PLN's New 2021 - 2030 Business Plan: High hopes

and 'greener' projects

In brief Contact
Information
The Minister of Energy and Mineral Resources has finally approved PLN's 2021-2030 Electricity Supply Norman Bissett
Business Plan (RUPTL). A copy of the RUPTL can be dow nloaded from PLN's w ebsite here. Foreign Legal
Consultant
This long-anticipated RUPTL marks a pivotal milestone for PLN. For the first time, the majority of pow er Jakarta
generation projects to be developed are renew able energy projects, accounting for 51.6% of 40,575 MW
of pow er generation projects. The RUPTL also allocates a bigger share to Independent Pow er Producers Nadia Soraya
(IPP) in developing pow er generation projects. Partner
Jakarta
The new RUPTL also lays dow n, among other things, PLN's strategies to reduce the effects of greenhouse
gases, and its target to achieve net zero emission by 2060, w hich is the policy adopted by the current Fanny Kurniawan
administration in line w ith the UNFCCC's Paris Agreement. Associate Partner
Jakarta

Karina Sungkono
Senior Associate
What is an RUPTL
Jakarta
An RUPTL is PLN's 10-year business plan for the development of pow er projects, including pow er
generation, distribution and transmission projects development. The RUPTL determines projects to be Kim Hock Ang
developed by PLN and IPPs respectively. Particularly for pow er generation, the RUPTL also provides the Principal
targeted commercial operation dates for the projects w hich are being developed and provides a basis for Singapore
new projects procurement by PLN.

The RUPTL is usually updated annually to address changes that may be needed during the course of
the plan. Due to the Covid-19 pandemic, there have been no updates to the last RUPTL in 2019, w hich
covered the period until 2028.

What is changing
The matrix above sets out a summary of the changes from the previous RUPTL. The new RUPTL indicates
that the Covid-19 pandemic has caused substantial decreases in energy demand and affected grow th. It
revises the demand grow th projection to 4.9% and this has consequent knock-on effects on the overall
development of pow er projects under the new RUPTL.

Despite the overall decrease in generation capacity compared to the 2019 - 2028 RUPTL, under the new
RUPTL renew able energy w ill take up an increasing share of pow er generation projects, and IPPs w ill play
a bigger role in the development of pow er generation projects.

PLN's presentation material on the new RUPTL indicates that 26,306 MW (64.8 % of the total 40,575 MW
pow er generation projects under the new RUPTL) is allocated to IPPs, comprising 11,779 MW renew able
energy pow er projects and 14,527 MW non-renew able pow er projects.

The new RUPTL also sets out an estimate by PLN of the investment to be made by PLN (for pow er
generation, transmission, distribution and others) as w ell as by IPPs (for pow er generation) over the next
ten years. The average figure indicated by the new RUPTL is IDR 128.7 trillion per annum (IDR 72.4 trillion
by PLN, and IDR 56.3 trillion by IPPs) for new infrastructure, excluding investment requirements for
maintenance.

Source: PLN's RUPTL 2021-2030.

A 'greener' RUPTL
Significantly, the new RUPTL allocates 20,923 MW of generation capacity (more than half of the planned
40,575 MW pow er generation projects) for renew able energy projects. This is a 25% capacity increase
(4,209 MW) from the 2019-2028 RUPTL. On the other hand, there is an almost 50% decrease in the
capacity of planned fossil fuel pow er generation projects.

The 20,923 MW of renew able energy pow er projects under the new RUPTL comprise approx. 49.65% hydro
pow er projects (including mini/micro hydro pow er projects), 22.36% solar pow er projects, and 16.04%
geothermal pow er projects. The remaining renew able energy capacity comprise w ind, biomass and a new
variant of 'EBT base' projects. EBT base projects are base load renew able energy pow er projects that are
intended to replace coal fired pow er projects still in planning by 2025; w hich w ill be combined w ith gas in
order to provide base load pow er generation. It is not clear w hether the reference to replacing coal pow er
plants still at the planning stage refers to coal-fired pow er plants w hich have not yet been procured by PLN
by 2025. PLN's presentation slides on the new RUPTL refers to these as 'not yet committed' plans for coal
fired pow er projects. The new RUPTL also indicates the EBT base pow er plants are being planned for 2026
onw ards.

The anticipated grow th in renew able energy generation capacity is set out below :

Source: PLN's RUPTL 2021-2030.

