtE projects across Indonesia. Under this framework, the central government first designates eligible municipalities based on specific readiness criteria discussed above. Once designated, BPI Danantara is tasked with conducting the selection of WtE developers referred to as BUPP PSEL through its investment holding, operational holding, or state-owned enterprise subsidiaries.
Following the selection process, the chosen BUPP PSEL enters into formal agreements with both the regional government and PLN, the state-owned electricity company, which acts as the sole off-taker of the power generated. This arrangement ensures a streamlined contractual structure that integrates policy direction, investment oversight, and energy procurement into a unified national framework.
In certain circumstances, such as when only one qualified participant exists or when an emergency condition is declared by the Ministry of Environment, the regulation allows for a direct appointment mechanism to ensure timely project realization. Should the BPI Danantara-led selection process yield no suitable results, regional governments may directly cooperate with a business entity willing to undertake the project. Such cooperation, however, must be submitted through the Ministry of Energy and Mineral Resources and be formalized through a notarized agreement.
This integrated approach aims to enhance project governance, improve coordination between central and local stakeholders, and secure both financial and environmental sustainability. By establishing clear institutional roles and procedural clarity, PR 109/2025 sets the foundation for a more efficient and accountable framework for Indonesia’s next generation of WtE infrastructure.
Commercial Framework and Contractual Design
PR 109/2025 attempts to adopt a clearer risk-balanced commercial structure for WtE projects, which involving three main relationships, i.e. BPI Danantara–BUPP PSEL for investment and project governance; Regional Government–BUPP PSEL for waste management and operational support; and BUPP PSEL–PLN for power offtake through a long-term Power Purchase Agreement (PPA).
At the centre of this structure lies the Power Purchase Agreement (PPA) between BUPP PSEL and PLN, which ensures a predictable revenue stream through a fixed tariff of USD 0.20 per kWh for up to 30 years from the commercial operation date. This tariff is non-escalating and non-negotiable, providing stability for investors while minimizing fiscal exposure for PLN.
One of the critical risks addressed in PR 109/2025 is the potential failure of regional governments to meet their waste supply obligations. Each participating municipality is required to guarantee a minimum supply of 1,000 tons of waste per day throughout the operational period of the WtE facility. This commitment forms a key part of the readiness criteria evaluated before project approval.
In the event that a regional government fails to deliver the required volume or quality of waste feedstock, BUPP PSEL is explicitly protected under the principle embedded in the PPA. This means that no penalties or performance deductions will be imposed by PLN if the plant’s electricity output falls below contracted capacity due to insufficient waste supply provided the shortfall is beyond the developer’s control.
On the other hand, in cases where the regional government fails to meet its minimum waste supply commitment (1,000 tons/day), BUPP PSEL is entitled to compensation under its cooperation agreement with the regional government. Such compensation aims to cover operational losses or revenue gaps resulting from the shortage. The mechanism and calculation will be detailed in each project’s specific agreement.
This framework shifts waste supply risk away from private developers, while maintaining transparency and accountability among local and national institutions. By protecting investors from uncontrollable operational risks and providing contractual remedies, PR 109/2025 strengthens project bankability and investor confidence in Indonesia’s growing WtE sector.
Oppurtunities and Next Steps for Private Investors
PR 109/2025 marks a turning point for Indonesia’s WtE sector offering a clearer regulatory framework, stronger fiscal incentives, and centralized coordination.
Key considerations for investors include:
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- Waste feedstock reliability (minimum 1,000 tons/day).
- Bankable project structures with transparent PPA and risk allocation.
- Regional readiness in land, permitting, and budget commitments.
- Technology compliance with environmental and emission standards.
Investors are encouraged to begin regulatory mapping and feasibility assessments, and to engage early with BPI Danantara, Ministry of Environment, and PLN to explore project pipelines and partnership opportunities.
Conclusion
With PR 109/2025, Indonesia is paving the way for a robust, integrated WtE ecosystem. The regulation redefines institutional roles, strengthens investment clarity, and aligns national energy and waste management objectives ushering in a new era of sustainable urban infrastructure.
Tags: Regulation, waste to energy
