The Institute for Energy Economics and Financial Analysis (IEEFA) has found that most renewable energy projects have not yet reached the power purchase agreement (PPPA) stage, despite being auctioned two years ago.
Mutya Yustika, IEEFA’s Energy Finance Analyst, said that State power utility PT PLN’s renewable energy procurement process has been slower than expected, even though it has targeted a significant increase in capacity. From the 21 GW target in the electricity procurement plant (RUPTL), PLN should add an average of 2.1 GW of renewable energy capacity per year, while in reality it only increased by 0.6 GW per year.
“Although PLN is targeting a significant expansion of renewable energy capacity, the procurement process is actually running slowly. Most renewable energy projects are currently still in the auction and negotiation stages,” Mutya said as quoted in a statement on Tuesday, December 17, 2024.
In the program to replace 5,200 power plants with renewable energy announced in 2022, for example, although the first phase of the auction has been carried out and the Letter of Intent (LoI) was already signed in December 2023, no contract has yet been signed. In addition, the Hijaunesia Project in 2023, which aims to build a 1 GW large-scale solar power plant, is also still at the planning and partner selection stage, although it has been running for almost two years.
Therefore, IEEFA believes that a comprehensive restructuring of the procurement process is necessary to achieve sufficient additional renewable energy capacity each year to realize President Prabowo Subianto’s vision. The government needs to prioritize the procurement of projects in the plan, supported by rational procurement and contracting principles, and strengthened financing for renewable energy development of 3-5 GW per year.
To make this happen, there needs to be a comprehensive approach across ministries/agencies in the government.
According to Grant Hauber, Strategic Energy Finance Advisor Asia at IEEFA, institutions such as PT Sarana Multi Infrastruktur, PT Indonesia Infrastructure Finance (IIF), and Indonesia Investment Authority (INA) can work with the Ministry of Energy and Mineral Resources (ESDM), the Ministry of Finance, and PLN to create the resources and processes needed.
“To support the success of clean energy procurement, a portfolio of projects should be identified and prioritized, especially projects that have sufficient land and resources to be implemented immediately. Aspects of project preparation must be carried out to reduce possible risks, supported by a transparent procurement process with a mutually beneficial contract concept. This approach needs to be replicated consistently and continuously, applied in various projects, consistently now and in the future,” Grant said.
Fossil-fuel power plants
The rapid development of large-scale renewable energy-based power plants is needed so that Indonesia can stop the operation of all fossil-fuel power plants as stated by President Prabowo at the G20 Summit in Brazil. Another important issue is finding the best approach to retire all power plants by 2040.
The first step is to identify which plants need to be prioritized for retirement, whether they are privately owned by private power producers (IPPs) or publicly owned by PLN, as well as the performance of the plants.
According to Mutya, shutting down IPP-owned power plants requires extensive negotiations. Therefore, the government is better off prioritizing the early retirement of coal-fired power plants (PLTUs) owned by PLN because it will only require an internal assessment by PLN and the government to issue the necessary policies and regulations related to the elimination of closed assets.
Moreover, of the total 50 GW PLTU capacity, 22 GW is owned by PLN, and 23 percent of them have been operating for more than 25 years.
“Due to oversupply, the PLTU owned by PLN is also not fully operated. Under normal conditions, the PLTU capacity factor should be around 80 percent. However, in 2023, PLN’s PLTU in the Java-Bali Electricity System only operates with a capacity factor of 59 percent and in Sumatra only 53 percent,” Mutya cited.
Four PLTUs with a total of 4.6 GW are included in the criteria, namely PLTU Suralaya Units 1-7 with a capacity of 3.4 GW; Bukit Asam Units 1-4 with 260 MW in capacity ; Paiton Units 1-2 with 800 MW in capacity; and Ombilin Units 1-2 with 200 MW in capacity. Of the four PLTUs, Suralaya Unit-1 has been operating since 1985, and the youngest, Suralaya Unit-7 since 1997.
“The Indonesian government’s statement at the G20 and COP29 is a significant step to address the climate crisis and transition to cleaner energy sources. This commitment must be embodied in laws and regulations so that PLN can plan its next steps in prioritizing the development of renewable energy over fossil energy,” Mutya said.
