Power for the Island Mosaic: Indonesia’s uphill journey to electrify its people

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It is 1 o’clock in the morning in Jakarta. The glow from the city lights illuminates the hazy sky above with a permanent yellowish-orange light that erases any sight of a starlit sky. While the majority of its 12 million inhabitants are asleep, the city’s skyline displays its unnatural aura in its full glory. From the pinnacle of Wisma 46, Jakarta’s tallest skyscraper at 250 metres, to the hundreds of bare light bulbs of the street-food vendors, there is an evident, if not wasteful, abundance of electricity throughout the city.

Upon questioning one out of the dozens of fried rice hawkers on the street ” “Where do all of you get the electricity to keep your lights on?” ” a revealing truth is uncovered: “We simply hook up to the electricity pole over there”. Ignoring the safety hazards related to his affirmation, the pervasive sense that electricity is free around here becomes increasingly clear. Nonetheless, this impression is not endemic to illegal electricity tapping, but rather is further replicated throughout all levels of society. A clear example are the high-class bars in Jakarta’s financial heart that run their air-conditioning units in open air terraces to keep their wealthy patrons cool from the stifling heat.

With such widespread behavior it comes as no surprise that Indonesia’s government will spend close to $9.5 billion in electricity subsides this year. At the end of the day, someone has to foot the bill.

With a population nearing 250 million, an average annual economic growth of 6 per cent and a growing middle class today estimated at 131 million, Indonesia is one of the most attractive fast-growing markets in Asia, if not the world. Even in the midst of the global financial crisis, the country remained relatively impervious with a solid GDP growth rate of 4.5 per cent in 2009.

The World Bank’s country director in Indonesia, Stefan Koeberle, conveys that “Indonesia represents a country with a very favourable growth outlook and has been highly successful at attracting foreign investment. Also, it has been quite successful at sustaining this growth rate for a number of years. Essentially, this has been on the basis of a booming commodities export industry and the expanding domestic market.”

Stefan Koeberle à‚ 

However, Indonesia’s enviable performance of previous years is in jeopardy of not being sustained because of an electricity crisis that has been plaguing the country since 2008. As the country’s economy has been steadily climbing, electricity demand has been outpacing supply with growth rates between 8″10 per cent every year. Furthermore, the country’s unique geography spanning over 17,000 islands, out of which more than 7000 are inhabited, further exacerbates Indonesia’s hardships to power its people. The grim circumstances became more than apparent in 2008 when the national electricity company, Perusahaan Listrik Negara (PLN), began executing rolling blackouts as a means to manage peak electricity demand.

Stefan Koeberle, country director Indonesia, The World Bank


Jarman à‚  In 2009, the government began implementing a series of policies dedicated to boosting the national electrification rate. “Our main goal is that by 2020, we hope [the] electrification rate [will] have reached 99 per cent. Today it is around 73 per cent, so there is still 27 per cent to be developed. In terms of numbers this represents 16.8 million households [that] do not have access to electricity and 50 million people (more than two times the population of Australia). Most of these are located in remote areas and islands. We hope that by 2020, almost everybody will have access to electricity”, explains Indonesia’s director general of Electricity, Jarman, who is responsible for the sector’s regulation as a part of the Ministry of Energy and Mineral Resources.
Jarman, director general of Electricity

The reality is that the country’s rate of electrification remains strikingly low when compared to its neighbours, such as Thailand, Malaysia and Singapore, which boast electrification rates of 99.3 per cent, 99.4 per cent and 100 per cent respectively. Indeed, Indonesia’s figures are comparable to some sub-Saharan African countries.

Furthermore, given the country’s abundance of virtually all energy resources, including coal, oil & gas, geothermal, hydropower, biomass, solar and wind, it is difficult to understand why more than a quarter of its population still has no access to electricity. This raises the question as to whether Indonesia’s electricity monopoly is the appropriate power model to electrify its people. Nonetheless, the last few years have seen signs of positive change on behalf of the government that promises an overhaul of Indonesia’s power infrastructure.

growing electricity deman

Under such plans it is estimated that the country will require at least $6 billion of annual investment in new power infrastructure, including an additional 5000 MW on a yearly basis for the next five years. It remains to be seen whether these ambitions are overzealous lip service or a true reflection of Indonesia’s latent potential becoming a reality.


To understand the current state of affairs there is a need to grasp the political history of this young democracy that saw the end of authoritarian rule a mere 13 years ago. Having ratified its constitution in 1945 and officially gaining its independence from the Netherlands in 1949, Indonesia decided that electricity was a commodity that its entire population was entitled to and that, by law, the government should provide. Under such a premise, in 1945 the government created the Bureau of Electricity and Gas, which was the precursor to today’s state-owned PLN, which holds a monopoly on the transmission and distribution of electricity throughout the country.

Essentially, anything related to power generation must involve PLN as it is the sole purchaser of electricity in the country. With such a mammoth task at hand, PLN is currently the second-largest state-owned enterprise in Indonesia in terms of assets, which are worth an estimated $53.5 billion across nine subsidiaries, including some 28,500 MW of installed generating capacity. Most would argue that a company of this magnitude and importance is bound to be inefficient when managed by the government.

Certainly most of the figures augur with that view considering that PLN’s average tariff for electricity stands at $7.7 cents per kWh compared to its average cost of production estimated at $11.6 cents per kWh. Some explain such discrepancies as a result of the company’s stunted plans to develop a number of power plants in the 1990s that were abruptly halted due to the Asian financial crisis. It took more than a decade for PLN to recover from overwhelming losses and get back on track to success. Since 2009, PLN has been aggressively stepping up the optimisation of its business processes to meet the needs of its customers and to prove critics that it is capable of fulfilling its mandate.

