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Coal-fired plants place financial burden on PLN
State-owned electricity company PLN and consumers will be exposed to significant risk of paying for power that is not needed, wasting billions of dollars, if PLN insists on pushing ahead with its plans to expand coal-fired power plants in the Java-Bali system
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State-owned electricity company PLN and consumers will be exposed to significant risk of paying for power that is not needed, wasting billions of dollars, if PLN insists on pushing ahead with its plans to expand coal-fired power plants in the Java-Bali system.
A recent report published by US-based Institute for Energy Economics and Financial Analysis (IEEFA), revealed that the planned long-term coal power contracts would lock PLN into 25-year purchase agreements that would cost an estimated US$76 billion at a time when renewable energy could be developed for far less.
The Java-Bali system requires a reserve margin of 25 percent in accordance with PLN’s planning. Progressing with the capacity increase from all energy sources for Java-Bali would increase the reserve margin to 55 percent in 2019.
If the excess of capacity remains, PLN would be obliged to pay $16.2 billion for idle capacity between 2017 and 2026, according to the report.
IEEFA energy finance consultant Yulinda Chung said that both PLN and the government needed to consider replacing several coal power plant projects in Java and Bali with those sourced from renewable energy.
Chung argued that the region no longer needed intense additions of baseload power from coal-fired plants, and that adding intermittent renewable power plants fueled by hydro or solar photovoltaic would be enough to fulfill demand.
“To be more dramatic, if PLN doesn’t absorb a single coal-fired plant by an independent power producer [IPP] from 2017 to 2026, the reserve margin would still be at a reasonable 12 percent. It is not enough as PLN aims for at least 25 percent, but it means that it doesn’t need a significant increase,” she said.
Indonesia is expected to continue procuring more than 50 percent of all its electricity from coal-fired power plants, including mine-mouth plants, within the next decade. At the same time, the government hopes to increase renewable energy-sourced electricity to 25 percent, especially since renewable energy is expected to become significantly cheaper as the technology becomes more widespread.
However, PLN’s financial burden from the coal power plants may be one of the reasons why renewable energy development has been sluggish, as the company may not see any incentives as it seeks to avoid paying capacity charges for underutilized coal power plants.
Coal-fired power plants are also deemed too inflexible to accommodate the intermittent nature of renewable energy power plants, as the former cannot be turned on and off at will.
Despite the hubbub surrounding capacity payments, the tables may have turned in PLN’s favor. The Energy and Mineral Resources Ministry recently revised a ministerial decree on power sales and purchase agreements, now Decree No. 49/2017, shortening the take-or-pay period to 15 years from 20.
However, shortening the time-span would result in a much lower return on equity (ROE) rate of around 4 percent from double digit figures.
“To be fair to developers, you cannot ask investors to invest with 4 percent. It would need a redistribution of risk. PLN and developers will negotiate to raise it a little bit as the latter needs to be confident for 15 years,” Chung said.
Electricity expert Andre Susanto said that instead of focusing too much on the electricity tariffs PLN needed to pay investors for renewable energy and that it would be much more beneficial for the government to offer fiscal incentives to encourage renewable development.
