Accelerating Waste-to-Energy in Indonesia: PR 109/2025's Impact and Challenges

Introduction

Faced with a self-declared "waste emergency", the Government of Indonesia is overhauling its programme to procure Waste-to-Energy ("WTE", in Indonesian Pengelolaan Sampah menjadi Energi Listrik or "PSEL") projects through the release of a new Presidential Regulation regarding the Handling of Urban Waste through Waste Processing into Renewable Energy based on Environmentally Friendly Technology ("PR 109/2025"). PR 109/2025 replaces Presidential Regulation No. 35 of 2018 which so far regulated the development of WTE projects.

PR 109/2025 is intended to address long-standing challenges in Indonesia’s waste management sector by creating a clearer and simpler institutional framework for WTE and other waste processing technologies, restructuring tariff arrangements into a single income stream from a credit-worthy counterparty (PLN), and recentring responsibility for the procurement of WTE projects at the national level (rather than local governments). 

In brief, some of the key changes introduced by PR 109/2025 include: 

• assigning a lead role to Danantara (Indonesia's new sovereign wealth fund acting as the state investment management body) in the coordination of the structuring and procurement of WTE projects; 
• setting a single revenue stream through a fixed electricity purchase price of USD 0.20/kWh for the 30-year lifetime of these projects (instead of the previous regime which involved a tipping fee from the local government and a lower feed-in-tariff from PLN regulated under two separate project agreements); 
• requiring PLN (the national electricity company) to execute a Power Purchase Agreement ("PPA") within 10 working days of the WTE developer procuring its pre-construction licenses; 
• suggesting a state compensation mechanism in favour of PLN if it’s generation cost increases due to these purchases;
• there is no more limitation of eligibility to develop WTE to a certain specific municipalities and projects can be developed anywhere across Indonesia provided certain basic requirements are fulfilled by the relevant local government

This article explains the background to this major overhaul of the framework to procure WTE projects in Indonesia, outlines the key principles and the role of key stakeholders in the new procurement scheme, and considers the potential implications for sponsors and lenders looking to develop and fund WTE projects in Indonesia.

1. Background

Indonesia generates approximately 56.6 million tonnes of waste annually, with 60.9% being unmanaged and disposed of through open dumping. Landfills across Indonesia are estimated to reach maximum capacity by 2030 without further action and the Government of Indonesia ("GOI") has declared a state of "waste emergency".

Previously, then-president Joko Widodo issued a presidential regulation on WTE acceleration ("PR 35/2018") that set a target for Indonesia to achieve 100% waste management by the end of 2025. PR 35/2018 specified that 70% of waste would be managed (including by conversion into raw materials or energy sources), while the remaining 30% would be recycled.

However, such efforts to promote WTE under PR 35/2018 resulted in only two operational facilities (Surabaya’s Benowo PLTSa and Surakarta’s Putri Cempo PLTSa). Other planned projects, including in Jakarta, have faced delays or cancellation due to difficulties in land acquisition, securing waste supply, and financial structuring due to a range of issues and complexities affecting the structuring and procurement of projects under the previous framework of PR 35/2018. 

Such complexities included having two separate revenue streams: 

• a tipping fee from the relevant local government in relation to the processing of municipal waste regulated under a cooperation agreement; and 
• a feed-in-tariff for the sale of electricity to PLN under a PPA. 

The generally limited fiscal capacity and credit of local governments combined with a lack of synchronization between certain cooperation agreements and PPAs released to the market have resulted in several major projects (including six in greater Jakarta) being suspended or abandoned altogether.

PR 109/2025 now explicitly revokes and replaces PR 35/2018 to reflect a renewed political commitment to support and accelerate the development of waste management projects which convert urban/municipal waste into renewable energy through environmentally friendly technologies (referred to as Pengolahan Sampah menjadi Energi Terbarukan Berbasis Teknologi Ramah Lingkungan or "PSE").

2. Key features of PR 109/2025

Overview

The new framework enacted by PR 109/2025 is therefore not limited to WTE but opens the door to other processing technologies and outputs although in its current iteration, it only provides a detailed procurement scheme and structure with regards to WTE projects. This provides flexibility but will require future implementing regulations to set the basic requirements for the procurement and development of such other projects.