Nur Pamudji à‚  PLN’s current president director, Nur Pamudji, took on his role as the head of the company in late 2011 with the vision to transform it into a world-class utility business. “It is my dream to make PLN the largest utility company in Asia. We already count 46 million customers and we only expect that this will grow considerably over time. While India and China have massive populations, their power is guaranteed by a number of companies, which is why I believe we have a solid chance at becoming #1 in the region,” he confidently affirms.
Nur Pamudji, president director, PLN

“As a first priority, we have the aim to improve our relations with customers and to enhance the service that we provide to them. We are doing this by implementing a pre-paid metering system that provides us with better information regarding our customers, so that we can better tailor our services to them. We are also in the process of implementing our Enterprise Resource Planning (ERP) programme and have already completed 70 per cent of it. Overall, the vision is to become a modern utility company that incorporates information technology intensively in order to provide the best service possible.”

The results to such initiatives have already begun to pay off, as the pre-paid metering system guarantees improved cash flows with more efficient payment collection for PLN. Pamudji notes that “our customers are greatly satisfied with the pre-paid meters as it allows them to monitor their usage of electricity on a daily basis. Indirectly it also serves to sensitise them about energy usage and conservation because they see the direct relation between their own consumption and how much they have to pay.”

The additional cash in the bank is a boon for PLN, particularly at this time when intensive spending is being demanded of the company. This is due to the fact that focus on Indonesia’s energy and electricity policies goes beyond the company’s individual plans. In effect, energy is a determining factor in the future economic performance of Indonesia, and has therefore become a core priority for President Susilo Bambang Yudhoyono, who is perceived as the steward of the country’s robust economic growth over the past six years.

Coming to power in 2004 and being reelected for another five-year term in 2009, Yudhoyono is generally well-regarded because of his liberal economic and fiscally-conservative policies that have allowed Indonesia to grow into a modern market economy. His vision for the country’s electricity sector is no different, with the introduction of a new regulatory framework in 2009 commonly referred to as the ‘2009 Electricity Law’. Under this law, power generation was fully opened to the participation of private power producers, known in Indonesia as independent power producers (IPPs), which sell their electricity to PLN for distribution.

Theoretically, even the transmission and distribution of electricity can be undertaken by a private party, as long as PLN has foregone its option to do so. This new regulatory framework was devised precisely to push for the participation of private investments into the power sector as it became clear that PLN was incapable of meeting electricity demand on its own. Even though private interests had been allowed since 2002, their involvement and direct investments into power generation have been scarce.

Prior to the 2009 Electricity Law, Yudhoyono had already emphasized the urgent need for power infrastructure by implementing a two-phase fast-track programme aimed at building 20,000 MW worth of new power plants. The plan is divided into phases of 10,000 MW each, with the first focusing entirely on the construction of coal-fired power plants, mostly by PLN, from 2006″10. The second initiative emphasizes the role of IPPs and the development of cleaner energy sources, particularly geothermal, propped up by the 2009 Electricity Law, which eased regulations for private investors to finance new power plants. The second phase is expected to be completed by 2014.

These fast-track programmes make up the backbone of the country’s plans to raise the electrification rate and tap into new sources of energy by attracting deep-pocketed investors and companies with the appropriate know-how and technologies. In essence, the fast-track programme has become the promise of a modern electricity sector with a diversified energy mix.


While Indonesia today struggles to satisfy its own energy needs, the country was once a net exporter of energy and a major oil-producing member nation of OPEC up until 2008. It was precisely this wealth of hydrocarbon resources that shaped the country’s energy policies from the 1950s onwards, and based power generation on the use of oil as the main fuel source. As oil reserves declined and investments for exploration waned, Indonesia was forced to begin importing oil and subsidise its prices for fuel domestically. Subsidies for electricity soon followed.

Indonesian Power Generation Network
Map: Indonesian Power Generation Network, June 2011

Currently, fuel subsidies are more than double those for electricity and are estimated to reach $23 billion by the end of this year because of global oil prices. Together, fuel and electricity subsidies consume roughly 4 per cent of the country’s $845.7 billion GDP. This situation has sent the government scrambling for fast and efficient solutions to address the increasing demand for power. Most understand that both fuel and electricity subsidies are not sustainable in the long term, however, income levels for the majority of the population are not high enough to absorb the costs. This is particularly true given that Indonesians take having access to inexpensive fuel and electricity for granted. Next year, the government is expecting that energy subsidies will increase by a further 36 per cent, compared to a 15 per cent rise in spending for infrastructure.

The World Bank’s Koeberle believes that subsidies present a greater problem related to “the uneven distribution of public resources in the sense that these subsidies do not reach the poorest populations. In other words, it is seldom the rural populations who are the consumers of fuel for transportation or have access to electricity, and are therefore not benefiting directly from these subsidies. Under the current state of affairs however, the energy subsidies are only benefiting the richer households as they represent the largest segment of energy consumers.”

Nonetheless, when the government attempted to raise fuel prices earlier this year, it was forced to back down as people took to the streets in peaceful protests and demonstrations. With upcoming presidential elections in 2014, politicians opted not to take any risks that would make them unpopular.The only other solution is to find alternative fuel sources for power generation to replace approximately 7000 MW of generating capacity based on diesel generators.

