PLN finance scandal a blessing in disguise

Recent headlines about the poor state of electricity operator PLNs financial health will certainly have not been welcomed in many government circles, but in fact, it has sparked a discussion which is essential for Indonesia.

Since the 35,000GW plan was first put in place, seismic changes have reshaped the domestic and global energy markets well beyond the expectations of even the most visionary analysts.

The issues raised over the past few weeks can act as a circuit-breaker which gives us the chance to reflect, review and adapt.

Indonesia’s current energy expansion plans are based on annual growth in demand of around 7% per year.

Given the actual rate has turned out to be under 2% over the past two years, pursuing current development plans will cause us to have a significant surplus of power.

The multi-trillion rupiah bill for this unnecessary supply will be footed by PLN and, as pointed out by Sri Mulyani in her leaked memo, by us the taxpayer.

This is clearly a fate to be avoided.

But the slower-than-anticipated growth could be a blessing in disguise because it removes the imperative to rush ahead with new coal-fired power stations.

At current rates, we have more than enough energy in reserve to keep the lights on in the Java-Bali grid.

Given this, we would be wise to halt new power purchase agreements for any new coal plants in the Java-Bali grid, allowing us to fully factor the radical shifts in the global energy market into our plans for the future.

True enough, in 2017, coal remains less expensive than renewables in Indonesia.

Elsewhere, this is no longer the case.

Countries which have put in place appropriate long-term policy settings have spurred investment and seen costs decline to such an extent that coal-fired power stations are being driven out of the market. The rapidity of the shift has been remarkable.

Earlier this month, the International Energy Agency, an organisation noted for its conservatism, released a report which stated almost two-thirds of new energy capacity additions in 2016 globally were made up of renewable energy, far outstripping new coal.

As IEA Executive Director Fatih Birol explained, “we see renewable energy growing to about 1000GW by 2020, which equals about half of the current global capacity in coal power, which took 80 years to build.”

BE GOOD TO GET SOMETHING IN HERE ABOUT THE MILLION ROOFTOPS PLAN!

Renewable energy can come online far faster than its fossil fuel counterpart. That is key, particularly in the current market in which we have an overcapacity of supply.

Being able to add renewables in a swift and modular fashion as demand grows avoids overinvestment in clunky and unnecessary coal capacity, which takes years to develop.

It’s a Google-search on your mobile compared to carrying around a suitcase full of encyclopaedias.

But the major driving factor is cost.

And this isn’t just a European phenomenon. Solar is even cheaper in India, home to vast reserves of domestic coal. What’s more, the price continues to decline as a rate of more than 10% every year, with no sign of slowing.

To err on the side of caution, renewables may require another five years before becoming cost competitive in Indonesia.

To put that in perspective, five years is around the same time it takes to construct a coal-fired power station. Meaning that any plants we begin building today should be ready roll just as they cease being the least-cost option.

Then of course, we’re stuck with them for 25 years.

When President Jokowi first launched the 35GW policy, these trends were not as pronounced and it was hardly imaginable we would find ourselves where we do today.

But times have changed and we have been granted the opportunity to re-think and stay ahead of the curve. We should seize it with both hands.

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