Investment in Electricity May Exceed Target

Govt upbeat investment in electricity will reach US$14 billion
Sharp increase in investment partly due to simplification in licensing procedures
The Energy and Mineral Resources Ministry is upbeat that investment in the electricity sector will increase more than 15 percent this year given the significant investments in the sector during the first five months of 2019.
Jisman Hutajulu, the ministry’s director of supervision for electricity programs, said in Jakarta on Tuesday that the government was upbeat that investment in the electricity sector would reach US$14 billion or 16 percent higher than the initial target.
“We are optimistic to reach our investment target of $12.04 billion, which could even reach $14 billion due to new power plants, transmission infrastructure and other efforts to ease the business process,” he said Tuesday.
As of May, the ministry recorded that investment in the electricity sector reached Rp 68.73 trillion ($4.74 billion) or a 34.65 increase from the figure recorded in the same period last year.
The ministry’s director general for electricity Rida Mulyana said the sharp increase in investment was partly due to the simplification in licensing procedures. “We see there is an increase every month. It could be due to the improvement in the administration process that is simpler, quicker, clearer and cheaper,” he said at the press conference.
About $1.13 billion of the investment was for the development of state electricity firm PLN’s power plants and the other $1.82 billion or 38.53 percent was for the development of power plants owned by independent power producers.
“About $165 million comprised investment from integrated private power plants or known as private power utility [PPU],” Rida of the ministry said. Furthermore, investment also came from the development of transmission, substation and distribution networks at $625 million, $264 million and $729 million respectively.
However, Fabby Tumiwa, the executive director of energy watchdog Institute for Essential Services Reform was not impressed with the amount, saying it was only “natural” growth.
“If there’s an improvement in investment realization, it was only because some projects in the 35 gigawatts [GW] program have finished construction or from those auctioned in 2017 and 2018,” he told The Jakarta Post in a text message.
“It is part of the natural business cycle that investment funds are disbursed in the construction phase. The bottom line is that for me the investment is still below its full potential,” he said.
There are at least seven new power plants that will be commercially operational by the end of this year, one of which is a 55-megawatts (MW) PLTP in South Sumatra.
The unit, which goes by the name PLTP Lumut Balai 1, is owned by Pertamina Geothermal Energy, the power subsidiary of state energy holding company Pertamina.
“From the 35 GW power plant projects, we expected to have another six units by year-end with 2.2 GW in power capacity, making a total of 5.8 GW new capacity this year,” Rida of the ministry said.
The other six projects consist of three coal-fired power plants (PLTUs), which if combined have a power capacity of 2.1 GW, namely Kalsel in South Kalimantan, Jawa-7 in Banten and Jawa8 in Central Java.
The remaining are the Air Putih hydropower plant in Bengkulu with a power capacity of 21 MW, Sukawinatan waste-to-energy power plant in South Sumatra with capacity of 0.5 MW and Maumere gas power plant in East Nusa Tenggara with capacity of 40 MW.
The 35 GW project was launched in 2015 by President Joko “Jokowi” Widodo and has reached 10 percent progress or around 3.6 GW, government data shows.
However, the deadline was then revised to 2028 due to a slowdown in electricity demand, the ministry said.
Closing the year with only 5.8 GW power capacity from the 35 GW project was also a contrast with what Energy and Mineral Resources Minister Ignasius Jonan said in March 2018. “We target to close 2019 with 10 GW of power capacity from the 35 GW project,” he said back then.
Commenting on this, Jisman of the ministry acknowledged that the government had revised the target because of the adjustments with the realization of electricity demand.
“We are not canceling the projects [in the 35 GW program], but only delaying when they will begin operation. We will adjust it with the demand for electricity,” he said.

Source: The Jakarta Post, 4 July 2019

Only 10 Percent of 35-GW Power Projects in Operation

More than three years after the government launched a program to add 35 gigawatts (GW) of power generation capacity to national supply, only 3.6 GW have been realized, data from state-owned electricity firm PLN shows.

The initial target was to wrap up the entire 35 GW program in 2019, the final year of President Joko “Jokowi” Widodo’s first presidential term. That deadline has since been moved back to 2024 or 2025, because of slower than expected growth in electricity demand.

PLN, which is directly responsible for contributing 10 GW or 28.5 percent to the planned new capacity, said most of the projects were still in the construction phase. These accounted for 20.11 GW or 57 percent of the total 35 GW.

PLN’s acting president director, Djoko Abumanan, said power purchase agreements for another 27 percent of the total capacity, or 9.5 GW, had been signed, but construction had yet to begin.

