Halting planned expansion of coal power generation in Java-Bali could save the Indonesian Government USD$16.2 billion in unnecessary expenditure, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).
The report – Overpaid and Underutilized: how capacity payments could lock Indonesia into a high-cost electricity future – analyses Indonesia’s 2017-26 energy plan and demonstrates how long-term coal power contracts will force the country to pay for energy it is not using, whereas greater focus on renewable energy could result in multi-billion dollar savings.
“Indonesia’s rapid coal power expansion plan locks the country into decades of paying for power which it isn’t using. It’s literally money for nothing,” said IEEFA analyst and report author Yulanda Chung. “Capacity payment is used in the name of energy security, but simple changes can be made today which will save the Indonesian budget billions of dollars.”
Indonesia’s state power authority, Perusahaan Listrik Negara (PLN), has stipulated 24GW of coal-fired power andmine-mouth power generation capacity needs to be supplied by Independent Power Producers (IPPs) as part of the utility’s 2017-26 plan (Rencana Usaha Penyediaan Tenaga Listrik, RUPTL).
In order to attract power producers, PLN is offering 25-year power-purchase agreements (PPAs) guaranteeing payment for all electricity produced, even if it is not actually used by consumers.
In aggregate, PLN will pay an estimated USD76 billion over the course of 25-year PPAs.
The problem is most acute in Java-Bali, where IEEFA calculates current capacity, supplemented by renewable energy, is already sufficient to cover energy needs until 2026.
“There is no need to build new coal plants in Java-Bali when those that exist today are running at just over half-capacity,” said Chung. “Rushing into new deals will lock in 25 years of paying for over 5GW of coal power supply which will remain idle.”
A further consequence of the long-term gamble on coal is that it mitigates against the uptake of cheap renewable energy.
The levelized cost of electricity (LCOE) for solar in Indonesia is estimated at USD 17 cents/kWh in 2016.
IEEFA conservatively forecasts solar PV becoming grid competitive at around USD 8 cents/kWh in 2021 in line with rapidly falling costs.
However, PLN is disincentivised from developing renewable energy as it would even further reduce the need for power supplied by coal.
“Renewable energy is already cheaper than coal in multiple markets around the world,” said Chung. “Changes Indonesia can make today to its energy plan would see it benefit from this opportunity and avoid the fate of locking itself in to billions in excess expenditure on high cost coal.”
Please find the full report here.