The Institute for Development of Economics and Finance (Indef) highlights the implementation of power wheeling, which poses a risk of increasing the state’s fiscal burden because Indonesia already has an oversupply of electricity.
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Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, explains there is nothing to worry about related to the “power wheeling” scheme.
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Jakarta, February 28, 2023 – Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, highlighted the power-wheeling scheme contained in discussions on the New Energy and Renewable Energy Bill (RUU EBET). However, the scheme has been removed from the problem inventory list (DIM) preparation in the New and Renewable Energy Bill (RUU EBET). Power wheeling is a mechanism that allows private companies or independent power producers (IPP) to build power plants and sell electricity to household and industrial customers. Fabby explained power wheeling is needed to align with Indonesia’s efforts to increase renewable energy.
“The Government has set a target of achieving a 23% New Renewable Energy (EBT) mix in 2025, both for electricity and liquid fuels. Then, in 2021, President Jokowi set an NZE target of 2060 or earlier. This target is driving the energy transition to decarbonize the energy sector. As a consequence of this, renewable energy needs to be developed on a large scale,” explain Fabby Tumiwa in the webinar “New Energy and Renewable Energy for the Prosperity of All” organized by the Center of Economic and Law Studies (CELIOS), on Tuesday (28/2/ 2023).
Unfortunately, Fabby mentioned, the growth of renewable energy tends to be slow. This can be seen from the achievement of the new renewable energy (EBT) mix of around 14.11% in 2022. Fabby assesses that it is best when the combination of new and renewable energy in the electricity sector reaches 30%. Achievements in 2022, said Fabby, were only half of the 2025 target that the Government had set.
“Reflecting on these conditions, the gap with the primary renewable energy mix target of 23% in 2025 is widening. Strategic innovation is needed to encourage the implementation of renewable energy. Moreover, Indonesia’s massive renewable energy potential has not been utilized. On the other hand, the cost of generating electricity from renewable energy is very competitive. Eliminating incentives for fossil energy is enough to make renewable energy the cheapest option,” said Fabby.
Along with this, Fabby emphasized that the concept of power wheeling is familiar because previously the Government had regulated it based on the ESDM Ministerial Regulation (Permen) No 1/2015 and ESDM Ministerial Regulation (Permen) No 11/2021. Still, these regulations need to be implemented. Thus, Fabby stated that power wheeling has the potential to create a renewable energy market while maintaining industry/company investment in Indonesia. One of them is the industrial group that joined RE100.
“Power wheeling can encourage renewable energy because it provides incentives from the supply and demand side. However, power wheeling requires further adjustment. Regulatory regulations regulate tariffs for power-wheeling schemes in other countries, at least in their formulation. At the same time, the commercial aspect is taken care of by business-to-business between those who wish to use it and the transmission owner. Not only that, power wheeling needs to be included in the law because the implications of implementing the scheme will involve several ministries/agencies. For that, it’s not enough to get ministerial regulations,” stated Fabby.
Jakarta, 12 January 2023- Ministry of Energy and Mineral Resource (MEMR) decides to repeal the proposed power wheeling scheme from the issues inventory list (DIM) of the New and Renewable Energy Bill (NERE Bill) that was submitted to the House of Representatives (DPR) in December 2022. Institute for Essential Services Reform (IESR) regrets such decision and implores the government and the House of Representatives to include renewable power wheeling in the RUU EBET review.
The power wheeling scheme is the joint utilization of the electricity network. Through this scheme, independent power producers (IPP) could sell electricity directly to the public using the transmission and distribution network owned by the State Electricity Company (PLN). IESR views that power wheeling could increase the demand and supply of renewable energy by the public, thus accelerating the growth of renewable energy and reducing PLN’s burden in providing renewable energy.
“The joint utilization of electricity network or power wheeling will provide easier access for consumers to get renewable energy supply with a competitive price. This could then foster the interest to develop existing renewable energy sources, and not depend on PLN as the off-taker. Renewable energy power wheeling could also increase the utilization rate of PLN’s energy network, providing a new source of income for the company,” said Fabby Tumiwa, the Executive Director of the Institute for Essential Services Reform.
Fabby views the power wheeling scheme as a consequence of Indonesia’s electricity system, with PLN monopolizing rights for transmission network control. Through the power wheeling scheme, electricity networks could be used communally and allow renewable energy Independent Power Producers (IPP) to sell directly to the consumers using transmission and distribution networks belonging to PLN.
Fabby adds that the Ministry of Finance’s assessment of power oversupply as the main reason for repealing power wheeling is inaccurate. The oversupply is mostly dominated by fossil energy, hence hindering the clean energy mix target. Fabby also explained that the oversupply situation is predicted not to last long, and could end as soon as 2025, supported by the gradual increase of power demand post-pandemic.
“EBET Bill, if passed, will be implemented for a long time and could even surpass the current oversupply situation. The government needs to push for renewable energy adoption quickly, especially if they plan to retire coal power plants by 2030. In the future, power wheeling could be one of the revenue sources for PLN, by leasing electric networks,” added Fabby.
Furthermore, Deon Arinaldo, Program Manager of Energy Transformation IESR, explains that it’s too premature to worry about the state and PLN’s loss if power wheeling is implemented. Deon added that if the power wheeling scheme is back in the EBET Bill, the law would still need to be expounded, and the points could then be used to manage the potential risks to PLN and the state.
“For example, in setting power wheeling tariffs, the government can manage the price based on comprehensive studies so it can balance between renewable energy development targets with the risk of decreasing electricity demand. On the other side, PLN could still also take part in the power wheeling scheme through its sub-holding generation company,” said Deon.***
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