While natural gas is abundant in Indonesia, close to 70 per cent of gas reserves are located in hard-to-reach offshore locations and transportation infrastructure for gas is rather limited. In light of this, regional governments have been making their own efforts to develop natural gas in their areas rather than waiting for national oil company, Pertamina, to do the job for them.

Abdul Muid à‚  Petrogas Jatim Utama (PJU), is a prime example of this trend as a state-owned-company established by the government of East Java tasked with developing natural gas infrastructure in the region. “Our business consists of upstream, downstream and services covering the entire value chain. Essentially, we are responsible for managing infrastructure built by the local government of East Java in order to then distribute [the] gas that we purchase from Lapindo Brantas. PJU manages the main distribution station, while private companies handle the smaller satellite distribution centres. In managing this gas infrastructure, our main aim is to reduce gasoline consumption, as it’s very expensive”, explains president director Abdul Muid.
Abdul Muid, president director, Petrogas Jatim Utama

“At the moment we face a great deal of competition in our sector, especially from Pertamina that controls a significant portion of the market. However, this is changing as the market is opening up, particularly with the regional government structure that provides greater autonomy to local governments. Finally, being a state-owned enterprise, PJU also serves a purpose of delivering value to the surrounding community. For such reason, we have been succesfully operating a city gas distribution business in Surabaya and Sidoarjo using part of the gas which we purchase from Lapindo Brantas. This operation is currently serving close to 7000 households,” concludes Muid.

While the example of PJU is commendable, it is not viable on a national scale since most regional government do not have the capital or expertise for such projects. Furthermore, while the country waits for gas infrastructure to be installed, electricity demand steadily keeps rising. And so was born Phase 1 of the fast-track programme that focuses entirely on coal for the generation of 10,000 MW.

Director General Jarman explains that “in 2011, the energy mix in Indonesia relied 22 per cent on oil, and we are striving to bring this number down to 13 per cent by the end of 2012, to 9 per cent by 2013 and to 4 per cent by 2015, in line with OECD countries. We cannot eliminate the oil fuel for electricity as it is still required in remote areas for generators, but we can definitely reduce the dependency”. Coal seems to be the sure answer as it already accounts for 47 per cent of power generation.

The Power of Coal

It is Indonesia’s fortune to be blessed with extensive coal reserves that today make this nation the world’s prime exporter of this raw material. Earlier this year, estimated coal reserves were raised to over 25 billion tonnes as more mining companies provide the government with higher quality data of their operations. The challenge for the coal mining sector lies in balancing export commitments and revenues with an increased national demand for coal to be used for power generation.

indonesia fuel mix

This year a 20 per cent export tax for unprocessed coal was announced by the government as a means to boost the availability of resources for local consumption. Mining companies have lashed out against such protectionist measures. Ultimately, they argue that an export tax hinders economic growth and the greater potential of Indonesia’s economy. Bob Kamandanu, chairman of the Indonesian Coal Mining Association, speaks of his responsibility to express “to the government that they should let the market decide the supply and demand of coal, because there is tough competition around the world and Indonesia could easily lose its place as #1 if we start placing market barriers. With such restrictions in place, we foresee that Indonesia would lose its place as the leading coal exporter within the next ten years.”

On the other hand, Indonesia’s coal mining sector has been accused of becoming excessive and careless in their practises, which is why greater regulation is necessary to maintain environmental and safety standards.

With power-hungry customers such as China and India in the region, mining companies of all shapes and sizes have rushed to make a buck out of Indonesia’s natural wealth. Now that oil prices are on the rise, Indonesia wants a piece of the pie for itself as it looks to convert over 7700 MW of diesel power generation into coal-fired power plants, in addition to the 10,000 MW in new coal-fired power stations allotted by the first phase of the fast-track programme.

“The good news is that Indonesia has sufficient coal resources to sustain its energy needs for the next century, which is why the government is pushing for the construction of numerous coal-fired power plants throughout the country. The bad news is that Indonesia’s coal varies greatly in quality, which poses a challenge for us to develop power plants specifically designed to the quality of coal that will be used to generate power in each region”, explains Ulysses R. Simandjuntak, vice chairman of the Indonesian Electrical Power Society (MKI).

fuel cost comparison

In parallel to the initial opening of the power sector to private interests back in 2002, MKI was created to represent power producers, manufacturers of electrical equipment and other companies of businesses related to the electricity sector, such as gas and coal suppliers, engineering companies and consulting firms. As the most respected association in the country’s power sector, MKI serves an advisory role to the government in order to ensure that private interests are considered in policy making.

In relation to the first stage of the fast-track programme, those private interests have been less than expected because of a number of challenges that hinder the development of new coal-fired power plants. According to Simandjuntak, a question worth asking is “how to build these power plants given that most of the coal reserves are in remote areas devoid of infrastructural access”. This is particularly challenging for Indonesia given that a majority of the country’s coal resources are classified as low-rank coal with high moisture content that makes it very heavy and expensive to transport. Furthermore, as most coal reserves are located far from the core Java-Bali grid on the islands of Sumatra and Kalimantan, the government is rethinking its strategy as coal feedstock becomes more difficult to source.

The Phase 1 Precedent

Almost six years since the announcement of the first fast-track programme, PLN’s results to generate the desired 10,000 MW by 2010 have been sluggish at best. The company expects that by the end of 2012 they will have achieved 60 per cent of the targeted installed capacity for Phase 1. Cited setbacks to projects are as expected, and include cumbersome bureaucracy and land acquisition disputes, which are ultimately linked to the decentralised regulation of power projects that grants regional governments the power to approve projects or not. Often, local authorities are ill-equipped to grasp the technical details of the projects because of a lack of qualified human resources.

