Communicating Complexity in Indonesia’s Electricity Economics and
Market Development Using System Dynamics Based Game
Akhmad Hidayatno » Armand Omar Moeis', Nuzul Achjar’, Aziiz Sutrisno '*
' Department of Industrial Engineering, Faculty of Engineering, University of Indonesia
2 Institutes for Economic and Social Research, Faculty of Economics, University of Indonesia
5 European Master Program in System Dynamics, University of Bergen
E-mail: akhmad@ eng.ui.ac.id, aziiz.sutrisno@ ui.ac.id
Abstracts
Fast growing electricity demand in Indonesia has threatened country’s economic development pace.
However, government owned Electricity Company cannot cope with this growing demand. As a result
they rely on Independent Power Producer (IPP) which harm government budget. In the mean time,
government realizes this growing issue and tries to do something by building more power plants. On the
other hand, their plan on building new coal and oil based power plant is meeting a lot of resistance from
NGO and parliament. On top of it, government cannot afford continue funding electricity from IPP. The
situation is increasingly become worse if government does nothing about the issue. Therefore,
understanding and smooth communication is needed to provide solution for the issue. A system dynamics
based game is built to foster communication between stakeholders, in order to help them visualize
dynamics and feedback loop inside Indonesia’s electricity system. In the first development phase the game
tested on group of students and showed good result on improving their understanding on current
electricity issues.
Keywords: Communication, Electricity, System Dynamics, Game
Introduction
Known as one of the fastest growing economic nation in past 10 years, Indonesia final energy
consumption has nearly touched 150% increase as the consequences of economic growth. With this
growth rate Indonesia is having trouble to fulfill all energy needs. Specifically, electricity demand has
become number the fastest growing energy form consumed in Indonesia; with more than 5% demand
increase and less than 1% increasing supply every year the Indonesian government vision on providing
electricity throughout Indonesia in 2020 is about threaten to happen[1]. The current condition is Indonesia
supply and demand ratio is only 1.05, it means that Indonesia only has 5 % of extra capacity for its
installed system. This number reflects instability in Indonesian electricity network. For example, if one
power plant which contributes 8% of all electricity is doing maintenance work then there is lack of supply
on the electricity which makes a blackout in some region. Nevertheless, this vast economic and industrial
development happens after recovery of 1997 economic crisis requires swift rising of electricity supply. In
which the fastest way to get enough electricity is by building more oil based power plant.
The building of new oil small and medium scale power plant initiated by private sectors
successfully create a temporary energy supply solution, it quickly fulfill new industrial and commercial
electricity demand flourishing all over Indonesia. The goverment follows the same path by converting
some of its gas and coal power plant in Java to oil based power plant in order to create fast electricity
supply. Especially after legislative pressure made in early 2008 as a result of occasional blackout in
greater Jakarta region which potentially harm Indonesian economics by 14000 USD every hour of
blackout in greater Jakarta region[2]. In fact, most of Indonesia electricity only concentrated in Java and
Bali Island which counts for more than 55% all the country’s demand, and having blackout in Java region
also cost a lot of political capital[3]. However, this government decision face predictable problem.
Indonesian government budget is bleeding after giving subsidy to buy oil to power the power plant. On
the other hand government with National Electricity Corporation (PLN) which regulates and manage
electricity business activity cannot increase electricity price. Since final electricity price to consumer is
regulated and they need to have legislative approval to change the price, while to get that approval will
take so much time and political effort{[4]. Consequently, Indonesian government also has to deal with
increasing oil price over time. On the contrary, Indonesia is also known as world main producer of coal
and natural gas. But then, energy mix structure of Indonesian primary energy still dominated by fuel
especially oil. Therefore, government tries to reduce oil dependency in electricity generation by also
building gas and geothermal power plant.
Building gas and geothermal power plant not only will solve Indonesian problem over lack of
electricity supply but also open up opportunity to new clean source of energy. However, these gas and
geothermal power plant is expensive and also takes longer time to build. In the mean time, government
proposed 10,000 mega Watt additional electricity supply and most of them is planned to be gas and coal
powered plant[5]. Nonetheless, gas and coal powered plant has its downside due to supply constraint of
its primary energy especially because Indonesia’s electricity activities is centralized which prone to
supply chain problems [6, 7]. Most of the primary energy excavated from Borneo Island while most of the
new big power plants would be initiated in Java Island. Therefore, PLN will face a lot of technical risk
constraints like seasonal condition of Java Sea to carry gas and coal from Bomeo to Java{8].
