Java-Bali Power Market Study

PLN commissioned a 2018-2019 Castlerock report  focusing on the increasing risk carried by PLN for paying fixed capacity charges to IPPs while electricity demand in Java-Bali over the past a few years has been growing at slower growth rates than expected, PLN queried whether a “fairer’ transaction arrangement that could reduce the burden of PLN in making fixed capacity payments. The problem is compounded by the apprehension that in the period between 2020 and 2024, some highly efficient 1000 MW class ultra super critical (USC) coal units are scheduled to be commissioned, which will threaten utilization of PLN-owned generating units thus earning less revenue for PLN to repay the debt services associated with the units.

• Under the completed study, Castlerock comprehensively reviewed the Java Bali power market situation. The relatively high reserve capacity in the period of 2020-2024, provides an environment in which transformation of the Java Bali market from ‘Vertically Integrated Monopoly with IPP’ into ‘Single Buyer Market’ is ripe, provided that some related issues, such as end user tariffs and subsidy, and PLN’S payables to its own gencos, are settled; and proper treatment of stranded assets are found.
• With the proposed Single Buyer market, the report indicates that operational efficiency of electricity supply would be realized from transparent system planning, competitive procurement for additional capacity, and dispatch of generating units based on economic merit order.
• The Castlerock report found that relieving the burden of PLN from paying the increasing fixed capacity payment would need fundamental structural changes to the basic institutional arrangements of the Indonesian electricity supply industry (ESI). The impacts of these changes on PLN may be positive or negative depending upon the perspectives and interests of the particular party. However, the key objective of the changes is to sustain over the long term the Indonesian ESI, especially the financial health of the PLN Group, by establishing transparent industry arrangements consistent with the prevailing electricity law that would place IPPs and PLN on equal footing with respect to electricity supply.