Indonesia’s Coal Price Cap

This policy brief reviews the impacts of the coal price cap on renewable energy deployment and discusses whether it is possible to sustain PLN’s finances without adversely affecting the integration of renewables into the power system. [...] Capping the coal price effectively reduces the cost of coal bought by PLN and the profitability of mining companies. [...] In addition to the subsidy to consumers, market price support creates further costs to the system as a whole, due to the economic inefficiency caused by moving away from the supply and demand equilibrium. [...] As of the end of 2018, the coal price cap is the largest subsidy to the power industry in Indonesia and is fundamentally changing the economics of coal electricity production. [...] Given that PLN will consume around 93.2 million tonnes of coal in 2018 and a maximum of 100 million tonnes in 2019, the total value of the policy to PLN will be USD 1.27 billion in 2018 and USD 1.79 billion in 2019.1 In addition to the estimate produced by the IISD/GSI there are a number of other estimates of the costs saved by PLN as a consequence of the price cap policy for coal.