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Hydropower producers cry over the power cap introduced by PLN, terming it a pessimistic approach

Hydropower plant owners are unhappy with the regulation of the monopolistic PLN to institute a power cap on power generation while the demand for electricity is low in Sumatra. These developers explain that this move will scare away investors. 

The PLN issued a letter demanding these energy manufacturers to reduce their production to the minimum levels as per their Power Purchase Agreement (PPA). The Jakarta Post reports that the plants cannot generate an excess of 260391 MWh of power per year, which is, in actual sense, 13 percent less than last year following the PPA.

PLN threatens to part ways with plants that surpass it in terms of financial equity. This move comes after the firm witnessed a net loss of Rp 38.9 trillion in its first sales quarter. The chairperson of the Hydropower Plant Developers Association (APPLTA), Riza Husni, told Jakarta Post that this move by PLN scares away investors who wish to finance the hydropower plants.  

Riza further reveals that the plant owners were paying off their loans after introducing the power cap sequestering the income of these plants. The association is also worried that investors will take a detour from similar hydropower projects, culminating in less than 10MW for fear of losing their money.

This current predicament is a representation of challenges that private firms encounter on their mission of introducing clean energy technology to Indonesia. Additionally, the failure of Indonesia to attain its renewable energy project by 2019 proves that the country’s energy sector needs restructuring.

It appears that the energy ministry and PLN have contradictory thoughts since the ministry had already brought down the Build-Own-Operate-Transfer (BOOT) scheme terming it an impediment in the attraction of renewable energy investment. PLN opposes this move seeing that it favors the hydropower plants which have no losses.

The general manager of PLN’s North Sumatra, Irwansyah, told the Post that the cap shields PLN from witnessing a whopping fall in cash flow from 5 to 3 percent in its power consumption. He essentially reveals that they are cutting down expenses to overcome the financial burden.

Irwansyah explains that PLN agrees with two of the hydropower producers that they will purchase excess power though at half the initial price. PLN outline that they will continue making losses since they also purchase electricity from other independent power producers (IPP) in the Sumatra province. The firm urges the other four hydropower producers to reconsider their stand because they are the only ones likely to benefit if the initial deal holds.

Finally, energy analyst Elrika Hamdi of the Institute for Energy Economics and Financial Analysis (IEEFA) states that PLN has the legal right to follow the minimum production regulation outlined in their deals. Elrika further points out that the payment of IPPs is PLN’s significant operating expense since it surpasses the company’s expenditure on fossil fuels.