Target EBT Subsidy Increases, PLN Projects Government's Subsidy Burden to Rise by 104%

The Indonesian state electricity company (PLN) has outlined scenarios for increasing new and renewable energy (NRE) capacity in its Electricity Supply Business Plan (RUPTL) for the 2021-2030 period. To achieve its "low carbon" scenario, PLN plans to increase the NRE mix to 23% starting in 2025. This increase is projected to reduce carbon emissions by millions of tons. However, the government's electricity compensation and subsidy costs will rise significantly. PLN projects that without an increase in the NRE portion, average electricity compensation and subsidies will be Rp91.15 trillion per year (2021-2024). With the addition of the NRE portion to 23%, projected compensation and subsidies will increase by approximately 104% to an average of Rp185.77 trillion per year (2025-2030).

Electricity Tariffs Assumed Unchanged

According to PLN, compensation and subsidies are projected to increase because the basic cost of electricity provision (BPP) will rise, while average electricity tariffs are assumed to remain unchanged. In the RUPTL 2021-2030, PLN projects that the BPP will increase from an average of Rp1,445/kWh (2021-2024) to Rp1,637/kWh (2025-2030). On the other hand, the average electricity tariff is assumed to remain unchanged at Rp1,127/kWh (2021-2030).

PLN believes that the significant need for compensation and subsidies could increase its reliance on loans. Therefore, PLN recommends a government-mandated electricity tariff increase to reduce annual compensation and subsidies. "Compensation" refers to payments made by the government to PLN to cover the higher basic cost of electricity provision (BPP) compared to the selling price of electricity for all tariff categories. "Subsidies" are payments made by the government to PLN so that low-income or vulnerable groups can purchase electricity at a price lower than the set tariff.