by James Guild, S. Rajaratnam School of International Studies (RSIS)
(Courtesy CIA.gov) |
But PLN is not flush with cash. Indonesia has a constitutional mandate to provide affordable electricity to its people, putting the utility in a tough spot when it comes to developing a sustainable financial model. The Ministry of Energy, not PLN, sets the consumer price of electricity. These rates have been frozen through the build-up to the election. With its ability to raise revenue constrained, PLN must keep costs down in order to remain solvent. With access to cheap domestic coal and no political appetite for passing the high initial costs of renewable technologies onto the public, the most prudent way to keep costs in check is to lean into inexpensive fossil fuels.
For instance, the pricing mechanism for geothermal power was initially pegged to oil prices, which then changed to a ceiling price for all of Indonesia and finally ended up as a feed-in tariff that was rolled out by the Ministry of Energy without consulting the Ministry of Finance. The regulatory uncertainty and coordination breakdowns go a long way in explaining the lack of growth in the sector.
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