Policy Review: Weak Electricity Demands May Hold Power Investments

Tower of Power - Photo by PLN

JAKARTA (TheInsiderStories)— Weak electricity demand potentially disrupts investment in power sector.

The electricity consumption reflects the condition of the economic activity. Every single digit of economic growth is equal to electricity consumption growth at twice as fast. Before the economic crisis in 1997, Indonesia enjoyed economic growth of 7 per cent, which bring electricity consumption growth by 14 per cent.

In the last 10 years, 1 kWh electricity consumption contributed to $3.9 of gross domestic product (GDP), according to Agency for the Assessment and Application of Technology data.

Indonesia’s sluggish economy in recent years leads to lower electricity consumption. Electricity demand growth only reached 3.57 per cent last year, less than half of the expected of 8.36 per cent. The government targets electricity demand growth of 6.86 per cent with the economic growth assumption of 5.5 per cent in 2018.

This year’s target is too optimistic with growth in the first quarter of 2018 only reached 3.67 per cent, consists of business consumers of 9.9 tWh, industrial consumers of 18.5 tWh, and households consumers of 22.9 tWh. It was only 95 per cent of electricity consumption target in the first quarter of 2018 according to the electricity supply business plan.

PT Perusahaan Listrik Negara (Persero) Corporate Planning Director Syofvi Felienty Roekman previously said the household consumption recorded the lowest in electricity consumption growth in the first quarter of 2018 due to weak purchasing power.

Based on data from the Central Statistics Agency, household consumption grew only 4.95 per cent in the first quarter of 2018, which was almost stagnant if compared to consumption rate in the first quarter last year at 4.94 percent.

In addition, the slow development of the industrial estates also contributed to the low electricity demand. PLN noted some of industrial estates development plan by the government is not progressing as expected. One example is Sei Mangke industrial estate that only installed 5 MVA, far below the PLN’s expectation.

The sluggish electricity demand potentially harms investment in power sector. The Ministry of Energy and Mineral Resources and PLN already revised down the 10-year electricity business plan. Based on the latest business plan, the government projected the electricity demand to grow by only 6.87 per annum, lower than the growth of last year at 8.3 for the period of 2017-2026. The projection takes into account the expected slow economic growth in the next years.

The Energy Ministry set less ambitious power plant development compared to last year. Based on the latest business plan, the government now aims to add 56,024 MW of power plants over the next 10 years next year, lower than the previous projection of 78,000 MW set in the 2017-2026 ten-year plan. Currently, the country’s installed capacity power plants stand at around 60,000 MW.

The concern over low electricity demand also comes from private power companies. The President Director of PT Bukit Asam Tbk (IDX: PTBA) Arviyan Arifin previously mentioned the concern on the electricity demand. This condition affects the company’s business plan to invest in the power plant projects.

A similar concern was delivered by Vice President of Adaro Power Dharma Djojonegoro. He said power business currently trapped in the difficult situation due to low electricity demand. Consequently, many projects tend to be canceled or postponed.

“But we are committed to help the government in the areas that we can help,” he added.

The low electricity consumption, riddled by other major constraints such as continuously changing regulation, the inconsistency of government plans or programs, difficulty in land acquisition, exacerbates investment climates in power sector. The government should push some priority projects that potentially increase electricity demand significantly.

One example is pushing the industrial estate development as it was cited as one reason behind low electricity demand. In addition, the government also urges to push the smelter projects as it needs high-scale electricity demand.

Email: fauzulmuna@theinsiderstories.com