A bleaker outlook for the Indonesian economy has led us to revise down our power forecastfor the country. However, we note that Indonesia’s power sector is still very attractive especially over thelong term, owing to its economic fundamentals and increasing electrification rates. We expect growth tocome mainly from the coal and geothermal power sectors as the country has significant reserves, andexploitation will be economical relative to other sources of generation. The country will also have toincrease the share of coal produced for local uses in order to meet its coal-fired generation needs.
We forecast power generation in Indonesia to grow by 7.9% over 2012, down from our previous forecastof 8.0%. This slight revision down is attributable to our bleaker economic outlook for the near term. Weexpect thermal generation to grow by 8.1% from 2011, comprising mainly of 9.8% growth in coalgeneration. Non-hydropower generation is set to grow by 10.8% in 2012, as a number of geothermal andwind projects come online.
Over the period 2012-2021, we forecast power generation in Indonesia to grow an average of 7.4% perannum. This modest figure reflects our positive outlook for the country’s power sector, which we base onthe Indonesia’s solid economic fundamentals and improving electrification rates. We believe that growthwill be propelled primarily by coal-fired generation and non-hydropower generation, as the governmentseeks to reduce the country’s reliance on oil-based generation.
Key trends and developments in the Indonesian electricity market:
The government held off increasing electricity prices for consumers in April 2012, due to strongpublic opposition. This means that the country will have to continue subsidising electricity forthe near future, as the average cost of generation still exceeds the electricity price.
State utility PLN has announced its intention to acquire coal mines, due to the strong historicaland forecasted growth in coal consumption. Its subsidiary, PLN Batubara, will performacquisitions with an expected budget of INR10trn (US$1.05bn) to finance acquisitions of entiremines or strategic stakes.
The feed-in tariff for geothermal energy was raised in July 2012. As a result, we believe thatprivate producers will be more interested in the sector, but that there is still room for furthertariff increases.
Industry reports suggest that Indonesia holds up to 76 gigawatts of hydropower potential, but thecountry has yet to embark on the large hydroelectric programmes seen elsewhere in the AsiaPacific region. The capital costs involved have most likely deterred investors who prefer to stickwith conventional thermal schemes or embrace geothermal supply.