Koeberle of The World Bank believes that one of the greatest challenges for power projects has been “the uncertainty of dealing with the numerous different actors in the development process, including the local authorities. It is not just a capacity issue for dealing with investors, but also the uncertainty that comes from dealing with many different actors who have authority and are often not well coordinated.”

Jero Wacik à‚  Paiton Energy, which owns and operates Indonesia’s largest coal-fired power plant and the first to use supercritical technology, inaugurated its third generation unit on 5 June 2012 with a grand ceremony attended by the minister of Energy, Jero Wacik. The 815 MW, $1.5 billion project, which brought the total plant’s capacity to 2035 MW, was completed a month ahead of schedule and is widely recognised as a model of success. Low Kian Min, Paiton Energy’s president director, claims that while there are indeed challenges to Indonesia’s power sector, they are not impossible to overcome.
Jero Wacik, minister of Energy and Mineral Resources

“Indonesia can certainly be difficult to understand at times, and I say this even though I am Asian myself. I think every country has its own nuances as to how you have to deal with people, and I don’t think Indonesia is any different. The keys are to understand the local culture and understand how people work, what motivates them and what they mean when they say ‘yes’. At the end of the day the most important thing is to deliver your end of the bargain and therefore obtaining the respect and trust of the locals. This has been exactly what we have done with PLN, which is why we have such a positive and beneficial relationship today.”

Paiton Project
Illustrative Photo: Paiton Project, courtesy of Truba Jaya Engineering

The same cannot be said about most of the projects commissioned under Phase 1 though. Some point to PLN’s bidding process and criteria as the main cause for the delay of most power plants under the fast-track programme. In its effort to be cost-effective and hasty in the development of the projects, PLN largely opted for Chinese contractors and equipment providers, accounting for almost 95 per cent of contracts, which promised rock bottom prices and speedy delivery times.

Erman Suparno à‚  In the end, many of those promises brought unwanted consequences, including faulty equipment and imprecision that inevitably caused delays in construction and greatly increased costs. Given that many of the Chinese contractors were also involved in the financing of these projects, the higher costs led to a shortage of capital and lengthy renegotiations. Erman Suparno, chief executive officer of PT Truba Jaya Engineering, asserts that this is why “we are working with European, Japanese and reputable overseas companies, given that their projects are of high quality and it is easy for us to follow them in terms of the cooperation since we follow the same values”.
Erman Suparno, president director, Truba Jaya Engineering

His company is one of the most active Indonesian EPC contractors in the power sector, not only with coal projects, but also for geothermal and hydropower plants, as well as in the oil & gas sector. Counting 30 years of experience, Truba Jaya will be providing its services for approximately 7000 MW worth of projects commissioned under the Phase 1 programme. “Foreign companies choose us for three major reasons: setting, scheduling and quality. We are involved day by day in our projects and are very concerned with the quality of our services because we always want to provide the best. We plan to expand to other international markets in order for Truba Jaya to become a global player in this field. We have started our operations in Saudi Arabia in 2004, so we have a good track record in that country with manufacturing and EPC companies,” concludes Suparno. It is reputable local companies like this that provide foreign investors with the local expertise to operate successfully under the “Indonesian way”.

Strengthening Indonesia’s Grid

Beyond the ramping up of power generation, Indonesia’s triumph in electrifying its people will be dependent on the development of a modern and integrated grid that can support its energy-hungry economy and the development of new regions. The Indonesian electricity network is composed of eight interconnected grids, with the Java-Madura-Bali (JMB) grid accounting for 29,077 kmc of transmission lines out of a total 43,640 kmc in 2010, plus an additional 600 smaller stand-alone networks. As of 2010, the island of Java alone accounted for approximately 20,000 MW of the country’s total 28,000 MW generating capacity.

With a population of 140 million and host to Indonesia’s financial and industrial base, Java is by far the greatest consumer of electricity in the country and home to the fastest growing demand. Such a concentrated network, however, is partly the reason for the country’s unimpressive electrification rate. It goes without saying that linking thousands of islands on a single power grid is logistically and economically unfeasible. Still, there is a need to integrate the major islands of Java, Bali, Sumatra, Kalimantan and Sulawesi to encourage a full transformation of Indonesia’s electricity matrix.

“We are in fact focusing our transmission and distribution (T&D) efforts outside of the Java-Bali area. In Sumatra, for example, we are building 275 kV backbone transmission lines from north to south and a 500 kV line from south Sumatra to Medan. The west side of the island already has a 275 kV transmission line that will complement these other two projects that we expect to finish over the next two years. In Sulawesi we are also developing the grid by connecting East Kalimantan with South Kalimantan and then South Kalimantan with Central Kalimantan with a 150 kV line”, recounts PLN’s Pamudji. “Similarly, we are extending the grid in Sulawesi in order make use of several power plants that are being developed there.

“These projects will be financed directly by the government who has committed to provide us with $950 million for grid development every year. In the future we also expect that many power plants will be built by private companies who will operate nickel smelters that require large amounts of electricity. By building a strong grid we will also be assisting the development of such mining activities and the operation of local smelters.”

