ENERGY NEWS
Blackouts
Portend A Long, Dark Javanese Summer
Summary: A series of rolling blackouts in East Java and
Bali last month has renewed long-standing concerns over the
reliability of Indonesia's electricity supply. Technical and
weather-related problems at four power plants reduced the Java-Bali
energy grid's reserves to zero on five occasions during one two-week
stretch. Amid public outcry, the Energy Ministry has ordered an audit
into state electric utility PLN's maintenance practices and is looking
for short-term fixes. With no new power generation coming on line this
year, transmission difficulties, and a declining gas supply for power,
industry watchers expect more blackouts as the dry season progresses.
This is in line with our earlier predictions of increasing power
outages on Java by 2003. The result will be further delays in
Indonesia's overall economic recovery, possibly to the end of this
decade. End summary.
Weather, Maintenance Problems Affect Power Supply
The blackouts occurred during peak-load periods the week of May
26, when problems at four Java power plants caused the actual power
capacity on the grid to drop 600-900 megawatts (MW). Heavy rains and
landslides near the 165 MW Salak geothermal power plant in West Java
temporarily affected the plant's 150 kV transmission system, as well
as the steam gathering system. The other three plants (Gresik, Muara
Tawar and Tanjung Priok combined-cycle gas power plants) suffered from
technical problems caused by using diesel oil instead of gas. Although
PLN has not released details, several of our sources also blamed
chronic poor maintenance at the PLN-operated units.
The public and the government reacted swiftly to the power outages.
The Working Group on Power Sector Restructuring (WG-PSR) blamed PLN
management for failing to properly maintain its facilities and urged
the government to conduct an independent investigation. It also called
upon the parliament to hold public hearings. Energy Ministry Purnomo
summoned PLN director Eddie Widiono on May 29; a few days later, the
Minister announced that the government would form a special team to
study the condition of all PLN-operated power plants. A beleaguered
Widiono admitted the actual power reserve margin was only between five
and ten percent, but promised that capacity would improve beginning in
June once the affected power plants returned to full operations.
Power Reserve Margin is Dangerously Thin
4. Widiono's admission marks a departure from standard PLN
rhetoric. For months, the utility has insisted the reserve margin
stood between 25 and 30 percent. It based this calculation on the
Java-Bali grid's total installed capacity of 18,610 MW and an average
peak load of 13,300 MW. However, PLN now acknowledges that as much as
3,500 MW of installed capacity is regularly down due to maintenance.
By subtracting an additional 1060 MW in stranded capacity from East
Java, the normal reserve margin is a dangerously thin six- percent.
(Note: Bottlenecks on the southern transmission line in East Java
limit some power from reaching customers in Central and West Java.
Upgrades to the southern line are in progress, but will not be
completed until late 2004.)
No New Power Coming On Line This Year
The power situation is unlikely to improve soon. There will be no
new power generation in Java-Bali (which accounts for 80 percent of
total national demand) this year. Ongoing financial issues mean the
oft-delayed Tanjung Jati B coal-fired power plant in Central Java
(1320 MW) will not come on line until at least 2006. In West Java,
construction has yet to begin on an 850 MW expansion to the Muara
Tawar gas-fired plant, while a JBIC-funded expansion of the Muara
Karang gas-fired plant is still under discussion. There will be a
small increase in capacity in mid-2004, when the 145 MW Pemaron gas
and steam plant comes on line in Bali. However, with power demand
growing at 8-10 percent per year, Java-Bali needs new generation of
1200 MW/year (one Tanjung Jati B every 12 months) just to keep pace
with demand.
Natural Gas Solutions Prove Elusive
Natural gas supply and distribution problems also contribute to the
growing power shortage. While Indonesia has abundant natural gas
reserves, poor planning has resulted in inadequate supplies at the
plants. Gas-fired plants account for about 24 percent of total power
generation (4,417 MW) in Indonesia. However, five combined cycle gas
turbine plants (about 3900 MW) are now running on more costly diesel
oil. This is the case at the Gresik and Grati power plants in East
Java, for example. Declining gas production at BP's Kangean gas field,
where output is down by more than 60 percent to 180 million cubic feet
per day (mmcfd), has forced both plants to shift from gas to diesel.
Not only is this costly, but diesel oil use requires more frequent
maintenance than gas and shortens the lifespan of the plant.
A long-term gas solution for Java is within reach, but the
government has been slow to act. In East Java, BP and ExxonMobil are
in protracted negotiations with state-owned Pertamina to extend their
contracts at the Kangean and Cepu fields, respectively. BP believes it
could increase gas production another 300 mmcfd by 2006, while
ExxonMobil's Cepu field contains significant gas reserves and could
begin producing as early as 2005. However, these talks remain stalled.
In West Java, PLN will supply its gas-fired plants through an
agreement with ConocoPhilips to provide South Sumatra gas.
Unfortunately, the pipeline to supply the gas will not be completed
until 2006 or 2007.
Looking for Short-Term Solutions
One short-term solution the government is considering is to
purchase captive power from private companies. Indonesia has large
captive power reserves; estimates range from 7,000 to 10,000 MW.
(Note: during the 1990's, many companies decided to generate their own
power because the national energy supply was unreliable.) One industry
source told us PLN could buy as much as 1000 MW in this manner, enough
to ensure supply during peak load periods. Another solution is simply
better demand management - provide incentives for consumers to reduce
demand or shift demand to non-peak periods. One independent power
producer told us a common example is the interruptible power contract
- an agreement with large industrial consumers to "shed
load" on demand. (Note: demand management will become even more
critical as the summer dry season progresses and traditional peak-load
power sources, e.g., hydropower, have reduced capacity.)
Comment
Indonesia is paying the price for years of neglect in the power
sector. By failing to address the long-term health of the power
industry after the fallout of the Asian monetary crisis, the country
now faces a potentially serious threat to economic productivity. The
GOI has taken some positive steps - renegotiating price agreements
with independent power producers and making good progress on raising
electricity tariffs. The next steps -- fixing transmission, supply and
efficiency problems and attracting foreign energy investment - will be
crucial to keep the current power shortages under control. We expect
the situation will get worse before it can get better. We do not
realistically expect action in these areas until after the 2004
election, and then it will take at least years to get additional
supplies on line. This in turn will significantly delay Indonesia's
overall economic recovery.
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