23 October 2020 (IEEFA Indonesia): PLN would be better served restructuring its business to address the current energy transition rather than relying on a lifeline of government support while channelling more capital to old polluting technologies of the past, finds a new report by public think tank, the Institute for Energy Economics and Financial Analysis (IEEFA).
Author of the new report Melissa Brown says Perusahaan Listrik Negara’s (PLN) planning document released in September 2020 provides insight into PLN’s precarious financial position out to 2022.
“Due to COVID and the global energy downturn, PLN’s chances of a material tariff increase, and more robust cash flow is very low for at least another 18-36 months,” says Brown.
“PLN is still counting on easy access to global bonds markets despite the fact that investors are increasingly shunning issuers that don’t have credible strategies to address energy transition.
“PLN may be better served by revamping its flawed planning process, prioritizing technology-agnostic grid investments, and restructuring.”
BROWN’S REPORT FINDS SIX RISK FACTORS IN PLN’S SEPTEMBER OUTLOOK:
“As the COVID-19 crisis continues to cast a pall over emerging markets and to reprice global energy markets, we expect investors to be more discerning in their approach to sector risks,” says Brown.
New coal lending has all but dried up
“THE ENERGY SECTOR IS IN A PERIOD OF GLOBAL CHANGE. New coal lending has all but dried up, and Moody’s and S&P are now forecasting a shorter and narrower window of opportunity for gas projects to compete effectively against industrial scale renewables.
“The winners in the current energy transition to cheaper, deflationary, renewable technologies are those who learn to reposition assets subject to stranding risk, and those that recognise which assets will bring long-term value in the more diverse energy system of the future.”
PLN may be better served by considering restructuring
Brown says PLN’s September statement is simply poor strategic positioning.
“The official release of the Indonesian government’s annual Electricity Supply Business Plan (RUPTL), when it comes, will be a catalyst for a new round of re-assessment concerning PLN’s financial situation,” says Brown.
“In the meantime, PLN may be better served by considering restructuring, including streamlining operations and shedding costs to realize more efficient market-based outcomes.
“Any restructuring should consider the importance of new capacity procurement, such as in renewable energy technologies, and market structures that will enhance transparency and provide incentives for system services that can displace traditional sources of baseload and peaking power.”
Brown concludes that any discussion of a clean energy pathway for PLN must be accompanied by credible disclosure of the company’s carbon emissions pathway.
Media contact: Kate Finlayson ([email protected]) +61 418 254 237
Author contact: Melissa Brown ([email protected])
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (www.ieefa.org)