Private developers to play greater role in Indonesia's power expansion

65% of capacity additions in the pipeline are allocated to IPPs.

Private producers are expected to play a greater role in Indonesia’s power expansion in the coming years, with over 65% of upcoming capacity additions allocated to independent power producers (IPPs) in its 10-year Electricity Supply Business Plan 2019 (RUPTL), according to a Fitch Solutions report.

“This will help accelerate project timelines and reduce the financial strains on state-owned Perusahaan Listrik Negara (PLN),” the report stated.

Some regulations that have been enacted to attract more IPPs include the granting of business viability guarantees for IPPs, and the ‘piggy back’ schemes where one of state-owned PLN’s subsidiaries will be a shareholder of the IPP.

Overall, the country is projected to add a net capacity of over 25GW over the coming decade, fueled by power demand growth. It has raised its energy investment target for 2020 to $35.9b, from the $31.9b achieved in 2019. Of these, $2b has been allocated for electricity and $2.3n in renewable energy and conservation.

To achieve this target and attract more investments, the government is planning to implement policies aiming to improve the investment climate, such as cutting the number of permits required for the investment procedures, and a coal price cap.

The country’s Energy and Mineral Resources Ministry fixed the required percentage of coal reserved for domestic use at 25%, and capped its cost for power generation at $70 a ton. These were similar to those set in 2019, but the compliance mechanisms were tighter.

Coal is still expected to drive the country’s thermal power expansion. “We note that this will ensure that the cost of coal-fired power remains cheap, reaffirming the support and expansion of the fuel source,” the report stated

Further, the country’s existing Electricity Procurement Plan showed large power generating capacity projects allocated to coal, and saw a resurfacing of several large-scale projects that were initially suspended. Already, coal power projects comprised over 60% of all power projects in the pipeline by capacity, at more than 21GW.