This downstream expansion is being supported by local and foreign companies that have been anxiously waiting for this moment. While traditional global electricity giants, such as Siemens, ABB, Emerson and Schneider Electric, were the leading providers of T&D equipment, in recent years PLN has been enforcing a mandatory 40 per cent local content requirement for all power projects. At times it is unclear as to what exactly can be considered local content. In any case, foreign companies have been heeding to local industry demands by localising manufacturing in the country. The direct effect is a vibrant local industry, which manufactures everything from cables and transformers, to switchboards and electrical meters.

Aside from the installation of backbone T&D infrastructure in the major islands, there are also plans to integrate the Sumatra and Java grids to transmit electricity generated from Sumatra’s coal and geothermal sites to Java. Surely this will increase the attractiveness of power generation projects in Sumatra and lure IPPs to that region. Such plans bode well with the ambitions of PLN’s second phase of its fast-track programme, which has been in development since 2010.

Unlike the first stage, Phase 2 focuses on the construction of power plants from renewable sources, such as geothermal (40 per cent) and hydropower (12 per cent), as well as the role of IPPs. Benefitting from the lessons learned in Phase 1 and an expanded national grid, there are hopes that by 2014 Indonesia will be well on its way to satisfy its electricity needs.


A Renewable Salvation

Despite the fact that Phase 1 of the fast-track programme had achieved less than 40 per cent of its target goal by 2010, the urgent need for electricity and foreign investment ensured that Phase 2 went ahead as planned. As part of the trend to reduce hydrocarbon consumption for power generation and to ‘green’ the country’s energy mix, Indonesia’s Ministry of Energy and Mineral Resources established the Directorate General for Renewable Energy and Energy Conservation in August 2010. The aim of the Directorate General is to promote and regulate the development of renewable resources by enhancing both their regulatory frameworks and investment potential.

Director general, Warnika Kardaya, boasts that “Indonesia has 40 per cent of the world’s proven geothermal reserves. However, I believe this figure underestimates the full potential of Indonesia’s geothermal power since it does not consider the offshore reserves, which account for about 70 per cent of Indonesia’s territory. In addition to this, Indonesia is also rich in biomass, hydro, solar, tidal and wind energy.

“Therefore, we need to allocate and optimise our resources towards developing and harnessing these renewable sources. First and foremost, we recognize that one of the main drivers of investment relates to the tariff levels, and ultimately the profit margins, offered to developers. Therefore, in order to address this issue, we have recently made some progress in this area by increasing the tariff levels in the geothermal and biomass sectors by 50 per cent. We have set an ambitious target for ourselves to establish an energy mix of 25 per cent renewable energy by 2025. This is what we like to call our 25″25 vision.

“To be more specific, based on the current projects in the pipeline, we expect that by 2015, the biomass fuel industry will have grown from a current level of 400,000 barrels of oil equivalent (BoE) to 12,000,000 BoE, whereas the biomass power industry will have grown from a mere 20 MW to 690 MW. In the geothermal sector, we expect to achieve 4400 MW by 2015 compared to today’s 1226 MW.” Hydropower has also become a priority for the government, as it provides a reliable source of power generation in those islands that do not have mineral or geothermal resources. The onus has been placed on developing mini and micro-hydropower projects due to the fact that Indonesia has few large rivers suitable for larger dam projects. For example, PLN is obliged to purchase electricity from projects under 10 MW without the negotiation and signing of a power purchase agreement (PPA). However, even mid and large-size hydropower projects are rapidly being developed, including the 1000 MW, $800 million pumped-storage Upper Cisokan hydropower plant financed by The World Bank.

The hype is so powerful that foreign investors have been rushing to be a part of the renewable frenzy in Indonesia. Chung-yul Choi, president director of Wampu Electric, speaks of the first Korean consortium that invested in Indonesia’s hydropower sector by building a 3×15 MW power plant. “The Wampu hydroelectric project involves the construction of a dam to collect run-off water that will be used to generate 3×15 MW of electricity for the supply of the electric grid in Sumatra. In charge of developing this project is a consortium of three Korean companies, namely KOMIPO, POSCO Engineering and MPM, which have great expertise in developing hydropower plants in Korea. The concession of this project was assigned to us through a direct appointment rather than through a bidding process, and this was in response to our proposal put forth to PLN through their request for proposals (RFP).”

The power plant is expected to be completed by October 2014. “PLN has agreed to buy our electricity at a price of $7.3 cents per kWh for the next 30 years, which is substantially higher than the average $4 cents per kWh. Our project is a model of sustainable and clean energy, and given the Indonesian’s government ambitions to increase power generation from these kinds of sources, we had a lot of leverage in negotiating the terms of our PPA with PLN,” concludes Choi.

While much headway has been witnessed in hydropower and biomass developments, geothermal is unquestionably the golden child of Indonesia’s renewable undertaking. Touting the world’s largest geothermal capacity estimated at 28,000 MW, the government has been itching to jumpstart this sector and attract foreign investors. Particularly with model success stories in the region, such as the Philippines and New Zealand, Indonesia’s lack of expertise, technology and financial might have stunted its geothermal sector.

“The Philippines has been very successful in its geothermal sector because the country has no other choice to satisfy its electricity demand because it does not count on extensive natural resources, like coal and gas, the way Indonesia does. Geothermal is the most abundant energy source in that country and therefore the government had to do everything possible to tap into it. The difference between their country and ours is that the Philippines allowed for a fully liberalised model through which investors could develop geothermal plans and negotiate electricity prices according to market demand. Considering that Indonesia’s power model relies on PLN for the entire transmission and distribution of electricity, such a model is not viable,” explains Udibowo Ciptomulyono, president commissioner of PLN Geothermal.

