Mine-Mouth Electricity Tariffs Remain Questionable

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Jakarta Post. Businesses remain unsure whether a new regulation on tariffs for electricity sourced from power plants located near coal mining sites, also known as mine-mouth power plants, will be competitive and lure in more investment.

The Energy and Mineral Resources Ministry issued last month ministerial decree No. 19/2017 on the use of coal for power plants and the purchase of excess electricity produced by the plants.

In the case of mine-mouth power plants, the decree dictates that if the cost to supply electricity (BPP) in a region is higher than the national average, the electricity tariff should be capped at 75 percent of average national rates.

If BPP in a region is lower or equal to the national average, then electricity tariffs should be capped at 75 percent of the region’s average.

It may take a while for independent power producers (IPPs) to conclude whether the latest regulation will be a boon or burden.

Ali Herman, the chairman of the Indonesian Private Electricity Producers Association (APLSI), said there were several factors in the new regulation that could make it difficult for IPPs to obtain funding from banks to build mine-mouth power plants.

He said the regulation would only benefit state-owned electricity firm Perusahaan Listrik Negara (PLN), which has almost a monopoly on the distribution of electricity.

Ali noted that the main difference between mine-mouth and regular coal-fired power plants was the lower distribution and transportation costs of coal supply.

However, the new ministerial decree has made an automatic assumption that the region’s BPP should also include mining costs, not just distribution and transportation.

“We need to find out whether or not the new decree has created a level playing field,” he said on Wednesday.

“If there are no post-reviews and no consideration of micro and macro factors, then there may be some imbalance and [mine-mouth plants] may no longer have good prospects for investors.”

Although Indonesia hopes to eventually reduce its coal-use for environmental reasons, coal is expected to remain a major fuel source in the power sector for the next decade.

PLN’s 2016 electricity procurement business plan (RUPTL) stated that 50.3 percent of all electricity generation would be fueled by coal in 2025 from 55.7 percent in 2015.

PLN has also stated that it planned to increase its minemouth power plant development target to exceed 7,000 MW by 2025.

The government has recently decided to prioritize the implementation of affordable electricity tariffs but at the same time hopes to encourage more investment to develop cheap energy sources in the regions.

Recent policies, however, have suggested the government’s penchant for capped tariffs for electricity produced by IPPs and sold to PLN. The Energy and Mineral Resources Ministry has recently issued regulations that cap electricity tariffs for renewable energy and put a price cap on purchases of gas by wellhead power plants.

The Institute for Essential Services Reform (IESR) executive director, Fabby Tumiwa, said that the latest decree was meant to make tariffs of electricity produced by minemouth power plants extremely competitive.

“For example, coal-rich South Sumatra [which has several mine-mouth power plants] has a BPP of around 6.5 US cents per kilowatt hour [kWh], this means that electricity will have to be sold to PLN at below 5.2 cents per kWh,” he said.

“We need to find out whether or not the new decree has created a level playing field,”

Source: Jakarta Post.

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