Captive Power: A Solution For Reliable Energy In Indonesia’s Industrial Estates

Industrial estates are considered as one of the key drivers of economic growth, typically refers to designated areas established specifically to harbor industrial activities. According to a report issued by Asia-focused management consulting firm Solidiance, titled “Indonesia’s Green Industrial Estates and Best Practices”, there are more than 60 major industrial estates that exist in Indonesia today with land size of 27,000 ha.

Due to the nature of land size in Industrial estates, power supply is used up at an alarming rate, which ultimately results in higher costs. To optimize power, facilities in industrial estates are now looking into captive power, whereby power generation is used and managed by a firm for their own energy consumption.

Captive power plants can be divided into two subcategories: first, those that are built to supply power to many companies, such as in industrial estates or can be referred to Private Power Utilities, and second, a backup generator set which is built if other power sources fail.

Captive power may prove to be beneficial to the private sector. According to Sanny Iskandar, the chairman of the Indonesian Industrial Estates Association, or HKI, manufacturing companies are to be located inside industrial estates, following a mandate made by the government. Moreover, it is essential that manufacturing firms look after tenants’ needs, such as water and electricity.

Sanny notes that the lack of reliable and universally available power remains a setback to achieving a competitive landscape, in which Indonesia is currently pushing towards. This includes blackouts and the low availability of electrical power in a particular area, where many estates are still experiencing to this present day, and may cost manufacturing businesses as much as USD 415 million annually in key manufacturing sectors.

Tenants whose activities are particularly power-sensitive require a higher level of service quality than what the standard is today. And for this reason, a reliable power supply is needed to help attract tenants.

Minister of Industry Saleh Husin said a key policy called RIPIN targets to add 9,000 new large and medium industrial firms, with half outside Java as well as 20,000 small industrial firms. The country currently needs an additional 70.5 gigawatts of additional generating capacity from 2015-2024 in order to achieve the growth.

As a large investment is required to meet this need, the Indonesian government has already invited the private sector to participate by encouraging independent power producers to sell to PLN or to other industrial players.

PLN and the private sector will need to work together to identify and develop key opportunities for electrical power investment in industrial estates and special economic zones, with the ultimate objective to drive economic activity across Indonesia.

The government and PLN have made progress for the 35-gigawatt program. However, investment still lags demand growth. Manufacturers are racing against time to take advantage of opportunities present in Indonesia’s industrial estates, particularly outside Java. With the rising middle-income class in the country, industries are moving towards more value added and manufacturing activities.

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