Indonesia’s state-owned power utility PLN has recently reported a slowdown in annual sales, suggesting that electricity demand is not rising as expected.
With slow sales, rising costs and financial obligations elevating PLN’s risk, senior government officials have called on the company to scale back plans to expand the country’s electricity infrastructure.
Green activists view this as an opportunity to renew calls to halt building of planned coal-fired power plants and switch to renewable energy.
JAKARTA — Signs that Indonesia is heading for an oversupply of electricity have prompted renewed calls from activists for the government to cut back plans to build more coal-fired power plants.
Electricity sales by state-owned power utility PLN grew less than 3 percent to 146,366 gigawatt hours (Gwh) in the first eight months of this year, compared to 7.45 percent growth in the same period of last year, according to company director Ahmad Rofiq.
Government officials and environmental activists alike point to sluggish economic growth as the cause of the low demand.
Flagging demand means PLN currently has a glut of idle electricity capacity. Experts have warned this situation could cause serious financial damage to the company, and by extension to the state. Under so-called capacity agreements signed by PLN and Indonesian energy providers, the government is committed to paying private power-plant developers a fixed fee based on generating capacity rather than actual production.
In a letter leaked to the media in late September, Finance Minister Sri Mulyani Indrawati warned of mounting risk and debt at PLN, calling for plans to expand the country’s electricity infrastructure to be scaled back.
Arif Fiyanto, an energy campaigner at Greenpeace Southeast Asia, blamed PLN’s current woes on President Joko “Jokowi” Widodo’s ambitious plan to boost power generation across the national grid by an additional 35 gigawatts (GW) by 2019.
“The government at the time said the plan was to provide electricity for everyone so that our electrification ratio will reach 100 percent by 2024,” Fiyanto said.
However, he said the government’s plan was based on unrealistic projections of economic growth of 7 percent a year from 2014-2019. Under such a scenario, electricity demand was expected to have grown by 8 percent a year.
But since Widodo took office in 2014, Indonesia’s GDP has grown by closer to 5 percent a year, while demand for electricity has also failed to live up to expectations.
“In the end, what the government was promoting and the reality don’t match,” Fiyanto said.
PLN officials, though, argue that increasing the supply of electricity will spur economic activity, thus generating more demand for electricity.
“Infrastructure development for power is part of the drive for [economic growth],” Supangkat Iwan Santoso, strategic procurement director at PLN, told Mongabay over the phone on Sept. 29. “So it doesn’t necessarily rely on demand, because when the electricity is available, demand will follow.”
PLN also hopes to stimulate demand with rate cuts.
“We’re trying to increase electricity consumption by offering discounts to our customers, especially those living in regions with surplus power supplies,” PLN spokesman I Made Suprateka said as quoted by The Jakarta Post.
However, boosting demand by offering cheap power would require PLN to slash prices at a time when supply costs are being driven up by rising coal prices.
To make the math work, PLN has proposed that rather than buying coal at volatile global market prices, the government should set a fixed domestic coal price by calculating power production costs plus a fixed profit margin.
The government last week rejected PLN’s proposal, which spooked domestic coal mining companies.
Still, PLN is counting on the government to keep coal prices affordable so it can continue to provide artificially cheap electricity for customers.
“PLN believes [that] the government [has] made its calculations, that when the coal price increases, the government will issue a certain policy so that costs at PLN won’t increase so much that it will cause an electricity rate hike,” Santoso said.
‘Golden boy’ coal
Green activists see the current situation as an opportunity for Indonesia to cut back on its ambitious 35 GW program, which heavily relies on building coal-fired power plants.
It’s a stance that is increasingly finding support in the halls of power. In addition to the warning from the finance minister, the Ministry of Energy and Mineral Resources last week ordered PLN to stop signing off power purchase agreements with independent producers for plants in Java until after 2024.
While many regions in Indonesia lack sufficient electricity, the Java-Bali grid is projected to have an electricity reserve margin — the surplus between capacity and peak demand — of 55 percent in 2019 and 41 percent in 2026, compared to 27 percent this year.
Greenpeace’s Fiyanto called for even stronger action. “If the government wants to prevent facing such financial risks in the next few years from losses at PLN, it must cancel all development [of] coal-fired power plants in Java and Bali,” he said. This would mean scrapping not just plans for agreements that have not yet been signed, but also projects the government has already committed to, Fiyanto added. “If these continue to be built, the supply will still be far more than the demand.”
However, problems with financing coal will not necessarily compel the government to focus more on renewable energy, said Yulanda Chung, an energy financing expert from the Institute for Energy Economics and Financial Analysis (IEEFA), in August.
Because PLN is already obliged to pay for idle electricity generated by coal-fired power plants, the company would prefer to recoup costs by offering it to customers rather than investing in developing renewable-energy plants, said Chung.
Fiyanto said the lack of political will to promote and provide subsidies for renewable energy was holding the industry back.
“As long as the government sees coal-fired power plants as its ‘golden boy’ to generate electricity because it claims it’s cheap, there’s no hope for the development of renewable energy in Indonesia,” he said.
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