The plan is in motion after the government approved late last month the company’s latest electricity procurement business plan (RUPTL), a guideline for the company’s operations until 2026.

Under the RUPTL, several projects have been excluded from the list, and their construction will not be reconsidered until 2020.

PLN has argued that the changes are necessary due to the expected slow growth in electricity demand amid sluggish economic activity.

PLN, Indonesia’s biggest state-owned company by assets, has estimated that 13 GW in new supply is sufficient until 2020 for Java, the country’s center of industry and services, lower than the 22 GW estimated in late 2014.

“We have discovered that national demand can be met with an additional 23 GW instead of the 35 GW initially planned until 2020. This means that Java’s demand will only be around 13 GW,” PLN procurement director Supangkat Iwan Santoso said on Monday.

Iwan said PLN would suffer huge financial losses should it be forced to go ahead with the 9 GW projects, because the electricity could not be sold, and that PLN would still have to pay for electricity produced by independent power producers (IPPs) under the take-or-pay system.

Due to the postponement in the constructions, the signing of power purchase agreements (PPA) for major projects, such as the 2,000 MW Java 5 coal-fired power plant, the 600 MW Java 10 power plant and the 1,600 MW Java 13 power plant, have been put on hold indefinitely.

The US$3 billion Java 5 project in Banten is among the biggest projects under President Joko “Jokowi” Widodo’s ambitious 35 GW program. It was at the center of controversy in the middle of last year after PLN unilaterally decided to disqualify the winner of the project over what it called “governance issues.”

The 1.9 GW South Sumatra 9 and the 600 megawatt South Sumatra 10 projects, both coal-fired plants located near coal mines, known also as mine-mouth plants, have also been removed from the RUPTL.

Minister Ignasius Jonan is even upbeat that Java will still have a 5 GW surplus in electricity capacity despite the suspension of 9 GW worth of projects.

“Unless there is a significant change in our economic growth, I will not agree to any new PPA in Java, because there is still a surplus. If you want to add more, do so in Sumatra or Kalimantan,” he said on Monday.

Any electricity surplus is expected to be absorbed by Sumatra through a two-way 500 kilovolt high voltage direct current (HVDC), a cable connecting the two islands, as Sumatra is expected to host two special economic zones (KEK) and six industrial zones within the next decade, said Jonan.

International law firm Baker Mckenzie cited in a note that the RUPTL in essence represented PLN’s plan to procure electricity from IPPs.

“Over the last decade, the RUPTL has evolved from a loose guideline as to which locations PLN may wish to see IPPs developed in, to a rulebook essentially requiring PLN to contract with IPPs whose projects appear on the RUPTL,” it said.

Further, for IPP projects to benefit from the government guarantee program introduced under Presidential Regulation No. 4/2016 on the Acceleration of Power Infrastructure Development, the relevant project must be listed on the RUPTL, it noted.

Electricity procurement is Jokowi administration’s key policy with the launch of the ambitious program to procure an additional 35 GW by 2019, although the target has been lowered by almost half due to sluggish demand.

The goal is aimed at achieving a 30 percent surplus in the national electricity reserve margins with more efficient operational costs.

While the electrification ratio reached 91 percent by the end of last year, only eight of PLN’s 18 operational regions currently have reserve margins above 30 percent.

The reserve margin is the difference between capacity and peak demand — the International Energy Agency recommends a level of 20 to 35 percent.

The RUPTL shows that PLN expects to raise the reserve margins of 16 operational regions by 2019 and the electrification ratio to 100 percent by 2024.

Another significant arrangement in the RUTL is PLN’s attempt to focus on efficiency, so that it can produce electricity at lower costs.

The RUPTL demands that PLN increase the use of energy resources found on location, while also increasing the number of mobile power plants (MPP) as a short-term solution for raising the national electrification ratio and keeping sufficient power output.

The plan lists as many as 15 mine-mouth power plants with a capacity of around 7.5 GW that will be procured in Sumatra and Kalimantan, including several that were initially planned as regular coal-fired power plants, under the previous RUPTL.

Furthermore, the RUPTL also makes it compulsory for PLN to prioritize the development of gas wellhead power plants, even though the firm has yet to map the potential projects.

Jonan said the government was firm on urging power producers to take advantage of primary energy sources in the regions as they would cut down on distribution and transportation costs, which often led to ballooning prices for the public because PLN had to pass on to the consumer the higher costs of producing electricity.

“If an island has a particular primary energy source, then the one PLN cites as the lowest-cost energy source should be prioritized for electricity generation. These primary energy reserves will lead to more competitive electricity prices,” he said.

Furthermore, he said, the expansion in the use of MPPs in the RUPTL was expected to help speed up electricity procurement for remote regions, which are difficult to connect through transmission lines.

The government’s policy to prioritize efficiency may hit a nerve with IPPs looking to invest in the country.

Private Electricity Producers Association (APLS) chairman Ali Herman said that even though the government was looking to make prices as low as possible, the end results still had to reflect the costs put into production and construction.

“If the government really is focusing more on the efficiency side of electrification, then they want the cheapest deal possible. This entails two factors: affordability for the public and efficiency in electricity supply. However, we must still ensure that the price is cost-reflective,” he said.

Ali also raised concerns over the government’s move to push investors into funneling their funds into remote regions, as inconsistent policies at the central and regional level fuelled hesitation among many IPPs.

The RUPTL also revealed that for the next decade, IPPs will have the chance to develop 12 GW of renewable-energy plants, including 4.4 GW geothermal, 4.6 GW of hydro and 1.65 GW of mini hydro.

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