Nevertheless, big plants other than gas and coal in Indonesia also pose major technical problems. Big
plants like Cirata, Saguling and Jatiluhur which greatly contributes to Indonesia’s overall electricity
supply, is water powered and vulnerable to seasonal change. For example, in dry season these water
powered plant generation reduce up to 1,300 MW[9]. These factors add up complicate situation in
Indonesia’s electricity issues which compromise of the need of fast and vast capacity generation with low
cost and few major operational risks. However, government seems losing its direction on where to go in
order to solve the problem. Consequently, an instrument to increase understanding is needed to provide
vivid image of the problem and how to deal with it.
Dynamic Hypothesis
At present condition, growing Indonesia’s electricity demand with lack of supply growth
develops into major threat to support Indonesia’s economic and well being growth. With more and more
factories and commercial area building throughout the country the rate of demand shows a foremost shape
increase toward exponential growth. Moreover, Indonesia middle class number also rising causing
growing of electrical appliances usage per household. This condition leads to increasing domestic usage
of electricity which contributes for more than 30% of total electricity demand. With a prediction that
Indonesia’s middle income would be the biggest in the world no wonder that population sector will
always also be important variables to watch in electricity demand. Furthermore, increasing demand and
lack of supply grow in Indonesia’s electricity is shown on Figure 1 as main reference mode of the
problem.
in Thousands GWh
—— Demand
= = + Amount Supplied
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Figure 1 Reference mode of supply and demand in Indonesia's electricity market
As we can see in Figure 1the amount of electricity supplied by PLN is not even adequate to fulfill
electricity demand since 2004. In reality capacity installed in PLN power plan is enough to fulfill current
demand. However, several technical issues and unreliable maintenance scheduling make PLN power plant
produced far less than its actual installed capacity. Therefore, in order to satisfy current demand PLN
need to buy electricity from Independent Power Producer (IPP). This condition is troublesome for the
government, because Indonesia’s electricity price is still heavily subsidized that means increasing
electricity buying from other entities will make subsidy budget for electricity increasing. Moreover, IPP
uses oil based power generator to supply PLN needs. Therefore, government must buy electricity that
comes from world price based oil. This world price oil price is fluctuated consequently will make further
risk develop for government budget. In addition, recent to increasing oil price trends the electricity price
provided by IPP will also rising.
In 2008 Indonesian electricity subsidy was skyrocketing as a result of oil price spike, even the
amount of electricity generated and oil needed to support is less than what it takes on 2010 the value of
electricity is almost double like shown in figure. Therefore in Indonesian electricity planning world oil
price is one major factor to be included. With oil price increasing trends government afraid in the near
future cost of electricity subsidy will be more than 10% of governmental budget[10]. If this condition
occur many public services will need to be sacrifice or budget deficit will grow larger. As Figure 2 shows
how electricity subsidy is growing in the past 5 years.
ed 985,
2008, 2007 2008 2009 2010
GovemmentElecticty Susbsidy <= =AverageVeatly Oil Price Tend = Percentagoof Electcty Subsidy over Govemment Budget
Figure 2 Government Subsidy over electricity and oil price
Government realizes that they should do something in order to solve price and lack of supply
issue. But then, their current measure by increasing electricity price is rejected by national parliament.
The parliament thought that root cause problem of this issue is not low electricity price but PLN as
electricity provider is not efficient enough on providing electricity. Moreover, environmental NGO like
Wahana Lingkungan Hidup (Indonesian Environment NGO (WALHI)) rally a public refusal to tun down
government plan in building more coal power plant which is cheaper to build for government. More and
more actors involved in this issue make it more complicated and consequently current condition is not
improving nor getting anywhere.
Increasing understanding on electricity issues in Indonesia among stakeholders and actors
hopefully will bring better communication that leads to smart solution so solve electricity concern.