PLN Geothermal
PLN Geothermal – Maintenance activity

PLN Geothermal (PLN-G) is PLN’s subsidiary dedicated to developing geothermal power plants. “So far PLN-G has three concessions and has just concluded the exploration and drilling in one of them, namely Tuleho, and we expect to have this well operating within the next 2″3 years,” confirms Ciptomulyono.

Even the biggest IPPs in Indonesia have shifted their attention to the geothermal sector given its promise of considerable revenues. Earlier this year the government set a feed-in tariff rate of $9.7 cents per kWh for geothermal projects, which is well above the average tariffs of between $6″7 cents per kWh. Ali Herman, president director of Bakrie Power, confirms that his company “is now shifting its focus to the geothermal sector and is working on three projects in partnership with Australian-based Panax. The Ngebel project consists of three 55 MW geothermal stations, with a total capacity of 165 MW, that will be used to feed the Java-Bali grid. Next, the Sokoria power plant will generate a total of 30 MW with the capacity to expand up to 145 MW.”

He justifies this strategy with his assurances that “the geothermal sector will become a lot more attractive than coal or any other thermal fuel source, mainly because of the government’s pledge to have 25 per cent of its energy mix originating from renewable resources by 2025. Personally, I believe that renewable energy sources are more attractive, not only in the business-sense but also in their long-term benefits of environmental conservation and safety.”

Fazil Alfitri à‚  Medco Power, one of Indonesia’s leading IPPs, which is focusing on developing power projects between 50″100 MW on islands other than Java, is also opting for the renewable route. Fazil Alfitri, president director of Medco, speaks of his innovative financing strategies to ensure that its geothermal project materialises.
Fazil Alfitri, president director, Medco Power

“The largest project we are currently developing is the Sarulla geothermal plant with a capacity of 330 MW. Sarulla is unique in that we are developing it through a project financing model rather than an equity financing model, which is what most geothermal companies have been doing in Indonesia so far. The difference in the two models lies in the legalistic definition of how one treats the asset, because, according to the old geothermal law, a geothermal plant will always belong to the people of Indonesia. Today the law permits that such assets be assigned to private entities for the duration of their loan, therefore allowing them to collateralise those assets with the banks. Ultimately, it has been this legal shift that has allowed the development of geothermal projects under a project financing model and will create a smoother regulatory path for the development of future geothermal projects.”

Local Engineering Re-energised

Susanto Purnomo à‚  While progress made on the fast-track programme has not been optimal, there have been indirect benefits to the rest of the industry, particularly for EPC contractors, which have been scuttling to become preferred partners of IPPs and PLN. Susanto Purnomo, president director of PT Pembangkitan Jawa-Bali (PJB), explains how as a subsidiary of PLN his company has been forced to step up its game to be a part of new power plant projects. “As a company, we are responsible for about a 20 per cent market share of the country’s total power generation capacity, compared to Indonesia Power that holds 40 per cent of total production. Private IPPs today account for about 20 per cent of the total with the remaining 30 per cent being owned by PLN.”
Susanto Purnomo, president director, PJB

PJB is considered to be the country’s O&M specialist and has even participated in a few international projects, including in Malaysia and Saudi Arabia, because of its reputation for customised services and incomparable quality. Purnomo is proud to assert that “PJB is known as the best power company in Indonesia. Many companies within the PLN family and even in the private sector come to us to learn how we achieve such successful O&M of power plants. We have even developed a power plant academy that operates as a corporate university for the training of new engineers in the power generation sector.”

To keep up with the pace of the industry and its parent company PLN, PJB is moving to improve its asset management and obtain PAS 55 certification, which is now under evaluation. Furthermore, it is undergoing a full integration of business processes under ISO 9000, 14000 and 18000 standards. The company has also established partnerships as a core part of its strategy. “Partnerships allow us to be more quick and efficient in the development of projects because the private interests tend to move faster than state-owned enterprises. As a state company we have some limitations, which is why we look for private partners that are accountable for the speedy development of projects. Our interest is to establish service and maintenance contracts from these partnerships as this is where most of our revenues come from,” says Purnomo.

Harun Al Rosyid à‚  The effects of Indonesia’s power boom are perhaps most striking with stories of small start-up companies that are created by individual engineers. Such is the case of Indopower International, which was created by a group of retired PLN engineers who were not quite ready for a tranquil life on a sandy beach in Bali. Indopower International president director, Harun Al Rosyid, describes how the company “began working with thermal and hydropower plant projects, for example with coal-fired power plant and micro-hydropower plants that have become very profitable in recent years. My core business is mainly in power plant engineering, including preparing feasibility studies, basic design, tender document preparation according to international standards, detailed design, design review, construction supervision and also participation in the tender process, for PLN, IPP and EPC clients.
Harun Al Rosyid, president director, Indopower International

“Furthermore, we have a portfolio of heat exchanger design and manufacturing that we supply to our EPC contractors, and this is an area in which we would like to become stronger.” Literally built from scratch in 1996, the company today conducts its activities “under the highest international standards, including ISO standards. Aside from our Jakarta office, we have a number of other offices around the country that support our active projects in their respective regions,” concludes Al Rosyid.