The intention of this planned grow th is to achieve:

1. a mixed energy target for renew able energy of 23% by 2025 (w hich, in fact, is the same target as
the 2019 - 2028 RUPTL)

2. Indonesia's goal of reducing greenhouse gas emissions by 29% by 2030

3. net zero emission by 2060

PLN uses tw o scenarios in the new RUPTL, i.e., the optimum and a low carbon scenarios. Under the
optimum scenario, the energy mix target for renew able energy of 23% w ill be achieved by 2025, and by
2030, the energy mix composition w ill be coal 64%, natural gas (including LNG) 11.5%, renew able energy
23%, and fuel oil 0.4%. Under the low carbon scenario, PLN plans to reduce its reliance on coal even
further, and to increase biomass co-firing and gas, such that the target energy mix composition by 2030 is
expected to be coal 59.6%, natural gas (including LNG) 15.6%, renew able energy 24.2%, and fuel oil 0.4%.

Each scenario presents its ow n challenges. How ever, the statement in the last paragraph of section 5.6.1.1
of the new RUPTL (w hich sets out that "… the scenario used in this RUPTL is a low carbon scenario."),
seems to suggest that PLN is targeting low carbon.

The path to carbon neutral

Under the new RUPTL, PLN acknow ledges that energy supply until 2029 w ill still be dominated by fossil fuel
pow er plants, particularly coal-fired ones. The new RUPTL explains w hat PLN's efforts have been to date to
reduce emissions from coal-fired pow er plants, and how it intends to do so even further. Past efforts include
the use of electrostatic precipitators to catch dust, ash or particulates, the installing of flue gas
desulphurization technology in coal-fired pow er plants and the use of low Nitrogen oxide (NOx) burners. For
the future, PLN intends to continue to implement fuel sw itching (from oil to gas, diesel to mixed biofuel,
diesel to gas) and to roll out the use of more efficient and low carbon technology (e.g., using supercritical
and ultra-supercritical boilers for coal fired pow er plants in Java and Sumatra).
Significantly, unlike the 2019 - 2028 RUPTL, the new RUPTL includes PLN's plans to use biomass for co-
firing and to retire aging coal fired pow er plants.

1. Biom ass co-firing

The new RUPTL includes PLN's plan to mix coal w ith biomass for coal fired pow er plants.

The co-firing plan is aimed at certain coal-fired pow er plants using Circulated Fluidized Beds (CFB),
Pulverized Coal (PC) and stocker technology. The new RUPTL identifies 18,895 MW capacity of
coal-fired pow er plants located in 52 locations that have the potential for co-firing, and if all w ere in
commercial operation, this w ould generate 2.7 Gw of electricity from renew able energy and require
up to 14 million tons of biomass fuel per annum.

PLN's RUPTL presentation reveals that it has implemented co-firing pilot projects at 32 existing
coal-fired pow er plants using 5% biomass fuel. To achieve the target for 23% renew able energy by
2025, co-firing is planned by w ay of mixing coal w ith 10% - 20% biomass fuel, and the design of
new coal-fired pow er plants that are planned to operate after 2025 must enable them to use a
minimum of 30% biomass fuel.

This new plan is not w ithout challenge, as it requires security of biomass supply, stable biomass
prices, and additional investment costs. PLN seems to be looking for regulatory and policy support
from the Government to maintain such biomass fuel supply and competitive tariffs to make the plan
w ork. It remains to be seen to w hat degree this support w ill be forthcoming.

If these requirements are passed onto coal-fired pow er plants developed by IPPs, the PPAs w ill
need to be adjusted to address, among other things, the procurement of biomass fuel supply and
heat rate differences betw een coal and biomass fuel. This is because, in a typical coal fired PPA,
fuel costs are passed through to PLN, but are subject to a specific heat rate guarantee, such that
the fuel cost paid by PLN as component C is reduced if there are heat rate inefficiencies.

2. Retiring aging coal-fired pow er plants starting from 2030

In July 2021, PLN stated that it w ould phase out all its coal-fired pow er plants by 2056 in order to
achieve net zero emission by 2060. PLN said it w ould start low ering coal-fired pow er plant capacity
portion in 2021, retiring coal fired pow er plants by 2030, developing nuclear pow er plants by 2040,
and finally retiring all coal-fired pow er plants by 2056. There w as also a discussion on an alternative
scenario w here coal-fired pow er plants w ould remain in operation, but w ould use enhanced carbon
capture technology.

The new RUPTL includes a short description of PLN's plan for retiring aging coal-fired pow er plants.
How ever, it does not set a target for the retirement of all coal-fired pow er plants by 2056 nor does it
include nuclear pow er development by 2040 (although it does mention small modular reactor
nuclear pow er projects as an option and identifies several locations that have potential for nuclear
pow er projects).It does mention that the retirement of aging coal-fired pow er plants w ill be done in
stages, starting from 2030. How ever, this w ill be subject to a number of f actors, including the term
of the PPA and the economic life of the relevant pow er plants. This w ill be implemented by
monetizing the coal-fired pow er plants.

