Chinese and Japanese Firms Set to Tap Energy Opportunities
    Category: Energy Booster By : Georgina Hayden Read : 669 Date : Saturday, September 10, 2016 - 07:35:39




    Indonesia’s power needs are pressing, as delays in the implementation of power projects, coupled with surging consumption, have narrowed the margin between supply and demand, leaving the country increasingly exposed to electricity shortages. Power consumption is set to rise rapidly over the coming decade, as efforts to boost electrification across the islands and robust macroeconomic and demographic fundamentals drive power demand. 

    This means that expanding the country’s power capacity is a key priority for President Joko “Jokowi” Widodo and his government; Jokowi officially launched a long-term energy plan in November 2014, which outlined ambitious targets to build an additional 35 gigawatts (GW) of power capacity by 2019/2020. This focus on power sector expansion and the substantial power infrastructure deficit in the country presents significant opportunities for investors in segments across Indonesia’s power market—notably coal, geothermal and distributed energy solutions. 

    Despite the opportunities for growth, we expect domestic firms to remain the dominant players in the competitive landscape of the Indonesian power sector, notably state-utility Perusahaan Listrik Negara (PLN) and its domestic subsidiaries, which is directly responsible for developing 15 GW of the 35 GW target. Furthermore, PLN will oversee investment from both domestic and foreign independent power producers to develop the remaining 20 GW through public-private partnerships. In addition, there are still numerous risks plaguing Indonesia’s power sector, including prevailing corruption, land acquisition hurdles and issues accessing finance, which will deter foreign participation in the sector. 

    That said, we are witnessing heightened competition between Chinese and Japanese companies to secure market share, not just in the Indonesian power sector, but the wider Asian infrastructure market. Japan is already heavily active in the region and has established a strong reputation; however, China is increasingly vying for contract opportunities by offering cheap capital via nationally sponsored direct foreign investment and export credit agencies (for example the Import-Export Bank of China and the China Development Bank) in a bid to support domestic companies and win contracts amid a slowing domestic construction sector. 

    This increased competition is most notable in the ASEAN region where the two countries have both announced additional measures to increase their market share. This rivalry is serving to crowd-out investment from other players who are struggling to compete on a cost and quality basis. In Indonesia’s power sector specifically, we expect Chinese firms to capitalize on the country’s expanding coal sector, and Japanese companies to maintain its monopoly in the geothermal segment, thanks to the expertise built-up in its well-developed domestic geothermal market.



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