Therefore, in order to create better understanding this paper tried to propose usage of Electricity
Dynamics Game to clarify and visualize dynamics of current electricity situation. Nevertheless, by using
this game stakeholders will see different point of views and able to imagine other position to take account
into their decision making process. Figure 3 shows complexity of current Indonesian electricity issues, it
shows how government as problem owner has to deal with
Policy Options
Enerey Mix Tren asa) { Development
Policy Subsidy Electricity Price Serene
=
External == ‘Outcomes
Varables titers
b Ta pa snp tomate | abl ome
cp a 7 Indoneson Energy
(Wieser) =a aang
(cortaton IP P07, LT etecrcin LI supa [5 consumein &
Tale Generation Distribution (Demand) € Fulfilling electricity
5 emandvth
wer Z milla stiay
cnaley ana lows =
inca Costof Electricity Lana ah Costof
(__ Word % e
Regulations Coster efe We
Sey
;
Tecate
stakeholders
patiamens neey
lavestors,
Consumers
Figure 3 System and Actor Diagram of Current Electricity Issues
Model Development
The purpose of this model development is to communicate complexity for all actors and
stakeholders involved in Indonesian electricity issues. Therefore, model focus is on how to visualize
interaction of variables inside the system. Interaction in Indonesia electricity system can be narrowed
down into three big aspects. Which are: Primary energy mix and electricity generation, Electricity
consumption or demand and Electricity cost factor. Based on previous electricity dynamics model [11-15]
we develop locally adapted model in which will serve the purpose and condition in Indonesia. A Causal
Loop Diagram (CLD) is used to determine key framework of variables interaction inside the model.
———— Consumption Per.
‘
Hlecicity Demand Can
sidized Induced
‘Subs
Sapa
z Economic
Electricity Reserve Govemment Activites
ae "1 Goverment Subsidy
fe —__jp- Subsidy Cok ny Ss
Retirements — “ a
World O11Price
Capacity + Ey
Government
———__—- Investment Capability
Primary Energy
Suppy +
~S Energy Mix_¢
— Dwersty
Figure 4 Causal Loop Diagram for Indonesian Electricity Issue
Figure 4 show that government subsidy capacity plays key role in the entire system. Represented
as amount of money government can put for electricity subsidy per year affected both supply and demand
aspects. As seen above, increasing government subsidy capacity will make consumption per capita of
electricity increase due to low electricity price. Nevertheless, this condition is not favorable in long term
as demand rose will cause shortage of electricity and end up in government loss as a result of increasing
subsidy cost. On the other hand, reduces of government subsidy capacity will slowing down economic
activities which is not a flattering condition for other actors, especially those in industrial and commercial
sectors. Hence, that increasing energy mix diversity needs big government investment capability.
Moreover, significant delay on creating new power plant will be foremost obstacles to increase
capacity[16]. In addition, Figure 4 shows that world oil price does not have any direct impact toward
economic activities; this assumption is made as simplification for the mode, in this model economic
activities and consumer electricity demand solely affected by electricity price.
Next step of model development is to build model artefacts that consist of three main model
aspects.
1. Primary energy available and Electricity generation
This section tries to elaborate power producing capacity of average Indonesian power plant. The
power plants itself consist of different kind of primary energy which has their own risk and
specification. In this case five energy mix power plant is endorsed as these five power plants are:
Water power plant, Gas power plant, Diesel Oil power plant, Geothermal power plant. In this first
phase, the model aggregates each different energy mix power plant capacity. In addition, it elaborate
5 biggest water power plants; 48 coal power plants, 59 oil power plants, and 19 geothermal power
plants based on existing Indonesia’s condition.
The model would also elaborate power plant average common technical specification for power
producing and power distribution such as capacity factor, thermal efficiency and load factor.
Primary relation in this section shows that in power generation there are unique technical risks for
each different energy options. Moreover, there is delay in order to generate new power capacity, and
it cannot go to maximum power capacity. Risk variables created by coal supply constraint, oil supply
constraint and dry season constraint increase complexity in electricity model.
Moreover, the model also involved Independent Power Producer (IPP) as power source. Where
these IPP is seen as single big private identities that can serve all power deficit. A main characteristic
of this IPP is they produce electricity by using High Speed Diesel (HSD) oil. This is one of
government concern that using HSD means that they should buy oil from foreign entities using world
oil price which is fluctuate over time and adding government risk on increasing budget cost.
The IPP calculation only activate if there is government power generation deficit. However, as a
result and implementation of previous investment on new power plant capacities the whole system
capacity will increase over time. Therefore, IPP calculation would not be activating all the time
during the model depends on electricity demand.
Equation 1 shows base calculation of power generation.
Risk * Technical Specification + J Power Capacity dt + Technical Specification
Power Generation = (1)
+ Delay + J New Power capacity dt
2. Electricity consumption or demand
Electricity consumption and demand in this model is triggered by two major forces. Firstly, is the
natural electricity demand growth which came from increasing population and increasing natural
economic growth and secondly, demand triggered by electricity price change which a natural demand
multiplied by factor coefficient of electricity price change.
The main idea of electricity consumption is visualizing how low electricity price can be
somewhat dangerous to long term planning and condition of electricity itself. As government will not
have adequate resource to keep on racing with growing demand while having their budget on deep
deficit after financing heavy electricity subsidy. Excessive, electricity usage will lead country to
power deficit. In that case, an IPP is needed to fulfill all electricity demand. Buying electricity from
IPP is burden of central government which needs to pay for all excessive power gap from their budget
and sell it in the same price.
