TEMPO.CO, Jakarta - DEBATE around the pricing of new and renewable energy (EBT) supplies ought not to have become so contentious if the government from the outset had been serious about drafting a rate formulation which is attractive to investors. The current protracted tug-of-war has instead obstructed the growth of environmentally friendly energy in Indonesia.

As of last week, the Ministry of Energy and Mineral Resources renegotiation with EBT electricity providers was still ongoing. The government insists the selling price of electricity must be set no higher than 85 percent of its basic cost of production. Businesses find this very burdensome.

The State Electricity Company (PLN) claims the signing to date of power purchase agreements covering 1,189 megawatts is proof that any renegotiation is unnecessary. In reality, most of these projects are at a standstill. In other words, although the PLN reference price has been revised several times, it remains unattractive for private-sector electricity providers.

It is time for the government to draft another strategy. A scheme offering incentives for renewable energy producers could be one such alternative. In other countries, this stimulus may take the form of a reduction in taxes and import duties, provision of free power station sites, as well as reductions in interest rates on loans. Such incentives successfully reduced the selling price of electricity in the United Arab Emirates, for instance, to under US$0.5 per kilowatt-hour (kWh).

Improvements must not just stop there. The business model used for the construction of power stations by private sector producers needs fundamental restructuring. To date, the PLN remains the only purchaser of electricity in Indonesia. This monopoly leaves a crack open for moral hazard to slip through because the government-owned company is then free to set highly profitable prices. As a result, only those private sector producers with strong connections to the authorities are able to get proper pricing.

The government should already have reworked this business model that still provides opportunities for such agreements under the table. To avoid this PLN monopoly, private sector producers ought to be allowed to sell power directly to consumers.

Law No. 30/2009 on Electrical Power Supplies does allow for the possibility of just such a breakthrough move. Its Article 11 states: if the State is ever unable to meet the demand for electricity, the government may then allow the private sector to sell electricity to consumers. The pre-condition is that the electricity producers must first obtain regional business licenses, as nominated by the government.

Government Regulation No. 14/2012 on Business Activities for the Provision of Electrical Power also allows a scheme for leasing out PLN’s transmission and distribution network, with the rental price to be approved by the Minister of Energy. Similar business models are widely adopted in other countries, but not yet in Indonesia. To date, the PLN has been reluctant to provide private sector producers with any opportunity to use its transmission network.

Consequently, it is only to be expected that the growth of environmentally friendly energy supplies in Indonesia still lags far behind that in other nations. At the end of last year, the percentage of renewable energy here was just 7.7 percent of the total energy produced, markedly lower than Malaysia, where it was 11.64 percent.

The government cannot be half-hearted in its support for the environmentally friendly energy program. Global warming and climate change are clear and present threats to us all. Without a more profitable business scheme on offer, the government’s ambition to pursue a target of a renewable energy mix of 23 percent by 2025 is likely to remain only wishful thinking.

Read the full article in this week's edition of Tempo English Magazine