Indonesia should cut unnecessary electricity costs

The price of electricity in Indonesia is relatively high due to high investment and production costs, reducing the global competitiveness of the countrys electricity board.

The investment and production costs are high because of the many unnecessary expenses involved. Electricity development projects are plagued with the problems of inadequate infrastructure, unstable land prices, bureaucratic procedures, and brokers or middlemen.

To improve competitiveness and efficiency in electricity production, these unnecessary expenses must be cut. 

President Joko Widodo (Jokowi) confirmed on Tuesday (Dec 27) that the price of electricity in Indonesia was higher than that of other countries because power companies were saddled with unnecessary costs.

"Our electricity is expensive because players are burdened by too many unnecessary costs," the president said when inaugurating a geothermal power plant (PLTP) in Tomposo, Minahasa, North Sulawesi.

According to Jokowi, the price of electricity is also rising because too many brokers get involved in each project. "There are too many people becoming brokers," he noted.

In many countries, the price of electricity is low and electricity management is efficient. 

The high production cost is acknowledged by electricity producers grouped under the Indonesian Association of Private Electricity Producers (APLSI).

"Electricity producers grouped under the APLSI believe that electricity in Indonesia is too expensive. This means investment and production in Indonesia are not yet efficient," APLSI Chairman Arthur Simatupang remarked in Jakarta on Thursday (Dec 29).

The price of electricity from new and renewable energy (NRE) plants in the United Arab Emirates (UAE), for example, is lower than that in Indonesia. 

The NRE electricity in the UAE is sold within a price range of 2.25 US cents and 2.99 US cents per kilowatt hour (kWh), while electricity from a 150 megawatt solar power plant is sold at 2.99 US cents per kWh, and from 200 megawatt plants at 2.42 US cents per kWh. In Indonesia, the NRE electricity is sold within a range of 15 and 18 US cents per kWh.

In Serawak, Malaysia, the price of a hydro power plants (PLTPs) electricity is only two US cents per kWh, while in Indonesia, it is seven US cents per kWh.

There are many other factors that cause NRE electricity in Indonesia to be expensive, with high investment costs. In the UAE, the land is provided free of charge by the government.

In Indonesia, land prices are high, and very often, they suddenly skyrocket when the land is sold or cleared. In addition, interest rates on financing in Indonesia are quite high, while financing is given interest-free in the UAE. Businesses there are not charged income tax either.

The electricity infrastructure in Indonesia is also expensive to build and maintain, causing logistics costs to continue to rise. "Logistics costs in Indonesia are higher than in other countries because our infrastructure is not adequate," Arthur said.

In fact, the logistics costs in Indonesia are the highest in the ASEAN, at some 29 percent of the gross domestic product. Private businesses need a huge budget for building power-generation infrastructure. 

Besides this, long bureaucratic procedures for obtaining permits are inefficient and cannot compete with procedures in other countries.

Therefore, the APLSI expressed appreciation for President Jokowis focus on developing the infrastructure. Although it would take a large chunk out of the budget, over the long term, it will reduce the high economic costs, high logistics costs, and inflation. In time, the cost of building electricity plants will get lower.

As electricity in the UAE is cheaper, Minister of Energy and Mineral Resources Ignasius Jonan noted that he wants to send a team to the emirate to study the development of renewable energy at competitive prices.

"I attended the OPEC session in Vienna, Austria, recently. I met with the UAE energy minister. It turned out that the UAE, which produces 3 million barrels of oil per day, uses renewable energy to produce cheap electricity," the minister stated at a year-end discussion on electricity in Jakarta on Thursday (Dec 8).

The oil-rich country is planning to build a solar-powered electricity generation plant, with a tariff of 2.99 US cents per kWh. It also plans to build a five thousand megawatt solar-powered electricity plant, with a tariff of 2.25 US cents per kWh.

"It admittedly has a different absorption capacity. But here (in Indonesia), why is the price so high? Thats why I want to send a team there to study their systems and see how they have achieved such a competitive price," Jonan stressed.

With low investment and production costs, electricity would become cheaper and the development of electricity in the country could be accelerated.

After all, some 2.5 thousand villages in Indonesia still have no access to electricity as they are isolated and located on difficult terrain, Arthur pointed out.

He went on to say the government could not rely exclusively on the state power utility company PLN to supply electricity to these isolated villages in the frontier areas, noting that the role of the private sector was important.

In this case, PLN must team up with independent power producers. The government has issued a regulation allowing the private sector to operate in the power-generation industry to supply electricity to these villages.

The regulation calls for the involvement of the private sector, cooperatives, and regional administration companies in providing this access to electricity.

"The government will provide a license for the private sector to build power plants and power transmission networks and to sell power directly to the end consumers in isolated areas," Arthur added

Source: ANTARA