Procurement of WTE Projects

Under PR 109/2025, the implementation of WTE projects will occur in two stages: (1) planning and (2) implementation, which shall be led by Danantara.¹

The planning stage begins once a local government (Pemda) submits a written declaration of readiness, confirming that it can meet the minimum criteria for the program (set out in the eligibility criteria section below).²  The Minister of Environment ("MOE") then verifies and evaluates the local government's readiness with input from the Ministry of Energy and Mineral Resources ("MEMR") and the Ministry of Home Affairs.³  

Once verified, MOE formally designates the eligible city/regency and submits the result to Danantara which must then conduct a technical and economic study addressing waste volume, calorific value, site suitability, system support, and risk assessment.⁴  

Following this study, Danantara or its appointed SOE/subsidiary carries out the selection of the project developer and operator (referred to as Badan Usaha Pengembang dan Pengelola PSEL, BUPP PSEL or "WTE Developer").⁵  WTE Developers must demonstrate proven and environmentally friendly technology, adequate financial capacity, and relevant WTE experience.⁶  Registration to be part of the selected provider list (Daftar Penyedia Terseleksi or "DPT") has recently been opened for developers who wish to pre-qualify for the new procurement scheme with a reference to an initial pipeline of 10 municipalities including some of the largest urban centres across the archipelago.⁷  

Selection is generally by tender (from selected providers who are on the WTE DPT), but PR 109/2025 also allows for direct appointment in limited circumstances—such as when only one qualified participant exists, when the relevant municipality/region being officially declared in a waste emergency, or when an earlier local-government appointment of a developer under PR 35/2018 has been terminated.⁸ If no qualified bidder emerges based on the new procurement process, PR 109/2025 allows direct cooperation between the relevant local government and an interested private entity coordinated by the ministries although the regulation does not set out the details of such arrangements.⁹  

The procurement process, which is generally to follow the rules applicable to SOE (and their subsidiaries)-third-party cooperation, culminates in a cooperation agreement between the local government and the selected WTE Developer, which—together with the PPA with PLN—forms the contractual foundation for project implementation.¹⁰ 

Location eligibility criteria

One of the major changes instituted by PR 109/2025 is the shift of responsibility for WTE projects from local governments to the central government (relevant ministries and Danantara) to help coordinate efforts to streamline and support the procurement and development of these projects. Notwithstanding this important change, local governments remain key stakeholders as suppliers of municipal waste. 

As illustrated above, the planning stage includes the determination of eligible locations/districts for WTE projects. While an initial draft of PR 109/2025 had identified 33 municipalities across Indonesia where projects could be developed (as an expansion of the list of 12 municipalities covered under PR 35/2018), the final version of PR 109/2025 does not include a fixed list of locations and instead sets the following flexible set of criteria to be satisfied by local governments to qualify under the new procurement programme:¹¹

Land procurement and regional cooperation

Readiness of land shall be formalised in a statement of capability submitted to the MOE who will verify such readiness (including the four criteria set out above) and issue a recommendation to proceed to Danantara.¹³ Where land constraints arise, the regulations in land procurement for public interest projects may be used.

The new regime also helpfully provides that if a municipality cannot by itself satisfy site or waste supply obligations, it may cooperate with neighbouring municipalities through existing provincial coordination schemes.¹⁴

Assignment to Danantara

PR 109/2025 mandates Danantara to undertake two critical tasks in relation to the implementation of the new programme:¹⁵

We elaborate on Danantara's role in Section 3 below.

Power Purchase Agreement and offtake scheme

PR 109/2025 assigns PLN to purchase the power produced by the WTE projects.¹⁶ It also requires that the PPA be concluded and signed between PLN and the WTE Developer within 10 working days of the WTE Developer procuring its pre-construction licenses.¹⁷ The very clear language of these provisions indicates the central role of PLN (with the support of the GOI) in the implementation of the new scheme.

The electricity tariff is set at a fixed USD 0.20/kWh for any project capacity.¹⁸ The tariff is for power generation only (i.e. does not cover grid connection infrastructure), is not subject to escalation, and applies from the Commercial Operation Date as provided in the PPA.

Helpfully, the regulation provides that no penalties shall apply under the PPA if the contractual power output is not fulfilled due to (i) technical issues which are outside the project company (BUPP PSEL)'s control or (ii) insufficient waste supply (to fulfil the contracted capacity under the PPA). This principle seeks to address the lack of synchronization between certain events (especially insufficient waste supply) arising under the cooperation agreement and their operational consequences on the power generation and pursuant to the PPA which prevailed in the documentation of certain projects which were procured under the previous framework of PR 35/2018.