Electricity consumption also affected by electricity education campaign by the government. This
option will activate education campaign inside the model which will reduce overall electricity usage.
3. Electricity cost factor and price
Cost factor inside the model intended to show how much government would pay. In this cost
factor government will be single entity that pays electricity produced. Amount of money government
paid is counted from how much electricity produced by every power plants. Each power plants also
have different price structure, which differs from technical specification and primary energy used.
The calculation of oil power plant is special due to nature of Indonesian subsidized oil. Because,
oil used in power plant come from other government entity which has subsidiary price.
Government also needs to pay PLN margin in order to keep company ability for keeping up of
consumers demand. As an overview, Indonesian electricity cost and price work in equation 2
Y Electricity produced each plant * factor cost) + PLN Margin
(2)
Electricity base price =
+ Distribution Cost — Parliamentary Approved Subsidy
Model Validation
The model is validated by using Barlas validation method[17]. As structure validation, we asked
and confirmed relationship inside the model with several electricity experts from goverment as a
structural validation.
60.50
60.00 é
59.50 ee
59.00
58.50
58.00
57.50 ; —_ —_
13.5 7 9 1113 15 17 19 21 23 25 27 29 31 33 35
—--0 ——2 ——40 ——60 -=- 80
Figure 5 Sensitivity analysis of each 20 T Rupiah Subsidy over Industrial Electricity Demand
Experiment and Result
In order to serve purpose of this model on creating communication over different actors the
model is equipped with user friendly interface. This interface allow user to try and tested different kind of
parameters changing and also allow them to observe value changing as a result of risk and uncertainties
inside the model. Figure 6 shows how the user interface looks like.
Tranamisson Loss ||| [ Energy Obanghtian
10.00% 19,204,636.36 mwh | |
ea SS
TF Educating on slecticity
Figure 6 Model user interface
The model provides users with key performance indicators of each primary energy used for
electricity generation. Key performance indicators including amount of energy produced over time and
financial indicators. Detailed indicators were imported into a spreadsheet file so users could export the
result into other file and create their own visualization conveniently if necessary.
This model then is as a tool on increasing student understanding over electricity issues in
Indonesia. 83 students participate in the class for energy management held in the university, none of these
students has background of energy or electricity related education or training before. The experiment is
conducted by giving two one and half hour lectures. The first lecture is to give brief description on energy
problem in Indonesia and the second lecture is to give brief detail about electricity condition in Indonesia
and how to use the model. After that, the model is given to all students to have look at and try on. The
students have one day to take a look on the model and having their own research on electricity issues in
Indonesia. On the next day, a series of question regarding the use of each parameter in the model is given
to the students. In addition, student also asked to create CLD based of their own perception and
experience after using this model.
The experiment result is quite satisfactory as 80 out of 83 students participating are able to draw
main relations and links like shown in Figure 4. Moreover, they also able to explain and answer question
related to parameters inside the model and describe its usefulness and effect in the real electricity issues.
The students also give comments and short paragraph about current Indonesian electricity issues and what
should government do to overcome such situation. In fact, their comments and suggestion reflects that
they have capture important message of complexity and multi actor dynamic inside Indonesian electricity
issues.
Conclusion
The model and user interface used has proved to be one of valuable resource for communicating
Indonesian. It serves the main purpose to boost up understanding of issues. The model adequately is able
to picture interrelationship and interdependencies inside complex electricity system. Portrayed complexity
of electricity price and subsidy as main driving force that leads to electricity supply and demand changes,
by using this model user will have seen how it suppose to be if they are in the government position with
such issue. The option by reducing electricity subsidy will have significant impact on economic activities
as much as impact on electricity demand and the same thing goes to increasing electricity subsidy.
However, this result is not conclusive enough to make this model as solely tool to visualize
Indonesian electricity dynamics. Therefore, more experiment from broader audiences is needed to
confirm this. On the other hand, the model provides good starting point to help policy planner
communicate with other stakeholders and actors. Which will make policy planning process more efficient
and effective.
In the future, this model not only should be brought to different audiences but also it deserve
chances to b used as tool to educate citizen. In bigger picture, by educating citizen that there are
consequences for government if they have to burden big number of electricity subsidy. Moreover, in term
of modeling activities, linkage between wider economic activities and direct environmental impact over
electricity usage and development will provide better visualization for government and stakeholders.
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