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Power Wheeling Schemes for Renewable Energy Transition

This article was published on koran.tempo.co on 19 August 2020.

For six months now, the world has been navigating through the COVID-19 pandemic. Indonesia is no exception. It is obvious that the pandemic is putting immense pressure on our economy. International organizations such as the World Bank, the United Nations, and the International Monetary Fund have called on countries to address the climate crisis in their long-term response to the COVID-19 pandemic. Failure to address climate crisis in our response today will result in lasting negative impact on Indonesia’s economy and public welfare.

One of the main contributors to climate crisis is the energy sector, which according to the data of World Resources Institute (WRI) generates 73 percent of the world’s greenhouse gas emission. Pollutants from fuel combustion in fossil fuel power stations, including carbon monoxide (CO) and sulfur dioxide (SO2), are harmful for human and environmental health. The transition of energy management from fossil fuel to renewable energy must be a priority.

Demand from companies and the industry sector, which makes up 32 percent of electricity consumption in Indonesia, can play a great role in the transition to renewable energy. Many multinational companies in the world, including those operating in Indonesia, have targeted to reduce greenhouse gas emission. More than 240 global companies under RE100 have committed to using renewable energy to power their facilities. Unfortunately, Indonesian companies still have limited renewable energy options to power their facilities and supply chains.

An option for companies that is available right now is to install an on-site renewable energy generator such as a rooftop solar panel or an off-grid captive power plant. The latter poses a unique challenge however, as renewable energy sources are rarely found around companies’ operational facilities, especially in Java. A mechanism to accommodate power wheeling, the direct transfer of power from renewable energy sources to the company’s operational facility, needs to be developed.

The power-wheeling scheme is not new. It has been used by many countries such as the United States, Germany, Japan and the Philippines in their energy sector reform towards renewable energy (JICA,2016). In Indonesia, basic regulations on power wheeling have been stipulated under MEMR Regulation No. 1 of 2015 on Cooperation for Electricity Supply and Joint Utilization of Electrical Grid. However, many challenges remain.

First, this scheme uses the business model of electricity transfer to Operation Permit holder for self supply. This is possible for companies that have the means to construct their own power plant, regardless of the facility’s distance from the company. Another business model is power purchase between a private power plant and a Power Supply Business Permit (IUPTL) in a different concession area. However, the private sector finds it difficult to obtain a concession as most concession areas are under the jurisdiction of the state electricity company (PLN), while only one concession is permitted in one area.

Because of the limitations that come with this business model, the renewable energy transfer to private facility may not be able to reach the desired rate. Meanwhile, this scheme brings the flexibility of direct transaction for the private sector, which is needed to increase renewable energy development in the large scale by allowing the private sector to supply renewable energy supply and maintain electricity supply and tariffs. In response to this challenge, PLN needs to transform its business paradigm to allow for extensive implementation of the power-wheeling scheme, covering plant construction planning, system operation and customer target.

Second, the MEMR Regulation does not provide any details on the scheme, including the level of involvement of different stakeholders and technical guidelines on grid-leasing fees. The first step to optimize the available business model is for PLN to issue a technical guideline on transmission and distribution grid leasing fees formulation as well as standard technical procedure for the implementation of joint utilization of electrical grid. The Ministry of Energy must also actively participate by ensuring transparency and fairness concerning grid-leasing fees to provide a sense of security for both PLN and the consumers.

In discussions with a number of companies, the authors found that access to renewable energy has become one of the determining factors in foreign investment decisions. Neighboring countries such as Vietnam and the Philippines have taken strategic measures to facilitate industries in achieving sustainability, including the implementation of the power-wheeling scheme. Sooner or later, Indonesia must make the decision to push the transition toward renewable energy to secure foreign investment.

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