The Geothermal Electricity Price Has Not Been Determined

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Until now, geothermal development has not even reached half of the target that has been set. The trigger is the determination of geothermal electricity tariffs which are considered too high, causing problems in determining electricity rates by PLN and the developer.

The Directorate General of New, Renewable Energy and Energy Conservation of the Ministry of Energy and Mineral Resources has set a target for the Electricity Supply Business Plan (RUPTL) in 2025 of 6,310 MW for geothermal.

Geothermal utilization in Indonesia is only around 2,130 MW or about 8.7% of the total geothermal potential of around 24 GW.

For comparison, the price of PLTP electricity ranges from US$ 7 – 13 cents per kWh, while for energy sources from coal it ranges from US$ 3 – 5 cents per kWh.

The government has actually set the tariff for geothermal electricity through the Minister of Energy and Mineral Resources Regulation No. 17/2014 concerning the Purchase of Electricity from PLTP and Geothermal Steam for PLTP by PLN.

The tariff scheme in the regulation is in the form of the highest benchmark price. The purpose of this policy is to provide certainty to PLN and the developer regarding electricity tariffs produced by geothermal energy.

However, despite these regulations, the conditions for geothermal development have not improved.

If you look at the market structure of electricity supply, the market structure is a monopsony market with one single buyer, namely PLN. Meanwhile, the seller consists of many sources of electrical energy derived from fossils and renewable energy, one of which is geothermal.

In this monopsony market, PLN as the sole buyer will have the power to determine the price. Consequences in the market
In this monopsony, buyers will buy an item at a price and quantity below the equilibrium of a perfectly competitive market, causing inefficiency.

According to data from the Directorate General of EBTKE through its official website, in 2016 there was an amendment to the geothermal contract for PLTP, namely PLTP Kamojang for US$ 6 – 9.4 cents per kWh for units 1, 2, and 3. Then PLTP Lahendong units 1, 2, 3, and 4 with a contract value of 6 cents per kWh.

If it returns to the highest benchmark price in 2016, the tariff should be in the range of US$ 12.2 for WKP I, US$ 17.6 for WKP II, and US$ 25.8 for WKP III. The price agreed by PLN and the developer is below the terms.

Furthermore, in the draft EBT policy that is being drafted by the government, even though in Article 40 of the draft EBT Bill, PLN is required to buy electricity from EBT, the government should no longer set geothermal electricity tariffs with a fixed price scheme.

The reason is that firstly, this can burden one party, namely PLN and the developer if the price is deemed too high and too low.