Excess Power Supply, PLN Needs to Evaluate the 35 GW Megaproject

Jakarta, February 8, 2023 – The State Electricity Company (PLN) is currently in the midst of a crisis of oversupply of electricity. Several factors cause this, including the pandemic and global recession. In addition, there is a 35 Gigawatt coal power plant megaproject that has been initiated since 2015 and operated at only 47% in 2022. However, there are also several misconceptions about this crisis. In a news program at the CNBC Energy Corner (6/2/2023), Herman Darnel Ibrahim, a member of the National Energy Council, and Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), discussed some of these misconceptions.

According to Herman, it is common for electricity service providers, including PLN, to set a percentage of reserve margin. Referencing other countries, 40-50% is a normal rate for the reserve margins to anticipate growth and maintenance. In 2022 alone, electricity growth was recorded at 6.15% (including from private power producers) and is expected to continue to increase in the coming years.

“On the island of Java itself, the reserve margin is probably 60%, while in other places there is a shortage of power. So in the next two years, it is estimated that there will be no overcapacity,” explained Herman.

According to Fabby, the growth percentage stated by Fabby does not reflect the actual rate of growth inside PLN, which is less than 5%. He considers that the current oversupply situation is due to a mismatch in demand projections that form the basis for planning and realizing the 35 GW. 

“Of the 35 GW that have been planned, 5.4 GW have not been contracted and have not received funding. It would be good if this amount could be canceled or diverted to renewable energy,” explained Fabby.

Herman and Fabby agree that there needs to be an evaluation from PLN in various aspects. First, it must sharpen demand forecasting for electricity use, while taking into account electricity supply from private generators. This can reduce the possibility of excess capacity, which can result in costs to be borne by the government or increased tariffs on customers.

Second, there needs to be an evaluation of electricity purchase and sale contracts with private power producers, especially those using take or pay clauses. 80% of the excess supply of electricity comes from private producers, and each GW costs the state IDR 3 trillion.

Third, it is necessary to evaluate the schedule between projects. The tendency is that project completion is adjusted to government tenure. This does not match the gradual demand growth for electricity, instead there is a sudden increase in power capacity, which causes overcapacity.

“The COD schedule (commercial operation date) should be determined by PLN, not the government’s term of office. Usually, projects are planned year by year so that there is no under capacity or overcapacity,” said Herman.

“The remaining 5.4 GW is important to monitor. The project is mostly funded by China, while since a few years ago, China has not financed coal plant projects anymore, so if it is certain that there will be no funding, it is better to cancel or divert to renewable energy. Evaluation is then important to provide stability of supply and affordable electricity prices,” concluded Fabby.

Nationwide Synergy and Investment for Indonesia’s Renewable Energy

Jakarta, 6 February 2023 – Indonesia’s journey to net zero emission is still a long and winding road. One of the government’s actions in realizing this target is to make regulations to encourage the implementation of renewable energy. In reality, targets, regulations and implementation are often unaligned.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), in the Market Review segment on the IDX channel (24/01/2023), stated that in 2022, Indonesia’s target for renewable energy development of 1000 MW has not been fully realized.

“There are several factors why this target was not fully realized, the first is the economic weakening which has caused unoptimized growth of electricity demand. Another factor is the pandemic, which caused delays on several renewable energy projects,” explained Fabby.

Furthermore, Fabby explained that Government Regulation no. 79/2014, which was more thoroughly mandated in Presidential Decree 22/2017, has set a target of a national renewable energy mix of 23% by 2025. To achieve this target, Fabby estimates that there needs to be a renewable energy growth of 3-4 Gigawatts per year. In fact, since the Government Regulation in 2014 was enacted, the average renewable energy increase rate is only 15% from 3-4 GW, which is around 400-500 MW.

This problem is also rooted in the country’s energy infrastructure itself. Indonesia’s energy source still depends on fossil energy, which accounts for 86%. To change this structure, it is also important to consider the growth in energy demand in Indonesia. Indonesia must then strive to use renewable energy to tackle this increasing energy demand. According to IESR calculations, energy transition efforts in Indonesia require around 1.4 billion dollars in funding. This fund covers renewable energy and energy infrastructure upgrades.

Regarding people’s economic perceptions, Fabby assesses that fossil energy is still seen as more economic because currently coal is still subsidized by the government. The Domestic Market Obligation Act in 2017 capped coal prices at $70/ton even if global prices are higher. This kind of incentive should also be given to the development of renewable energy. However, the incentive was also hampered by the Domestic Component Policy Level (TKDN).

“Solar PV has become the most efficient source of renewable energy, but in Indonesia it has become expensive. Compared to 10 years ago, the price of solar PV has decreased by 90%. The TKDN policy is actually a disincentive that can prevent investors from investing and make solar PV more affordable,” concluded Fabby.