“The projects that are in the procurement phase [make up] 4 percent or 1.4 GW, and those that are still in the planning phase [account for] 2 percent or 732 megawatts,” he said in a hearing at the House of Representatives on Thursday.

PLN’s projects within the 35 GW program that have reached the operational stage account for 2.2 GW, while those of independent power producers (IPPs) account only for 1.3 GW. However, IPPs has more capacity in the construction phase at 15.7 GW, while PLN has only 4.3 GW.

PLN noted several challenges for the completion of the 35 GW program, starting from the initiation phase to the phases following construction.
During the initiation phase, which is before a power plant project is agreed on, PLN has to synchronize it continuously with the demand stipulated in the electricity procurement business plan, which is renewed every year.

Djoko said the operation of new power plants next year could bring down basic electricity prices thanks to lower operating costs.
“When the new power plants from the 35 GW program enter operation, they are supposed to [bring down prices], as the operating costs are lower [for coalfired power plants],” he said.

According to the firm’s data as of March, 61.82 percent of the firm’s electricity comes from coal, followed by gas at 21.01 percent and hydropower at 7.51 percent. As of March, coal-fired power plants accounted for 29.02 GW or 49.7 percent of PLN’s generating capacity of 58.39 GW, while gas power plants added 17.17 GW. The new projects, however, have pushed up the company’s debt, with data showing that loans from December 2015 to March 2019 totaled Rp 160.7 trillion (US$11.3 billion).

PLN finance director Sarwono Sudarto explained that the firm’s outstanding debt as of March totaled Rp 394.2 trillion. “We will raise up to $2 billion from new loans this year to finance our investment, which stands at around $6.3 billion a year,” he said, adding that the firm would seek the loans before the end of the year.

Sarwono said the company was open to various types of debt, including global bonds and bank loans. The final decision on the type of loan would depend on the market situation. In early June, rating agency Standard & Poor’s (S&P) upgraded the rating for PLN to BBB/ stable from BBB-/stable, saying it took into account the fact that PLN had an important role for the government.

Source: The Jakarta Post, 4 July 2019

PLN Opts for Rate Adjustment Rather than Compensation

PLN expects compensation for impact of external factors PLN sells electricity below supply costs.

State-electricity firm PLN hopes the government will allow it to make a price adjustment or continue its compensation scheme next year to offset financial losses.

PLN finance director Sarwono Sudarto said after a hearing with the House of Representatives in Jakarta recently the compensation scheme would be needed if the government did not allow the company to raise electricity prices next year. “We hope there will be a compensation if there is no rate adjustment. Without the compensation it will be hard for us to deal with the impact of external factors [global crude price, inflation and currency exchange],” he said. PLN sold its electricity below the electricity supply costs (BPP) following a request from President Joko “Jokowi” Widodo in 2018.

The low price policy was criticized by observers as part of Jokowi’s populist policy to win votes in the May presidential election. As a consequence, PLN booked Rp 18.50 trillion (US$1.22 billion) in losses as of the end of the third quarter of 2018.

We hope there will be a compensation if there is no rate adjustment. Without the compensation it will be hard for us to deal with the impact of external factors [global crude price, inflation and currency exchange] said Sarwono Sudarto, PLN Finance Director.

The government disbursed compensation of Rp 23.17 trillion in the third quarter to cover the losses. The company expects to receive similar compensation this year as it has to maintain its current price until the end of 2019. However, the government has not decided whether the compensation will continue next year.

Sarwono of PLN further said that without a compensation scheme, the only way to reduce the financial deficit would be to improve efficiency such by improving the net plant heat rate. The heat rate is the amount of energy used by a power plant to generate 1 kilowatt-hour (kWh) of electricity.
“Besides that [net plant heat rate], we also hope that the ICP [Indonesian crude price] will decline and the US dollar will weaken against the rupiah,” he added.

Djoko Abumanan, PLN acting president director, also concurred that a rate adjustment would be a better option for the company rather than taking compensation from the government. “We will be happier if we are allowed to make a price adjustment,” he said.
According to PLN data, the national electricity supply cost (BPP) in 2018 stood at Rp 1,406 per kWh, but the firm sold electricity to customers for Rp 1,127 per kWh or 19.8 percent less.

