Renewable Energy Certificates: Commodity Trading Instrument to Boost Indonesia's Renewable Energy Growth

The Commodity Futures Trading Supervisory Agency (Badan Pengawas Perdagangan Berjangka Komoditi – "Bappebti") has established a framework for the physical market trading of Renewable Energy Certificates ("RECs") through the futures exchange by issuing Bappebti Regulation No. 11 of 2024 on Procedures for Implementing Physical Market Trading of Renewable Electricity Through the Futures Exchange ("Regulation 11").

Overview

RECs are known as tradable environmental commodities that represent the environmental attributes associated with one megawatt-hour (MWh) of electricity generated from renewable energy sources, such as solar, wind, hydroelectric, biomass, or geothermal energy.

RECs also function as a mechanism for tracking and verifying renewable energy production and consumption, enabling the purchase and sale of renewable energy attributes separately from the physical electricity. This allows consumers, businesses, and organizations to support renewable energy development and achieve sustainability goals by purchasing RECs to offset their carbon footprint or demonstrate renewable energy usage.

In Indonesia, RECs were first introduced by PLN in 2020 to meet customer demands for green electricity. PLN supplies RECs from several renewable energy power plants, including the Kamojang Geothermal Power Plant (PLTP) in the Java, Madura, and Bali electricity system; the Lahendong PLTP and the Bakaru Hydroelectric Power Plant (PLTA) in the Sulawesi electricity system; and the Ulubelu PLTP in the Sumatra electricity system.

The issuance of Regulation 11 marked a significant step towards creating a market-based mechanism to support renewable energy development in Indonesia.

RECs Criteria

Under Regulation 11, electricity generated from renewable energy sources is considered as a subset of the broader electric power commodity. As a commodity, renewable electricity can be traded in the physical market in the form of RECs. RECs are defined by Regulation 11 as certificates for the production of electricity generated by renewable energy power plants in accordance with nationally and/or internationally recognized standards.

The RECs that can be traded in the renewable electricity physical market must fulfill certain minimum criteria and requirements as follows:

• RECs must be generated from renewable power plants that are registered in a REC Registry. The REC Registry refers to an IT-based system that registers renewable energy power plants, issues RECs for their electricity production, and manages RECs administration.
• RECs are issued by a REC Registry and registered in the REC Registry which collaborates with the Futures Clearing Agency (Lembaga Kliring Berjangka) – as further discussed below. This implies that if a REC Registry has not established a cooperation with the Clearing Agency, the RECs it issues cannot be traded in the physical market.
• RECs can only be traded in the physical market through REC Physical Contracts (as detailed below) that have been approved by Bappebti.
• RECs that have been retired (lepas guna) cannot be transferred or traded again in the market. This means that RECs used or claimed to offset electricity consumption with renewable energy cannot be sold again, preventing double counting.

REC Registry

Reliable infrastructure is crucial for streamlining the transfer of RECs, as it provides the essential framework for the effective operation of REC markets. Without such registries, these markets would lack the necessary support to function efficiently, particularly in tracking, documenting, verifying, and certifying RECs, as well as ensuring market transparency.

As mentioned above, Regulation 11 requires that the REC Registry must cooperate with the Futures Clearing Agency. In addition, the REC Registry must also fulfill the following requirements:

1. It must be recognized by associations that operate climate change protocols and comply with international reporting standards (e.g., Greenhouse Gas Protocol¹ and RE100²).
2. It must be capable of managing a system for issuing, recording, tracking, transferring, and retiring RECs.

As reference, there are two globally recognized registries commonly seen in the Southeast Asian market, namely International Renewable Energy Certificate (I-REC) and Tradable Instruments for Global Renewables (TiGR).

REC Physical Contract

Regulation 11 defines REC Physical Contract as a standardized form used to buy or sell RECs on the Renewable Electricity Exchange (Bursa Tenaga Listrik Terbarukan) – as further discussed below.

The REC Physical Contract must, at a minimum, include the following information:

a. REC identity code or serial number
b. Name of REC Registry
c. Origin of energy source
d. Name of the renewable power plant
e. Volume of REC
f. REC production period

While the requirement for Bappebti-approved REC Physical Contracts may enhance market integrity, it remains to be seen whether this will create any barriers or delays in the execution of REC trades that market participants must navigate.

Renewable Electricity Exchange and Clearing Agency

As of the drafting of this alert, Bappebti has not yet designated or granted approvals to any specific entity to serve as the Renewable Electricity Exchange or the relevant Futures Clearing Agency for the physical market of renewable electricity. Consequently, market players must adopt a wait-and-see approach before trading RECs in Indonesia.

Although further designations by Bappebti are necessary to fully operationalize the market, the framework established under Regulation 11 provides a foundational structure for creating a market-based mechanism to support renewable energy development in Indonesia. Any parties wishing to become Renewable Electricity Exchanges or Future Clearing Agencies must meet various institutional requirements as outlined under Regulation 11.

Renewable Electricity Exchange