LCR: The Government of Indonesia (GoI) has adopted the policy of Local Content requirements (LCR) to promote the growth of domestic manufacturing and service industry, including renewable energy industry. What are the implications of the LCR policy in the context of JETP?
This high-cost environment is amplified by requirements under LCR regulations, which restrict developers’ ability to source supplies from outside Indonesia, where the costs of renewable energy components for Solar PV, wind and battery, have fallen rapidly in recent years. As a result, demand for renewable energy is directly impacted by these high prices and capacity constraints.
This is likely to present a challenge in the implementation of JETP, particularly in the near term, as current capacity of local renewable energy industry is unlikely to match the rising demand resulting from the implementation of JETP top priority projects. In the long term, however, as more manufacturing capacity comes online, this problem is likely to be addressed. Therefore, it is important to consider a policy approach that provides a near term solution to renewable energy procurement whilst at the same time keeping the long term goal of LCR policy, namely the growth of a local renewable energy industry.
Further explanation on the implications of LCR policy on renewable energy procurement can be found in Chapter 8, specifically under the sub chapter 8.1 on Local Content Requirements.
