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PLN in Indonesia seeks to renegotiate contracts with IPPs in light of covid-19

Darajat Unit I owned by Indonesia Power (a PLN subsidiary) with steam supplied by Chevron (source: wienblog-growingtree/ blogspot)
Alexander Richter 11 May 2020

Announced plans by PT PLN in Indonesia to seeking a renegotiation of power purchase agreements with independent power producers, are seen as critical and hard to implement due to contractual penalties imposed.

According to Pabum News in Indonesia, state-utility PT PLN (Persero) has announced plans “to renegotiate contracts with the IPP (Independent Power Producer) or private electricity developers to avoid losses due to the corona pandemic, has received attention from various parties.

As is known, the renegotiation plan with IPP will be carried out by PLN because there is a decrease in electricity consumption in a number of areas which impact on the excess electricity supply.

But really? What about electricity consumption from geothermal power plants?

General Chairperson of the Indonesian Geothermal Association (API) Prijandaru Effendi stated, until now the absorption of electricity from PLTP has not been affected by the Covid-19 pandemic. This means that there is no significant reduction in electricity consumption from geothermal energy.

But Prijandaru admitted, if this pandemic lasts even longer, the potential for reduced electricity absorption from PLTP will exist.

Regarding PLN’s plan to renegotiate contracts, Prijandaru said, PLTP has a long-term contract that has been agreed with PLN using the Take or Pay (TO) system. With this system, PLN is required to absorb electricity from PLTP with the capacity stated in the PPA. If PLN purchases is below that capacity, it will incur TOP fines.

“PLN is paying according to the agreed take or pay level. That is, the terms and conditions were agreed at the beginning, “said Prijandaru.

Meanwhile, Executive Director of the Institute for Essential Service Reform (IESR) Fabby Tumiwa stated, PLN should renegotiate with a fossil-based IPP. Because, in terms of fossil-based generating capacity the amount is far greater than EBT-based IPP.

“I hope PLN does not renegotiate contracts with clean power plants,” Fabby explained, in late April 2020.

Fabby added, if PLN buys below capacity according to PPA, then the biggest potential penalty will come from fossil-based IPPs related to the TOP system contract.

In addition, said Fabby, if PLN renegotiated with clean energy IPP, it was feared that it would disrupt the achievement of the determined energy mix target.

“PLN is obliged to reach the target of 23% mix in 2025,” he said.”

Source: Panas Bumi News