Assessing The Current Indonesia’s Electricity Market Arrangements and The Opportunities to Reform

Abstract

Existing subsidy arrangements and institutional settings in the Indonesian electricity sector distort investment decisions and lead to higher cost. Electricity supply is characterized by natural monopoly characteristics, requiring different management by governments than sectors with more straightforward market characteristics. Many countries have undergone significant re-structuring of their electricity sectors, away from one, state owned and vertically integrated monopoly supplier to a setting whereby competition has emerged either at the generation level and/or the retail level. Transmission and distribution networks are typically heavily regulated and transparent access arrangements are put in place as part of the restructuring efforts. The analysis showed that the current structure of Indonesia’s electricity sector firmly within Model 2 (the single buyer model) and highlights that Indonesia is currently towards the less-competitive end of the spectrum of Model 2, identifying significant potential for efficiency enhancing reforms within this structure. Constitutional limitations have hampered previous efforts to restructure the sector in Indonesia but there is significant room for incremental reform to improve incentives in the sector and reduce the cost of generation in the process.

The Emergence of Solar Photovoltaic Technology in Indonesia: Winners and Losers

“…PLN coordinates the transmission, distribution, and retail. Setyawan [18] infers that this model is hardly changed due to the restriction by the Indonesian constitution. An example in 2002 showed that an electricity law which allowed further competition of IPP in retailing was annulled by the Indonesian Supreme Court [18].…”

“…Setyawan [18] infers that this model is hardly changed due to the restriction by the Indonesian constitution. An example in 2002 showed that an electricity law which allowed further competition of IPP in retailing was annulled by the Indonesian Supreme Court [18]. Based on the latest regulation, IPP can still sell electricity directly to consumers under a concession area permitted by the ministry of energy and mineral resources (MEMR).…”

“…As Newbury [17] stated in his paper, the distributed generation d , like solar PV and battery storage will likely trigger the destruction of monopoly and disrupt the incumbent business model. Indonesia electricity business adopts a single buyer model [6,18]. In this model, PLN is the sole purchasing agency of electricity produced by generation companies through a power purchase agreement (PPA).…”

Enhancing the role of the private sector in achieving transitional renewable energy targets in Indonesia

“…Ideally, good governance practices and clear policy and regulation will attract private sector investment that is essential for developing and deploying renewable energy. However, Indonesia is facing several challenges that may impede renewable energy development including strong state control of the electricity sector (P. L. Joskow, 2008b), substantial fossil fuel subsidies (Bridle et al, 2018), non-competitive market structures (Dhani, 2014), lack of institutional competence (Marquardt, 2014), and serious underinvestment in the electricity sector (International Energy Agency, 2008).…”

“…The Law on Electricity issued in 2002 marked the first attempt to privatise part of the country's electricity supply. However, it was later annulled by the Constitutional Court for violating the Constitution(Dhani, 2014). The revised Law on Energy issued in 2007 recognised the importance of renewable energy as a means to improve the country's energy security(Government of Indonesia, 2007).…”