Article 19(6)(c) of PR 109/2025 includes an ambiguous reference to "take-and-pay", apparently to justify the absence of penalties where technical and waste supply issues occur (as mentioned above). However, this should not be read as indicating that the offtake regime under the new scheme is take-and-pay (which would make these projects unbankable). Unfortunately, the regulation also does not specify whether the power offtake will be on a take-or-pay basis consistent with the prevailing practice for independent power producer ("IPP") projects contracted by PLN).

Notwithstanding this apparent gap, we expect that this ambiguity will be addressed contractually in the form of PPAs issued by PLN which will have to align with the principles provided under the recently enacted MEMR Regulation No. 5 of 2025 on the Guidelines for Power Purchase Agreements from Power Plants Utilizing Renewable Energy Sources ("MEMR 5/2025"). MEMR 5/2025 expressly applies to WTE projects and provides that developers should be entitled to receive deemed commissioning and deemed dispatch payments in accordance with the terms of the applicable PPA negotiated between the IPP and PLN.¹⁹ A full summary of MEMR 5/2025 is available here: Indonesia's New Regulation on Renewable PPAs.

WTE plants shall also have priority to be included in PLN's network (i.e. must be dispatched) in line with their annual contracted energy.²⁰

Importantly, the new regulation provides that if PLN’s average generation cost increases due to the purchase of electricity from WTE plants including due to the required grid investments to connect WTE facilities, PLN shall receive compensation of all costs incurred, pursuant to applicable regulations.²¹

The statutory compensation backstop for PLN is an important credit feature because it addresses the spread between the fixed feed-in-tariff provided under the regulation to incentivize accelerated development of WTE projects and PLN’s system average generation cost (which in most regions is materially lower).

However, details of PLN's specific subsidy in relation to the implementation of the programme are not expressly set out in PR 109/2025 and have yet to be clarified (and/or implemented in practice) by the GOI.

Guidance and supervision

PR 109/2025 mandates several ministers and agencies to provide guidance and supervision for the programme's implementation:²²

Contracting structure and cooperation agreements

Alongside the PPA, a cooperation agreement is to be entered into between the local government and the WTE Developer.²³ This arrangement mirrors the regime under the previous PR 35/2018. PR 109/2025 provides at a high level the minimum requirements of the cooperation agreements, including: (i) land availability (which should be at no cost to the WTE Developers), (ii) readiness and commitment of waste collection and transport, (iii) compensation for lack of waste supply, and (iv) asset status post-cooperation.²⁴ The latter begs the question who (PLN or the local government) will own and be responsible for the WTE facilities upon conclusion of the PPA and cooperation agreement.

Transitional provisions - existing WTE projects

PR 109/2025 provides that existing WTE project procurements that were initiated under PR 35/2018 and meet the following criteria shall remain valid and continue in accordance with PR 35/2018:²⁵

However, PR 109/2025 also opens the possibility for such existing WTE procurements to follow the new regime under PR 109/2025 if the current project's technical or performance specifications are: (i) unable to convert waste into electricity; (2) achieve a significant reduction in waste volume; or (3) shorten waste-processing time, using proven and environmentally friendly technology (i.e. that these projects are facing challenges and are effectively suspended/stalled). In practice, this means that the parties to these stalled projects (being the local government, developer and PLN) may agree to terminate the project and opt-into pursuing the project under PR 109/2025.²⁶

3. Danantara’s role

A central feature of the new framework under PR 109/2025 is the introduction of Danantara as the lead institution for the procurement and oversight of the WTE programme. Danantara was established in 2025 as part of extensive reforms to the state-owned enterprises framework, with a mandate to manage state equity interests and to coordinate investment into national strategic projects. Its insertion into the WTE acceleration programme marks a deliberate shift away from a model in which municipalities/regional governments bore primary responsibility in the procurement and realisation of these critical projects.

Danantara is expected to act as both coordinator and investor, effectively serving as a government-appointed sponsor for some or all of these projects. In practice, this means overseeing project preparation, from feasibility studies to the procurement of developers in cooperation with PLN, while also having the authority to establish and capitalise project companies.

