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Coal price cap 'must be revoked' for energy transition
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Fishermen pass by on a boat as smoke rises from chimneys of the Suralaya coal power plant in Cilegon, Banten, on Sept. 22, 2021. (AFP/Ronald Siagian)
Indonesia must reconsider its coal price cap policy to expedite renewable energy development in the country, according to analysts.
The JETP Secretariat through its Comprehensive Investment and Policy Plan (CIPP) suggested the government evaluate the US$70 per tonne price cap for domestic sales of coal to power plants to facilitate the supply of electricity from renewable sources to state-owned utility PLN’s grid.
The policy undermined market price signals that were crucial for electricity companies’ decision-making process regarding future investments, the CIPP document reads.
The Asian Development Bank (ADB), meanwhile, has noted that the cap on PLN’s own retail prices for electricity incentivizes the firm to source power at the lowest possible cost.
Under current conditions, coal-fired generation typically is far cheaper and is therefore the electricity company's preferred power source, according to an ADB report published in 2020.
Fabby Tumiwa, executive director of the Institute for Essential Services Reform (IESR), said the price ceiling, called the domestic price obligation (DPO), prevented a level playing field between coal and renewable energy power plants by making the cost of coal artificially low and stable.
Read also: Coal phase-out scheme draws minimal JETP funding
