Image Credit : Star Energy

JAKARTA (TheInsiderStories) – Indonesia continues to offer a major investment opportunity for domestic and global power companies and investors. Amongst Indonesian infrastructure opportunities, power arguably remains the largest and most liquid, business consultant firm  PwC concluded in its research guidance about the market.

In the Investment and Taxation Guide, issued on November 2017, PwC describing in detail about investment opportunity in Indonesia, while at the same time conveying the potential risks involved. It pointed out the risks as subject to interpretation and continuously changing regulation, and sometimes inconsistency some of the govt plans or programs.

In the regulatory and policy development, PwC found that the Ministry of Energy and Mineral Resources has issued over 50 new regulations in recent times. About 20 regulations directly affect the power industry.

Those regulations, with the big three concerns on the acceleration of power infrastructure development, the involvement of a unit of state-owned electricity company PT Perusahaan Listrik Negara in consortia and the changes to power purchase agreements, or PPAs, risk allocation. It aware that the regulatory activity was intended to directly stimulate project implementation.

However, PwC highlighted that concerns continue to exist over PPAs risk allocation principles. It also reminded investor on the lower than before average tariffs for renewables, particularly in Java-Bali and Sumatra. This policy potentially makes renewable investment less attractive.

It is ironic, given the fact that investors commitment to develop renewable power plants were skyrocketing, with 600 Megawatts (MW) new contracts have been signed during March-August 2017. It has been claimed as the most significant progress within a decade.

In addition to lower renewable tariffs, the government’s decision to continue to utilize more coal-fired power plants, or PLTUs, for the next ten years– as stipulated in the electricity procurement business plan of 2018-2027– had also triggered criticisms from public particularly environment activists.

Faby Tumiwa, director of Institute for Essential Services Reform, regretted the trimming portion of renewable energy in the business plan. The reduction of renewable energy generation capacity on the basis that the decline of projected electricity demand is inappropriate, he said as quoted by Mongabay.

The investment cost of distributed power plant including solar cells and storage batteries would potentially create a disruptive technology for large-scale power plants such as the coal-fired power plant. The technology could be a new threat for PLN.

He estimated that the extensive application of solar cells and storage batteries at household and commercial scale with a competitive price within the next five to 10 years can cut the demand for electricity from PLN. As a result, the capacity of the build-up power plants will be idle.

In addition, excessive supply power plants constructed by PLN and independent power producers, or IPPs, could trigger more stalled assets since consumers no longer purchase the electricity. Financial burden must be borne by PLN and IPPs, which eventually trigger financial loss for PLN, Tumiwa projected.

To appeal investors, the government has lent its hands to IPP during the whole process of building a power plant from seeking for financing, land acquisition, up until requiring PLN to buy electricity that will be produced at a reasonable price. Investors will have the opportunity to operate the plant for about 25 to 30 years after the commercial operation date, before finally transfer the asset to PLN.

Aside from that, the decision to continue use coal-fired power plant extensively, more than half of the total energy mix until 2025, could lock the country into a high-cost electricity future, energy finance consultant Yulanda Chung estimated.

Her research for the Institute for Energy Economics and Financial Analysis, or IEEFA, was focused on the capacity payment that the government applied in mandating the private sector to build power plants and require PLN to purchase from it.

Under the scheme, IEEFA estimated that PLN would have to pay approximately US$3.16 billion per gigawatt of installed capacity in the form of capacity payment for power availability from PLTUs.

According to last year RUPTL, PLN has allocated 24 GW of coal-fired power and mine-mouth power generation capacity to IPPs. Thus, in total PLN will pay an estimated US$75.84 billion over the course of 25-year PPAs to secure access to this expected capacity.

The research also highlighted the overestimated demand of electricity that the Energy Ministry made. IEEFA projected that Indonesia will need 143.3 GW capacity in 2030, somehow the ministry estimated a greater amount of capacity at 188.8 GW.

The assumption has led the government to make more commitments to build PLTUs and require PLN to set up a significant financial cost for potentially un-needed power from underutilized plants.

Furthermore, Chung suggested an economical alternative to national energy security through the development of renewable energy and diversification of energy sources in Indonesia’s power generation portfolio.

It did not take long for Chung’s prediction to be proven. The rising electricity prices have been captured recently. Electricity generation cost, or BPP, has reached the highest level within the last three years.

A benchmark cost to determine electricity selling price from IPPs to PLN has risen to Rp1,205 per kilowatt hours. The price will be adopted starting next month to March 2019, Katadata reported.

By looking at these issues, it would be wise if the government immediately made a strategic move that could correct the electricity investment policy. Otherwise, the desired energy distribution may turn into a national burden.

Written by Pudji Lestari, Email: pudji.lestari@gmail.com

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