Contractual Risk and Supply Chain Governance in Renewable Energy Procurement: Evidence from PLN–IPP Agreements in Indonesia

Abstract

Indonesia’s state utility, PT. PLN (Persero), sources most of its renewable generation capacity through long-term Power Purchase Agreements (PPAs) with Independent Power Producers (IPPs) rather than in-house construction, yet existing literature treats these arrangements mainly as financial instruments rather than governed buyer-supplier relationships. This paper reframes PLN–IPP renewable procurement as a supply chain governance problem, applying transaction cost economics and supply chain resilience theory to examine how contract design and risk allocation shape deployment outcomes. Using a qualitative case-comparison method with an illustrative scenario analysis of risk-adjusted generation cost, the study analyzes 54 publicly disclosed PLN–IPP PPAs, contrasts two procurement pathways within PLN’s geothermal portfolio, and examines the shift toward competitive-auction procurement for solar and wind. Findings show that transaction costs from single-buyer power asymmetry, uncompensated resource-exploration risk, and non-standardized contracting explain much of the persistent gap between renewable targets and realized deployment, independent of cost competitiveness; arrangements that transfer resource risk to the state, standardize PPA templates, and adopt competitive auctions are associated with shorter paths to financial close. The paper extends buyer-power and relational-governance frameworks to a state-owned monopsony context and offers practical guidance for redesigning renewable energy procurement to reduce transaction costs and strengthen supply chain resilience.