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IEEFA Indonesia: The case for power system transformation

Holistic reform of electricity sector will improve investment outcomes and reduce risk of further blackouts

November 13, 2019 (IEEFA Indonesia): The systems and processes that govern the Indonesian electricity sector are in need of urgent review to increase cost-effective investment options and avoid stranded asset risk finds a new report by the Institute for Energy Economics and Financial Analysis (IEEFA). 

Entitled The Case for System Transformation in Indonesia: Time for a Full Electricity System Audit, the report outlines five key recommendations for new Cabinet Ministers and a refreshed managing body of the nation’s state-owned electricity provider Perusahaan Listrik Negara (PLN).

Those recommendations include:

  1. Conduct a full system audit of PLN.
  2. Enact system-level reform of Indonesia’s electricity sector. 
  3. Provide a healthy level of competition in project procurement. 
  4. Transform the design of the national electricity planning document (RUPTL) into a more transparent process based on meaningful data and evidence. 
  5. Set up a truly independent power regulatory body.

The report offers a system health check following a massive power blackout in Java Indonesia three months ago which led to power outages affecting almost one hundred million people.

While PLN offered compensation to customers of up to IDR 865 billion (USD 61 million), IEEFA’s report suggests PLN’s lack of system-level planning coupled with its slow emergency response should be a catalyst for a fundamental re-think of PLN’s planning practices. 

IEEFA found concerns about PLN’s system operations and related planning disciplines have gained momentum over the past two years, particularly as PLN have engaged in an aggressive build-up of new, high-cost coal-fired capacity at the expense of investment in the grid and operational innovations. 

This was confirmed by IEEFA’s analysis of a number of PLN’s coal-fired mine-mouth power plants in Sumatera and Kalimantan.

IEEFA found the economics of these projects (such as the Jambi-1 and 2 mine-mouth power plants) are not favourable as the overall cost of associated generation and transmission infrastructure was not taken into account. Further, many of the projects, as shown in the report’s case studies, suffer from a legacy of opaque ownership interests and project approval practices. 

IEEFA suggests the government’s ambition to increase the speed of new electricity generation approvals came at the expense of competition, transparency, and performance. 

IEEFA concludes that fresh policy leadership will be required to guide a change in system level processes.

PLN needs to re-evaluate not only its mine-mouth plans, but also its electricity planning at a system level. 

A holistic analysis will assist PLN and Indonesian ratepayers by reducing the risk of blackouts due to a lack of grid resiliency, while insulating electricity rates from the impact of volatile fossil fuel prices. 

IEEFA suggests the sector outlook should be re-assessed in light of new cleaner technology options already reshaping power sector economics for Indonesia’s regional competitors. 

Read the report The Case for System Transformation in Indonesia: Time for a Full Electricity System Audit

Media Contact: Kate Finlayson ([email protected]) +61 418 254 237 

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org 

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