Renewable energy sources, like solar and wind, could be a game-changer for Indonesia, helping the nation’s power company, PT Perusahaan Listrik Negara (PLN), get back on its financial feet while also helping Indonesia meet its climate goals. Indonesia has a deadline to keep up with its promises under the Paris Agreement in less than seven years, and PLN has a crucial role in making the country’s energy sector greener by focusing more on renewable energy projects.
According to a recent study by the Institute for Energy Economics and Financial Analysis (IEEFA), written by energy finance expert Mutya Yustika, shifting focus towards renewable energy technologies such as solar and wind, and moving away from coal, can not only help PLN financially but also support Indonesia’s commitments to reducing carbon emissions. The study points out that, in 2022, the Indonesian government gave PLN a huge financial boost of about 123 trillion Indonesian Rupiah (roughly US$ 8 billion) to cover operation and maintenance costs.
The support PLN has been receiving is a significant strain on the government’s budget. This makes the argument stronger for gradually retiring coal-fired power plants to cut down on maintenance costs and the risk tied to coal prices. The urgency is more pronounced now with renewable energy becoming cheaper and the costs for running coal plants climbing.
Over the past years, the push from the government to rapidly increase the number of coal-fired plants has burdened PLN with high operational costs and maintenance, as well as long-term agreements that are costly to uphold. The decision to decrease these subsidies involves reducing the basic electricity generating cost, which includes coal purchasing among other things. Despite efforts, PLN’s expenditure on coal has significantly gone up since 2020 without a corresponding increase in electricity generation, indicating inefficiency.
Moreover, the non-subsidized electricity has been pegged since 2017, impacted by inflation, the coal reference price, and the fluctuations in currency exchange. PLN currently faces challenges with coal prices and the exchange rate dynamics, making the situation more complex.
As of the end of 2023, PLN managed around 20.4 gigawatts of coal-powered plants, with 23% of them being older than 20 years. Phasing out these older plants can save on maintenance costs, which tend to go up as plants age.
On the brighter side, Indonesia aims to make renewable energy account for 23% of its energy mix by 2025. Yet, as of 2023, only 13.1% of its energy comes from renewable sources. The IEEFA report by Yustika highlights a misconception that large-scale adoption of renewable energy is expensive for Indonesia. However, advancements in technology have led to more cost-effective production from renewables, bringing down both capital and operational costs.
The cost of renewable energy, notably solar and wind, has dropped in the past five years, making it a more economical choice than fossil fuels. Even though local content requirements imposed by the government increase the investment cost for renewables, the overall cost of electricity from solar and wind remains competitive with coal and is expected to drop further by 2030.
Renewable energy projects, particularly solar and wind, can be executed much quicker than fossil fuel-based projects. As the cost of renewables falls below that of coal, Indonesia stands to benefit not only financially by reducing its dependency on coal but also by meeting its climate promises more swiftly.
This perspective opens a pathway toward a more financially sustainable and eco-friendly future for PLN and Indonesia by embracing the potential of renewable energy development.