The price paid to independent power producers for electricity is to be increased by up to 63 percent to encourage more investment in the sector, Jacobus Purwono, a senior official at the Energy and Mineral Resources Ministry, said on Tuesday.
The government wants to see an additional 30,056 megawatts of generating capacity coming on stream by the end of the year, including 10,000 MW under the first stage of state electricity utility PT Perusahaan Listrik Negara, or PLN’s, fast-track capacity expansion program.
As part of the second stage of the fast-track program, which starts next year and envisages the provision of an additional 11,144 MW, the government hopes that independent power producers, or IPPs, will provide the bulk of the capacity, selling the power they produce to PLN based on the new prices, which will be capped at between 5.8 and 8 cents a kilowatt-hour, depending on the size of the power plant and how the electricity is produced.
PLN has a state monopoly over the transmission of electricity and its supply to consumers. Electricity from the IPPs is purchased by PLN, and transmitted to consumers through the utility’s power lines.
Jacobus said that the new prices would also be paid to other IPP producers, besides those participating in the second stage of the fast-track program.
“The prices will be set out in a ministerial decree to be published at the end of this month,” he said.
The ministry has set the prices to be paid at between 6 and 8 cents a KWH for geothermal power, between 5.8 and 7 cents a KWH for electricity produced from coal and between 5 and 6 cents for electricity produced by hydropower.
Under the existing arrangements, the government pays IPPs 4.95 cents a KWH for plants with a capacity of up to 25 MW, 4.75 cents a KWH for those with a capacity of between 25 MW and 150 MW, and 4.5 cents a KWH for those with a capacity of more than 150 MW.
“The new pricing arrangements are different from the old ones as we are only setting benchmark prices this time, while PLN will then determine the actual price to be paid based on plant capacity and the results of an open competition,” he said
However, he added that PLN would still need government approval for the final prices to be paid to tender winners.
As PLN is financially incapable of overcoming the power deficit alone, the government is relying on the IPPs to close the gap.
PLN is now on target to bring on stream 10,000 MW of new generating capacity as part of the first stage of the fast-track program, which is scheduled for completion by the end of this year. All of the new capacity comes from coal-fired plants.
Fachmi Mochtar, PLN’s president director, said that the company would open bidding in April for the construction of 83 power plants as part of the second stage of the fast-track program.
Of the 11,144 MW of additional generating capacity envisaged under the second stage, 68 percent will be provided by coal, 19 percent by geothermal energy, 10 percent by gas, and the rest by hydropower. PLN has said that 18 of the plants will be built in Java, while the rest would be spread across Indonesia.
PT Bakrie Power, one of the IPPs, welcomed the new pricing arrangements.
“Given these new prices, we will definitely be interested in getting involved in the second stage of the fast-track program,” said Ali Herman Ibrahim, the company’s president director.
Since a slight liberalization of the electricity sector in the 1990s, a total of 152 IPPs have expressed interest at one time or another in investing, but only 16 of the projects have actually been completed. Currently, these 16 IPPs generate 4,200 MW, while PLN supplies 25,222 MW.