How Can Governments Support Electricity Distribution To Achieve Net Zero In Asia?

The structure of the electricity sector differs greatly across countries, with markets comprised of varying combinations of state-owned and private-owned electricity companies. In some cases, a company may be private but can only operate in the sector under a specific license issued by the government. Markets can also be monopolized by state-owned companies but supported by private investment.

Japan’s Liberalized Electricity Market

In Japan, private companies provide electricity to the public (Federation of Electric Power Companies of Japan n.d.). Electricity distribution used to be monopolized by 10 companies designated by the government. These covered all processes of the electricity sector, from power generation to transmission, distribution, and retail (Agency for Natural Resources and Energy 2017). Although consumers were not mandated to buy electricity from a specific company, they had to use a company that supplied electricity for the area they were living in. For example, the Tokyo Electric Power Company provided electricity for areas around Tokyo, and the Kansai Electric Power Company for the Kansai area.

Japan fully liberalized its electricity market on 1 April 2016, allowing consumers to decide which electricity company to buy from. However, the sector continues to receive significant support from the government, with some responsibilities for electricity distribution assigned to specific companies by the government. The Agency for Natural Resources and Energy (ANRE) divides the electricity sector into three sectors: power generation, transmission and distribution, and retail.

Despite the full liberalization of its electricity market, Japan continues to designate 10 private electricity companies for generation, transmission, and distribution. Consumers can choose which supplier to buy electricity from, although the lines for distributing electricity remain unchanged. This ensures quality and accountability of the power supply regardless of which electricity retailer the consumer decides to sign their electricity contract with.

Indonesia’s State-Owned Electricity Company

The electricity sector in Indonesia also has unique characteristics. Transmission and distribution are carried out by a state-owned company called Perusahaan Listrik Negara (PLN) (PwC 2016). By law, private companies are eligible to operate grids for transmitting and distributing electricity, but in reality, PLN holds a monopoly over the ownership of assets and the operation of transmitting and distributing electricity in the country.

This is similar to Japan’s power generation and transmission sector and distribution sector, where private companies are allowed to join, but in reality, the sectors are monopolized by specific private companies. There are cases in Indonesia where independent power producers (IPPs) have constructed transmission lines for delivering electricity from PLN substations to remote areas (PwC 2016). However, even in such cases, the ownership of the transmission lines is generally transferred to PLN upon completion despite being constructed by an IPP. This may be because, in principle, the government does not permit IPPs to directly sell electricity to consumers (Walalangi et al. 2021).

For power generation, although PLN is dominant in the sector, IPPs also have a share in the market (Ministry of Energy and Mineral Resources, Republic of Indonesia 2023). However, as IPPs are not permitted to sell electricity to consumers, they generally sign a Power Purchase Agreement in which they sell the generated electricity to PLN, which then takes on further processes for the electricity to reach consumers (Walalangi et al. 2021).

State-Owned Companies in the Electricity Sector

One of the positive aspects of the government largely having ownership over the electricity sector is that policy reforms can be reflected promptly. For example, in 2021, the Government of Indonesia and PLN jointly announced the “New Electricity Business Plan (RUPTL) 2021-30,” with the aim of aligning Indonesia’s targets of achieving a 29%–41% reduction in greenhouse gas emissions by 2030 and net zero by 2060 (Tam et al. 2021).

In order to achieve these targets and increase renewable energy in the energy mix share to 23% by 2025, the new RUPTL targets half of the planned additional power capacity to be from renewable energy sources. Plans for IPPs are included in the plan but are not bound to a specific company. However, PLN-specific plans are included. For example, the new RUPTL aims for PLN to utilize biomass to co-fire power plants that are currently coal-fired (Bissett et al. 2021).

Meanwhile, PLN has also been facing severe financial challenges—mainly debt, lease liabilities from IPPs, and limited capacity for growth in renewable energy (Hamdi and Adhiguna 2021). PLN intends to attract private investment in order to meet its targets in the proposed new RUPTL (Tam et al. 2021). Japan and the People’s Republic of China, who have invested in many of the IPPs, could be key investors in supporting the transition of Indonesia’s coal-heavy energy sector to a greener energy sector (Hamdi et al. 2021).

Key Messages

The two country cases offer important messages for Asian developing countries to consider in developing their own paths toward achieving net zero. Japan and Indonesia point to positive aspects of government intervention in the electricity market instead of a completely free market.

Some intervention allows the government to ensure the stability of the energy supply. Policy reforms can also be directly and promptly implemented when the companies are owned by the government or when specific roles are designated by the government. Finally, to achieve the internationally shared goal of net zero, government-owned companies can more easily change their focus to increasing renewable energy.

By :

Mayuko Mizukawa is an intern at ADBI and a master’s student at the Graduate School of Public Policy, the University of Tokyo.
Sakshi Pandey is a capacity building and training associate at ADBI.
KE Seetha Ram is a senior consulting specialist for capacity building and training projects at ADBI.

© Scoop Media