Djani Sutedja à‚  Other engineers have grown beyond their roots to become full-fledged IPPs as a means to assist the country in the establishment of a modern power sector. Djani Sutedja, president director of Capital Turbines speaks of his vision to start the c ompany as his own personal contribution to his country. “We started as a small company involved in the power sector selling electricity to PLN from diesel generators. After this, we became involved in the maintenance process of power plants, especially in coal, after which we moved to combined-cycle plants. Now our focus has shifted to steam coal-fired power plants to participate in Indonesia’s growth. Our share in the whole process may not be that big but we excel in what we do and at the end of the day we are helping our country develop its power sector, which is very much in need right now.
Djani Sutedja, president director, Capital Turbines

“The population needs hope, especially in the East, I was in Papua a few years ago to try and find the sources for the coal and the people need to know that the situation will change. In the next five [years] expect around four or five more projects of about 300 MW each, so we will be slowly moving into larger projects. We have very ambitious plans to grow quickly since the demand is very high. Indonesia needs this, so we have to enlarge our capability.”

Such examples provide hope that Indonesia can indeed achieve its target electrification rate of 91 per cent by 2019. Today, the rolling blackouts have mostly vanished, but will this last?

Manufacturing for Electricity Demand

Takashi Aso à‚  As PLN strives to modernise the transmission and distribution of electricity, equipment providers have been reactive in adapting to new standards and regulations. The local content quota has further coaxed manufacturers to design their production sites according to Indonesia’s needs. Takashi Aso, president director of Metbelosa, elaborates that “Indonesia’s GDP is comprised mostly of local demand, close to 70 per cent, which is quite unique when compared to other ASEAN countries. Any manufacturer in Indonesia has the advantage of producing its products locally and having them consumed here as well.” Metbelosa is a manufacturer of electrical meters, which has now moved to become a prime supplier of PLN’s new pre-paid meters.
Takashi Aso, president director, Metbelosa

The company was set up as a joint-venture by Japanese Osaki and a former state-owned company. “Our primary production facilities are designed to manufacture mechanical meters, including single and multi-phase kWh meters. The demand for these products has been quite high since the beginning, and today there is a current demand of 2-3 million single-phase meters every year in Indonesia. As one of the leading manufacturers of electrical meters, we have been enjoying this high demand that is fueled by the country’s rapid economic growth,” concludes Aso.

Furthermore, he is “counting that PLN’s shift to pre-payment and smart meters will continue beyond a decade, and it is my aim to have Metbelosa supply this shift. Our mission is to produce the largest quantity of meters as possible to meet PLN’s demands and to compete with all the companies in the market. In response to all these opportunities we are soon to complete our second factory here in Indonesia, specifically designed to produce electric kWh meters only. As part of the global trends, we are now moving to pay more attention to Smart Grids and smart metering, which is something we wish to do here in Indonesia as well. We have to newly develop products directly linked to the Smart Grid, which is why Osaki recently just completed a merger with Singapore-based EDMI. EDMI is a medium-sized electronic metering company that is very competitive in European markets and especially in British Commonwealth countries.” Metbelosa finished the construction of its second manufacturing site in late May this year and began producing its meters a month later.

Lee Kwang Mong, managing director of EDMI, speaks of the merger between the two companies as a guarantee for growth for both companies. “When you consider the history of both our companies there are great complementarities between the two that will make us a stronger entity in the future. On the one hand, Osaki has a long legacy of manufacturing electro-mechanical meters and has only recently begun to switch over to producing electronic single-phase meters. On the other hand, EDMI specializes in high-end electronic three-phase meters that are typically used by larger energy consumers. As a company we have always dedicated ourselves to designing custom-made meters that have a capacity to accommodate the closest possible relation to other electronic companies.” By joining forces both companies look to tackle the fast-developing Indonesian market, as well as new international targets.

Japanese Ingenuity Driving Geothermal

The hype over Indonesia’s geothermal potential has brought to light the difficulties that lie ahead to tap into this vast renewable resource that sits beneath the ground’s surface. From conflicting regulatory laws and high exploration risks to a lack of capacitated human capital, the country’s challenges to develop its geothermal resources are numerous and evident. The upside is that the government has prioritised building geothermal power plants through the second phase of the fast-track programme, with plans to generate 4000 MW over the next three years.

This is in contrast to the current 1200 MW generated from geothermal, which has taken approximately 30 years to incorporate into Indonesia’s electricity grid. Whether this ambitious target is feasible will depend on how quickly Indonesian authorities heed to the needs of foreign investors that widely call for greater incentives ” regulatory, fiscal and financial ” in order to counterbalance the high stakes inherent in geothermal power development.

Takumi Sakabe, director of Fuji Electric in Indonesia, explains that “geothermal power development is time-consuming by nature, normally requiring more than seven years from the initial survey and feasibility study until the start of power generation. During such period, developers are exposed to high risk especially during the exploration stage, yet continue to invest. After successful exploration, the power plant becomes a critical asset to realise developer’s revenue over a long period of time. We can contribute to support developers in such an important stage through our technology.”

Fuji Electric is one of the world’s leading geothermal equipment providers, offering not only turbine generators but comprehensive plant construction solutions covering everything from plant system design through engineering and construction, installation, and trial operation. The company has been active in geothermal since the 1960s, and since then the company has learned to identify the most promising geothermal opportunities, now betting that Indonesia will finally transform itself into the geothermal hotspot it promises to be.

Steam turbine
Steam turbine

Even though Fuji Electric had been present in Indonesia for more than four decades, it was only in October 2011 that the company established a sales and marketing subsidiary in order to augment its position in the power generation sector. “Indonesia is one of the countries with enormous potential which started to accelerate industrialisation, being fully supported by a population structure and stable politics over those years. We recognised it was high time for us to spread our solid roots also in Indonesia [as part of a] series of globalising activity,” concludes Sakabe.

