Widespread outages hit Indonesia after mining quotas cut
Power failures this summer have exposed vulnerabilities in Indonesia’s coal-dependent electricity system after mining quotas were cut.
One of the world’s largest coal producers has faced a wave of power outages this summer, leaving households and businesses across the largest economy in Southeast Asia without reliable electricity.
Businesses across the Indonesian archipelago were among the worst hit, in a country where about two thirds of electricity generation still comes from fossil fuels. The disruptions have underscored vulnerabilities in a system that depends heavily on coal-fired plants.
Government pressure and production limits
President Prabowo Subianto has urged the Ministry of Energy and the state electricity company PLN to speed up solutions in affected regions. The trouble began after Indonesia reduced its coal mining quotas from 790 to 600 million tons last year in an effort to lift market prices. Higher costs linked to the war in Iran have also contributed to the drop in output.
Producers have tried to increase coal shipments to ease the shortfall, but gains have been limited. At the heart of the problem are long-standing domestic market obligations (DMO) first introduced in 2009. Under those rules, miners must sell 25 percent of their output to domestic customers at a capped price of $70 (118 KM) per ton, a level set in 2018 and well below current market rates.
Because the gap between the capped price and international prices is so large, for many producers it has become more profitable to pay penalties for non-compliance than to supply coal locally at the regulated price. The shortage has hit small businesses hardest; many lack backup generators. "The Indonesian energy sector is still heavily dependent on coal, despite the abundant potential of renewable energy sources. Increasing the use of solar, wind and hydropower would strengthen long-term energy security," said Yusuf Kresna, an analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).
Representatives of a miners’ experts association say the quota cuts, together with differences in coal price and quality, are the main drivers of the outages and that structural problems reducing miners’ profitability must be addressed. PLN has previously rejected the claim that a coal shortage caused the blackouts, citing technical issues and repairs at power plants in Java and Kalimantan. The government has said it will consider revising the coal price cap. Global coal consumption has meanwhile reached record levels.
Photo: МИА