The new RUPTL provides an example of w hat monetization might mean. This includes the sale of
PLN's coal-fired pow er plants to the private sector in order to free up PLN's revenues to develop
renew able energy pow er plants. There is no further explanation of w hether the pow er plants w ill be
sold on the basis that they are still capable of running so that the purchaser w ill still be able to use
the pow er plants for its ow n pow er generation. How ever, if that is the case then, w hile this w ould
seem to support PLN's plan to achieve its net zero emissions target, this w ill still make it challenging
for Indonesia to achieve its target, unless the pow er plants are sold to the purchasers on the
condition that they w ill cease to operate by 2060.

More significantly, it w ill be interesting to see w hat the market's appetite w ill be for aging coal-fired
pow er plants, particularly given increasingly tightening market conditions for coal financing.

Other matters
 Conversion of diesel pow er plants

One of the programs that PLN w ill carry out to achieve the 23% renew able energy mix target by 2025 is
to convert its existing 5,200 units of small-scale diesel pow er plants (scattered in 2,130 locations) into
renew able energy based and gas-fired pow er plants. This program w as initially launched in November
2020 and is now included in the RUPTL.
 The program w ill be carried out in three phases from 2021 to 2026. The first phase is to convert
approximately 225 MW capacity of diesel pow er plants that have been operating for more than 15
years, located in 200 isolated locations, into solar and battery storage pow er plants w ith a total size of
around 660 MW. The second phase is to convert diesel pow er plants w ith a total capacity of around
2,000 MW to gas fired pow er plants or renew able energy pow er plants. The third phase is to connect
isolated or off-grid systems to the grid.

 Transmission

Similar to the previous RUPTL, the new RUPTL opens opportunities for private developers to develop
transmission projects under a build lease transfer (BLT), build ow n operate (BOT) or pow er w heeling
scheme.

Under a BOT or BLT scenario, transmission lines are developed and funded by private developers,
including for the land acquisition and the right of w ay, and PLN w ill pay for the lease of the transmission
assets, and after a certain period the transmission assets w ill be transferred to PLN.

In a pow er w heeling scheme, the context remains that private developers w ill develop, fund, operate
and ow n the transmission lines, and PLN w ill pay a fee to the developer to deliver electricity from PLN's
pow er plants to PLN's customers.

Although the option of utilizing PLN's transmission lines by entering into pow er w heeling schemes has
theoretically been open for some time now , unfortunately, the new RUPTL does not discuss this in
detail. This needs further clarification. As the market understands it, pow er w heeling using PLN's
transmission systems could potentially accelerate the grow th of renew able energy based corporate
PPAs by the private sector, w hich w ould help Indonesia to achieve its emissions reduction target.

 Smart grid and electric vehicle and rooftop solar

The new RUPTL includes PLN's plans in respect of smart grid, electric vehicle and rooftop solar
projects.

A smart grid is a pow er grid system equipped w ith advanced technology to enable the more efficient
control of energy in the grid system and to provide predictive information and real-time availability
conditions for pow er plants connected to the grid. PLN's smart grid roadmap for 2021 - 2025 includes
the digitalization of pow er plants, automation of transmission and distribution substations and
implementation of advanced metering infrastructure technology in stages. For 2016 and beyond, PLN
plans to, among other things, upgrade the SCADA system to Wide Area Monitoring system and
implement dynamic line rating.

With respect to electric vehicles, PLN's main role, in addition to providing electricity, is to provide the
infrastructure needed for charging stations for cars (SPKLU) and motorcycles (SPLU). By 2019, 7,194
SPLU units had been built in 3,348 locations. PLN estimates that the electric vehicle population w ill
increase to 38,491 units in 2024 and the average energy needed w ill be around 99.3 GWh.
Unfortunately, the new RUPTL does not provide further detail on how many SPKLUs w ill be built and
the proposed target locations. It does how ever, emphasize the need for a road map for charging
stations infrastructure and to strengthen the grid to cater for charging electric vehicles at home.

The development of rooftop solar photovoltaic projects continues to be part of PLN's business plan. As
w ith the 2019 - 2028 RUPTL, PLN provides support to rooftop solar photovoltaic projects such as
providing parallel operation facilities, creating billing systems to accommodate export and import of
electricity and by providing reserve margin to balance solar photovoltaic intermittency. Nevertheless, in
the new RUPTL PLN identifies several challenges to rooftop solar development. These include the lack
of readiness of a number of PLN systems to accept renew able energy (due to oversupply and
decreased demands), and increased PLN operating costs as it now has to prepare buffer pow er plants
and invest in automatic generation control and dispatch.

Closing
The new RUPTL opens up significant new opportunities for investors, financiers, suppliers, service
providers and other stakeholders to participate in Indonesian green pow er projects in the next 10 years;
hopefully, this w ill speed up Indonesia's energy transition tow ards net zero.

In order to ensure the success of the goals set out in the RUPTL, it w ill be important to have an ecosystem
of regulations and policies that facilitates investment, bankable pow er purchase agreements, and
continuous support from domestic and overseas financial institutions.