This is in line with the wider trend of Japanese companies and financial institutions supporting Indonesia’s power generation objectives, as long-time partners to the country’s social and economic development. Specific to the geothermal sector, Indonesia could not ask for a finer collaborator considering that Japanese geothermal technology leads the field globally, with three Japanese companies accounting for close to 70 per cent of the world’s geothermal equipment market.

Wayang Windu geothermal power plant
Wayang Windu geothermal power plant

Such dominance is attributed to the unmatched quality and reliability of Japanese technology, which in the long run is essential to maintaining the cost competitiveness of a power plant. Fuji Electric, for example, is currently working on geothermal binary generation, in addition to conventional flash-cycle technology, which makes low-temperature resource generation possible. Given the high costs and hurdles associated with developing geothermal power plants in Indonesia, there is no question that such world-class technology will add an extra push to decisively tap into the country’s resources.

Up to now, Fuji Electric has provided nine power generating units to Indonesia and is now considering opportunities beyond simply selling and providing equipment. Sakabe elaborates that “though we were a downstream player in the series of such development, we have been seamlessly involved in supporting this industry over 40 years, with the equipment and EPC capability as well. EPC/turnkey solutions are normally required by plant owners for the plant construction stage. We are capable of managing such turnkey jobs with our core products. Nevertheless, it goes without saying, that we cannot do everything on our own. This is why it will be important for us to collaborate with capable and reliable partners, especially with local partners, for success.”

Even beyond EPC, Fuji Electric has recently donned the investor and owner hat with a geothermal project in the US and, based on that power plant’s success, will explore additional investment opportunities. “Of course, Indonesia will be one of the potential targets for such an approach”, confirms Sakabe. Luckily for Indonesia, this can only mean good news for the country’s desire to become the world’s leading geothermal player and to ‘green’ its energy mix. As for Fuji Electric, expanding its geothermal business in Indonesia is not solely for the sake of increasing profits, but rather it is also a means to practise its values of contributing to the creation of a safe, serene and sustainable society.


Ali Herman, president director, Bakrie Power

Up to 2009 there were very few incentives for IPPs to develop power plants in Indonesia, because the tariff to sell to PLN was fixed at $4.5 cents per kWh, which did not allow the projects to be profitable enough for investors to take an interest. It is counterproductive for the government to set such a low tariff when it has realised the need to quickly increase generating capacity and is actively calling for IPPs to develop new power plant projects. Furthermore, the government must establish government guarantees that will mitigate the risk for private investors who decide to build a new power plant. There are already some funds that have been created for this purpose under the Ministry of Finance, however, there are still too many procedures required for approval and this ends up discouraging companies.

Ultimately we would like to see more incentives from the government that will demonstrate its true commitment to IPPs as essential partners in developing the country’s power infrastructure. This will require that we establish partnerships with international companies and experts that can provide us with the right technology and equipment to develop all of our energy resources. Overall, Indonesia has a tremendous need to develop its infrastructure, and this can only be accomplished with the adequate tools and conditions, and through the efforts of IPPs.

On Geothermal:

Kerry Parker, managing director, Panax Geothermal

Indonesia has enormous geothermal potential, the government has a desire to see this developed and consequently there is a real wave of development. Many of the earlier geothermal projects had unfavourable tariffs but this is now improving. There is a $9.7 cents per kWh minimum price which may be increased. The main opportunities outside of Java and Sulawesi lie in small geothermal stations designed to supply energy to small populations or for industry.

Tjahjo Sasmojo, president director, PLN Geothermal

The most effective way to get the sector producing would be to have the government assign the task of exploration to PLN within a set timeline, and then tendering these ready-to-start projects out to private investors. Under such a model PLN Geothermal’s role in the sector would also be enhanced, as we would be the ones responsible for the feasibility studies and exploration of geothermal sites before they are handed over to private companies. The reality is that geothermal requires large upfront investment and this is the part that investors are sceptical about. If PLN and the Indonesian government were to take on this responsibility, then the rest would come much quicker and smoother.

On Transmission and Distribution:

Fazil Alfitri, president director, Medco Power

Eventually this is a possibility we will explore, and it is a trend that we are witnessing in neighbouring markets, such as the Philippines, Singapore and Australia. If the Philippines, also being an archipelago, can develop its transmission business through the private sector then Indonesian will soon have to follow the same example. I also believe that once there is competition in this sector, it will force PLN to become a lot more efficient, in the same way that happened with Pertamina and their downstream business. It is a necessary step that Indonesia must take in the near future. Perhaps one way to go about it is to have PLN handle transmission exclusively, while having private companies dealing with the distribution of electricity to end users.

So far we have already seen a number of success stories coming from regions that independently developed their power sectors, such as Batam, and I think similar models can be implemented in places like Bali, Jakarta and North Sumatra. This would definitely fuel faster development and greater business opportunities.

Supramu Santosa, founder and president director, Supreme Energy

Supramu Santosa à‚  As we all know, PLN has been around for a very long time and all the T&D networks in Indonesia are controlled by it. Ideally the T&D sector would be liberalised, but this will take a very long time and will only happen once the government removes electricity subsidies. As long as those subsidies are still there, then PLN will continue to have control over the distribution of electricity and we will be dealing with a distorted market. I believe that a subsidy of any kind only serves as a distortion in supply and demand. PLN’s infrastructure is massive, and it will have to be a gradual process before the T&D sector can be liberalised and PLN is replaced, but I do believe that it will have to happen in the future.
Supramu Santosa, founder and president director, Supreme Energy

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