Of note is that a previous draft of PR 109/2025 expressly permitted Danantara to (i) capitalise or own the WTE project company; (ii) enter cooperation agreements with a local government (and other parties) where equity injection or technology transfer is needed; and (iii) sit alongside a private developer selected through the PLN/Danantara process.

This is no longer expressed in the published PR 109/2025 and instead has been replaced with the option for Danantara, other State-owned Enterprises (SOEs) and/or their subsidiaries to coordinate the selection of the WTE project company or invest in the respective WTE projects.

This flexible approach supports a range of possible structuring options including a majority sponsor position (Danantara or SOE-controlled WTE Developer), joint ventures with local governments or private developers, or financial support structured alongside multilateral and development finance institutions.

In other words, PR 109/2025 implies that Danantara and/or SOEs will centrally drive WTE deployment, rather than leaving each municipality to navigate projects on its own. This centralization (and sharing of the procurement load between Danantara and SOEs) appears to be intended to speed up procurement and financing, given that many local governments historically struggled to realize WTE projects under the old decentralised approach which included projects under the PPP regime, and others involving an assignment to region-owned enterprises who in turn were to select a qualified private partner to jointly develop projects.

The advantages of this new approach are clear. Danantara and SOEs, as state-backed bodies with a dedicated mandate, have the capacity to centralise responsibility and to provide institutional support to projects that might otherwise be undermined by fragmented governance. Their participation as a shareholder should also facilitate the mobilisation of private capital (something local governments have limited access to given their limited fiscal capacity and creditworthiness), as lenders and investors will be reassured by the presence of a stronger government counterparty who will act across multiple projects and therefore also develop related know how and streamlined policies.

There are, however, risks. The dual roles of coordinator and investor may raise concerns about alignment of interests, particularly if policy objectives come into tension with commercial bankability. For sponsors and lenders, careful assessment of each party's contractual role and financial commitments will be critical in evaluating future projects.

4. International market benchmarks

Numerous WTE facilities have been developed globally given the successful track record of these technologies to combine efficiently waste management and mitigation and electricity generation. Mature markets include most European countries (and especially the United Kingdom, Germany, France and Scandinavia), Japan, South Korea and China. Other prominent emerging markets include countries in the Gulf (UAE, Saudi Arabia, etc.) and Central Asia.

As comparison points for the renewed Indonesian regime, we set out below a few of the key features of some of these other WTE development programmes.

Various countries are seeking to attract foreign capital and technology by de-risking feedstock and revenue through clear state undertakings rather than direct subsidies. As indicated above, Uzbekistan does this via investment agreements with the central government that codify tax breaks, provide currency protections, and land access. Pursuant to PR 109/2025, Indonesia now seeks to achieve a similar outcome and provide an attractive investment environment to develop WTE projects at speed and scale by providing a fixed feed-in-tariff and mandating PLN to purchase all of their output.

5. Key takeaways for developers, investors and lenders

Boosting Project Viability and Investor Interest

The previous pilot program under PR 35/2018 had identified 12 cities for WTE plants, yet in the six years since, only two facilities were built (notably the 12 MW Benowo plant in Surabaya and a smaller project in Bekasi).

This slow progress has largely been due to financial unfeasibility – the old feed-in tariff (around USD 0.13) plus tipping fees (service fee per ton of waste) meant project economics were split between electricity sales to PLN and tipping fees paid by local governments, which was effectively capped at IDR 500,000 (~USD30) per ton via central subsidies.

This model proved cumbersome, many municipalities struggled to commit long-term budget for tipping fees, which delayed certain projects. By now making PLN the single offtaker and revenue source, backed by a sufficient feed-in tariff, WTE projects become closer to a standard IPP project in structure, simplifying contracts and reducing reliance on local government payments.

In essence, the national government (through PLN, Danantara and other SOEs) shoulders the financial burden, while local authorities supply waste and basic infrastructure – a division aimed at leveraging each side’s capacity.

