Indonesia’s ambition to grow its economy through electrification will require an energy boost, and as a result, long-term grid investment. Recent analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) suggests reforming how the country finances its transmission business can lower costs.
Specifically, the think tank recommends structural changes to the transmission business of national electricity utility firm PT Perusahaan Listrik Negara (PLN), arguing that current institutional and financing frameworks are not designed to deliver investment at the required scale or pace.
The entity’s balance sheet currently consolidates its transmission business with activities such as electricity generation and supply, which IEEFA’s analysts say are subject to different risks and policy obligations, such as fuel price volatility, foreign exchange exposure and long-term power purchase commitments.
IEEFA’s energy finance specialist for Indonesia, Randi Bachtiar and strategic finance advisor Grant Hauber stated that integrating the transmission business with PLN’s corporate balance sheet has caused the company to pay a high-risk cost of capital for what is one of the lowest-risk segments of the power system.
This has resulted in misalignment with the country’s energy transition goals and higher financing costs, obscuring true economic potential of upgrading grid infrastructure.
Eco-Business has reached out to PLN for comment.
IEEFA suggested that one way PLN could improve transparency and accountability to raise capital for future transmission plans is to establish a ring-fenced transmission subholding within the company. This would enable the utility to clearly define transmission assets, costs and revenues.
A ring-fenced entity that reports to PLN will maintain the business as a regulated monopoly under state ownership, consistent with Indonesia’s Electricity Law. It will not imply privatisation, market liberalisation or constitutional unbundling, said IEEFA’s analysts.
Case studies analysed by IEEFA from India and Vietnam show how reformed corporate structures consistently raise substantial capital through diverse sources and eliminate their reliance on public budget allocations.
They demonstrate that regulated, state-owned transmission can be both financially and commercially viable.
