Indonesia’s state-owned electrical utility, PLN, posted an after-tax revenue of round $1.4 billion in 2023 with whole income up 36 p.c in comparison with 2019. Like Indonesia’s different state-owned vitality main, oil and fuel big Pertamina, evidently PLN has recovered fairly nicely from the pandemic. But when we unpack these numbers a bit, they reveal some attention-grabbing issues.
Like Pertamina, PLN has a mandate from the federal government to supply its providers (on this case electrical energy) to Indonesian customers at inexpensive and steady costs. Variations between the price of manufacturing and the promoting value are absorbed by the federal government by subsidies and different types of compensation.
The federal government’s share of this value disparity has elevated significantly within the final two years, reaching about $9 billion final yr. With out that $9 billion in authorities help, PLN wouldn’t have been worthwhile. With out authorities help, Indonesian customers would additionally possible have needed to shoulder a bigger share of the monetary burden by paying larger electrical energy charges, one thing the state has by no means proven a lot urge for food for.
PLN is predicted to buffer customers in opposition to value volatility whereas additionally guaranteeing adequate new capability is constructed to satisfy demand. When President Joko Widodo took workplace in 2014, certainly one of his signature marketing campaign guarantees was to construct 35,000 MW of latest producing capability. A variety of this was anticipated to come back from non-public builders, who sometimes promote their energy to PLN at mounted charges over a number of many years.
And the plan labored fairly nicely. Between 2015 and 2023, non-public builders constructed over 17,500 MW of latest capability whereas PLN added an extra 4,800 MW by crops that it owns and operates itself. It’s not fairly the 35,000 MW that was envisioned, however nonetheless a considerable quantity of latest capability.
This upsurge in non-public funding has shifted the construction of Indonesia’s vitality market in a big manner. In 2015, PLN was producing 75 p.c of Indonesia’s electrical energy. By 2023, as these new non-public energy crops got here on-line, PLN’s share of electrical energy technology fell to 57 p.c and if the present development continues this share will possible maintain lowering sooner or later.
In consequence, PLN’s funds to exterior energy corporations have ballooned. In 2016, the utility paid non-public suppliers round $3.8 billion to purchase their energy. Final yr, it paid $9.9 billion. The logic of this mannequin is that PLN doesn’t want to lift upfront the substantial sums required to construct massive, capital-intensive energy crops. It merely buys the facility at some stage in the contract, so the fee might be unfold out over a few years.
Which means that PLN is paying out extra nowadays to buy electrical energy generated by non-public builders and can also be anticipated to soak up value volatility attributable to exterior shocks, with out having the ability to simply increase costs on customers. Masking this hole is a giant a part of the explanation that authorities subsidies have elevated not too long ago.
Right here is the place clear vitality enters the combination. After we speak about solar energy, many of the price is incurred in the course of the building section. Working prices are very low, and gas prices are non-existent. And the excellent news about solar energy is that yearly it’s getting cheaper to construct as the worth of key parts, similar to photo voltaic panels, goes down.
There are two methods to construct extra photo voltaic. PLN can encourage extra exterior funding by getting into into buy agreements with non-public builders. Or it will possibly construct extra solar energy crops and function them itself, or in partnership with non-public builders. PLN would, usually talking, favor the second choice.
Analysts typically say that PLN is holding up non-public funding as a result of it lacks the power to make the regulatory setting engaging to builders. But when the price of constructing solar energy is basically going to get even cheaper within the years forward, then it is sensible for PLN to favor constructing photo voltaic itself to be able to transfer away from liability-heavy long-term buy agreements with non-public builders. Why get locked into buy agreements with solar energy corporations at present costs (say 6 cents per kilowatt hour), when in 5 years the levelized price to construct and function its personal solar energy crops may be half that?
From their perspective, that is completely rational. PLN has taken on billions of {dollars} in new liabilities as a part of the 35,000 MW funding increase, they usually don’t essentially need to maintain stretching the stability sheet with extra long-term buy agreements as Indonesia pivots towards clear vitality. Given the extent to which the utility already depends on authorities subsidies, constructing and working its personal fleet of utility-scale photo voltaic affords a viable path ahead even when it’s not the one that personal builders or the market at giant would favor.