Previously, the head of the Finance Ministry’s Fiscal Policy Agency, Suahasil Nazara, said the government was seeking a more appropriate scheme to compensate PLN because the current one carried high fiscal risk. “The compensation is of course for the interest of the people, but on the other hand, there is high risk for the state budget,” Suahasil said during a meeting with the House of Representatives’ budget committee last Tuesday.
“The policy guidance in the future is to reduce the compensation that will affect state finances,” he added.

Gerindra Party lawmaker M. Hekal, who sits on Commission VI overseeing state-owned enterprises, questioned on Thursday the existence of compensation in PLN’s financial report, saying that there should be an explanation on the difference between compensation and a subsidy.
He said PLN should be transparent and disclose its cost structure so that the public was aware of its financial conditions, he said.

Sourcce: The Jakarta Post, 3 July 2019

Indonesian youth discuss green jobs opportunity in renewable energy.

A couple hundred of youth and young professionals filled the auditorium of @ America cultural center in Jakarta, to understand and discuss green jobs and its opportunities in Indonesia, especially in renewable energy sector. Held on June 25, 2019, with the support from USAID ICED II and CoAction Indonesia, an Indonesian nongovernmental organization, the event featured four young professionals from private and public sector shared their professional experience in renewable energy. Two of them are founders of renewable energy start-up using solar photovoltaic (PV) technology i.e. Erenesia (https://erenesia.com/)and Weston Energy (https://westonenergy.co.id) , one is working in renewable energy service company i.e. PT Resco Sumba Terang (https://resco.co/), and another one is working as an engineer in Indonesia’s state utility company (PLN). They spoke on the skills required to thrive in the business. The enthusiastic audience came up with a series of questions about job opportunities, price of solar PV installation, and how to earn profit from renewable energy start-up businesses. Green jobs will not only contribute to Indonesia’s economic growth but also help put Indonesia on the path to self-reliance.

 

Govt, House agree to lower diesel fuel subsidy next year

The Energy and Mineral Resources Ministry and House Commission VII, which oversees energy, have agreed to cut the diesel fuel subsidy next year and channel the savings to provide more gas to the people.
The subsidy for diesel fuel, sold under the Solar brand, is to be cut to Rp 1,500 (11 US cents) per liter next year in order to increase the volume of subsidized liquefied petroleum gas (LPG).
Lawmaker Maman Abdurrahman from the Golkar Party said during House of Representative hearing on June 20 that the decision was made in consideration of the high demand for subsidized LPG and people’s difficulty in accessing it.
“Looking at the Solar fuel subsidy, one cannot separate it from the ongoing efforts to convert kerosene to gas. Hence, we proposed transferring [a portion of the] Solar subsidy, some of which is enjoyed by non-eligible consumers, to subsidize the 3 kilograms LPG canisters,” Maman said.
The hearing ended with both the government and the House agreeing to a fuel subsidy of Rp 1,500 per liter of Solar next year.
They also agreed to increase the 2020 quota for subsidized diesel to 15.31 million kiloliters, up 5.5 percent from this year’s quota of 14.5 million kl.
The final figures are lower than the ministry’s initially proposed subsidy rate of Rp 2,000 per liter and proposed quota of 15.58 million kl for subsidized Solar.
Meanwhile, the two sides also agreed on a maximum quota of 7 million metric tons (mt) for subsidized LPG — which is sold in 3 kg canisters — a slight increase from last year’s realized quota of 6.8 million mt.
The ministry’s oil and gas director general, Djoko Siswanto, said the proposed subsidy rate of Rp 2,000 per liter was the maximum rate and not the baseline, so it could be reduced depending on the global price of crude.
“Hence, if the crude price falls, the subsidy can [also] be reduced,” he said.
“We have no problems [as long as] the country can save Rp 500 per liter, so Rp 1,500 per liter is no problem for us,” he added .
Besides, said Djoko, the lower subsidy rate for Solar would be fine because the 30 percent biodiesel mix (B30) policy would be implemented next year, which would reduce the consumption of diesel.
Once the B30 policy is implemented next year, the Indonesian Biofuel Producers Association (APROBI) estimates that national consumption of Solar, which is already mixed with biofuel, would increase about 60 percent from the 2019 consumption target of 6.12 million kl.
The government and the House also agreed on six other assumptions for next year’s energy budget during the hearing: Indonesian Crude Price (ICP) of $60 per barrel, oil and gas lifting of 1.89 million barrels oil equivalent per day, cost recovery at $10-$11 billion and an electricity subsidy budget of $4.14 billion.
The budget assumptions are now to be discussed further by the government and the House budget committee.

Source: The Jakarta Post, 25 June 2019