Indonesia has huge hydropower potential. The potential is approximately 75 GW and less than 4% is now being utilized. Energy demand is rising all the time and according to the recent PLN’s plan (2009-2018) the annual energy demand will rise at 9.7% rate. This means PLN has to provide more generation capacity especially for Java Bali System. Combining only those two factors, it is obvious that there is a big chance for power generation investment in Indonesia.
In their 2009-2018 planning, PLN is suppose to build 70 MW mini hydropower plant ( capacity up to 10 MW) and 3835 MW big hydropower plant (capacity more than 10 MW). The schemes are expected to start operation in 2010 the soonest. IPP is also expected to build 122 MW of mini hydropower plant and 905 MW of big hydropower plant. Those hydropower plants are part of the 10.000 MW crash program 2nd phase. Based on this, there is still huge opportunity for private sector to invest in hydropower generation. Not just that, under the current policy regime, PLN is obliged to buy power from any renewable energy generators (hydro, solar, geothermal, biomass). This means any hydropower scheme development is welcomed.
The question is then “how warm is the welcoming party?” for those investors. I consider a fast easy PPA procedure as a warm welcoming party. The new regulation (ministerial decree 05/2009) should be able to warm up the party. Government has no “core” role in the price negotiation. The least cost based price was left out because the government is not capable of providing the benchmark price to the players in time. The new regulation gives PLN a freedom to negotiate the price. For some this is considered as good progress, but for some others there is still something not right.
What’s not right? After all those regulations in place but nothing happened, the new regulation should be better because it is based on lessons learned, shouldn’t it? New regulation obliged PLN to prepare its own version of investment model for the particular negotiated scheme. For example I am going to invest on a 5 MW hydropower scheme in Sumatera. The cost of investment (considering specific power selling price, IRR and other financial factors) is X billion IDR. For the same site, PLN has to come up with its own investment model and come up with its own cost of investment. Based on the two investment models, PLN is then negotiating the cost of each cost components that eventually will take time. The new regulation might not cut short the time for PPA at all and I think this kind of thing is not a “warm welcome” for new investors especially in hydropower.
What should be improved to make it warmer? PLN is better to prepare fix investment models with adjustable cost components. Those models should be then communicated to all potential investors. Speaking the same language is surely making communication easier and faster. The models should incorporate all inputs from developers/investors so that all possible disputes on the models can be avoided. The process of decentralizing decision making in PLN has to be implemented fast. Price cap that PLN has introduced internally should be publicly disclosed so that potential investors can early calculate the attractiveness of one project.
Indonesia needs energy supply fast and renewable energy can do that. This means investment climate has to be better. The new regulation try to improve the investment climate, but instead of making it better, some still see some problematic arrangements in the regulation. Improvement is still needed and this might be PLN’s turn to work.
In their 2009-2018 planning, PLN is suppose to build 70 MW mini hydropower plant ( capacity up to 10 MW) and 3835 MW big hydropower plant (capacity more than 10 MW). The schemes are expected to start operation in 2010 the soonest. IPP is also expected to build 122 MW of mini hydropower plant and 905 MW of big hydropower plant. Those hydropower plants are part of the 10.000 MW crash program 2nd phase. Based on this, there is still huge opportunity for private sector to invest in hydropower generation. Not just that, under the current policy regime, PLN is obliged to buy power from any renewable energy generators (hydro, solar, geothermal, biomass). This means any hydropower scheme development is welcomed.
The question is then “how warm is the welcoming party?” for those investors. I consider a fast easy PPA procedure as a warm welcoming party. The new regulation (ministerial decree 05/2009) should be able to warm up the party. Government has no “core” role in the price negotiation. The least cost based price was left out because the government is not capable of providing the benchmark price to the players in time. The new regulation gives PLN a freedom to negotiate the price. For some this is considered as good progress, but for some others there is still something not right.
What’s not right? After all those regulations in place but nothing happened, the new regulation should be better because it is based on lessons learned, shouldn’t it? New regulation obliged PLN to prepare its own version of investment model for the particular negotiated scheme. For example I am going to invest on a 5 MW hydropower scheme in Sumatera. The cost of investment (considering specific power selling price, IRR and other financial factors) is X billion IDR. For the same site, PLN has to come up with its own investment model and come up with its own cost of investment. Based on the two investment models, PLN is then negotiating the cost of each cost components that eventually will take time. The new regulation might not cut short the time for PPA at all and I think this kind of thing is not a “warm welcome” for new investors especially in hydropower.
What should be improved to make it warmer? PLN is better to prepare fix investment models with adjustable cost components. Those models should be then communicated to all potential investors. Speaking the same language is surely making communication easier and faster. The models should incorporate all inputs from developers/investors so that all possible disputes on the models can be avoided. The process of decentralizing decision making in PLN has to be implemented fast. Price cap that PLN has introduced internally should be publicly disclosed so that potential investors can early calculate the attractiveness of one project.
Indonesia needs energy supply fast and renewable energy can do that. This means investment climate has to be better. The new regulation try to improve the investment climate, but instead of making it better, some still see some problematic arrangements in the regulation. Improvement is still needed and this might be PLN’s turn to work.
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