Scale and speed – a national rollout

Backed by Danantara’s financial capacity, Indonesia is gearing up for an unprecedented rollout of WTE plants potentially across dozens of cities. The regulation sets a threshold of 1,000 tons per day for WTE development which means essentially that all major metropolitan areas across the archipelago's main islands (Java, Sumatra, Kalimantan, Sulawesi, Bali, etc.) and certain medium-sized cities are now in line for WTE facilities. If executed, this programme will not only help manage current waste flows but also tackle legacy waste – PR 109/2025 even mentions processing waste accumulated in existing disposal sites as part of the mission.²⁷

In the power sector context, the cumulative capacity from these WTE plants will add a few hundred megawatts of generation depending on the number of locations being developed. For instance, a single large city WTE plant might have a power generation capacity of 20 - 40MW; spread across 30+ cities, we could see added capacity in the order of 600–1,200 MW over the next decade. While modest relative to Indonesia’s total power generation, this distributed renewable capacity can strengthen local energy resilience (especially in areas where waste is abundant but power supply may be less stable). WTE would also contribute to Indonesia’s renewable energy goals – as it is often classified as “new and renewable energy” since a portion of municipal waste (the biomass content) is renewable.

Local governments: from proponents to partners

Under the new regime, local governments, who were formerly the project initiators, now assume a supporting partner role. The regulation requires each city/regency to provide land for the WTE facility, ensure waste collection and delivery to the plant, and even allocate budget for waste sorting and transport to feed the plant's operations. These are crucial contributions – a steady supply of feedstock (waste) is the lifeblood of any WTE plant. By mandating municipalities to secure land and supply waste, the policy tries to mitigate a common failure point where many past projects struggled because local authorities could not secure a suitable site or enough continuous waste input.

PR 109/2025 sets out that in case of land procurement issues, laws on land procurement for public purpose applies,²⁸ meaning land procurement can be fast-tracked, avoiding protracted delays. This strong top-down push relieves local governments of the heavy financial burden (they no longer pay the tipping fee for waste delivered at the plant gate), but still requires their active cooperation in operational aspects which are under their control. In practice, the success of each WTE plant will hinge on the municipality’s ability to deliver hundreds or more of tons of waste daily and manage upstream waste logistics efficiently.

However, this shift also means local governments must coordinate closely with Danantara and PLN. Instead of tendering their own PPP or partnership projects (as under the old framework), they will now work under a unified national program. This could standardize project designs and processes – for example, procurement of technology might be bulked or standardized by Danantara for multiple cities, potentially lowering costs through scale. The new scheme can also involve capacity building: local waste agencies will need to improve waste segregation and collection practices to meet the feed requirements of the planned high-tech WTE plants (e.g. limiting large hazardous items and ensuring calorific value).

Conclusion

PR 109/2025 promises several significant benefits. At its core, the new policy tackles two problems at once. It aims at substantially reducing the volume of waste ending up in landfills while producing electricity for the national grid.

From an investment and bankability perspective, the regulation creates a more attractive framework by providing a simpler contractual and revenue structure. With a clear tariff and enhanced regulatory certainty, Indonesia sends a strong signal to investors that WTE projects are not only viable but actively supported. This should bring in renewed foreign direct investment, technology partnerships, and create jobs in the construction and plant operation, as well as key supply chains in the future.

From an implementation perspective, the new regulation shifts most of the capital and operating cost responsibility from the local to the central level (Danantara, PLN, certain line ministries and the national budget). Local governments remain however critical stakeholders in having to provide consistent waste supply and logistics. In effect, the policy is a national equalizer, enabling waste infrastructure upgrades across regions regardless of local fiscal capacity.

But despite the clear benefits and strong political backing, the ambitious WTE acceleration plan is not without challenges and potential points of friction. Successfully implementing dozens of potential WTE projects in a short time span will require navigating technical, financial, social, and environmental hurdles.

It is yet to be seen whether Danantara will phase the projects (e.g. batch them in waves and learn from the first few before scaling up). The recent DPT announcement for 10 initial municipalities seems to suggest so. Coordination between national and local authorities remains a challenge that will need to be harnessed: although the regulation sets roles, in practice effective collaboration will vary (as past PPPs across various sectors have shown). The central coordination function of Danantara will therefore be of critical importance to keep all stakeholders aligned.

In summary, the path ahead for Indonesia’s WTE acceleration is promising but complex. This ambitious initiative of national strategic importance can succeed if implemented with care: balancing speed with due diligence, and ambition with inclusion. With the right adjustments, Indonesia can indeed modernize its waste management sector and address the current waste emergency affecting communities around the country. 

Appendix

Comparison between PR 35/2018 & PR 109/2025

Other author: Hakim Anataputra, Associate.