Question

West Java topography condition is very potential for the development of hydro power plant technology especially mini-hydro power (PLTM) and micro-hydro power (PLTMH) which is a runoff river power plant. Unfortunately, until right now the business performance of PLTM and PLTMH is not optimal yet. It was allegedly related to the supply chain management and business partnership aspect.

The mountainous topograph in Southern part of West Java, with many small rivers flowing throughout the year and high rain fall volume have springs flowing to the rivers is very potential for the development of environment friendly hydroelectric technology, which is a runoff river power plant between 1-10 MWh called Mini Hydro Power Plant (Pembangkit Listrik Tenaga Mini Hidro). The equipment used is relatively simple and easy to find. The required land is not extensive, so there is no need to open the forest to build the large scale hydroelectric power supply with big water dam and huge power installation. Southern part of West Java has mountain topography spread all over the region. In general, mountain’s texture is steep with relatively few inhabitants. The mountainous area has a large electrical energy in the form of water. The flow of water from the plateau to the lower one has potential energy that can be utilized as a source of electrical energy, especially in Sukabumi, Cianjur, Garut and Tasikmalaya that still have forests and stable water supply. With the publication of ESDM Regulation no. 19 of 2015 on Micro Hydro Power Plants regarding the electricity tariff (Feed In Tariff) of Hydro Power Plants under 10 MW/h of 12 cent USD / KWh and the use of mini hidro Potential of 500 MW, newly installed 86.1 MW, should increase the number of Mini Hydro Power Plants (PLTM) in West Java.

Actually, the potential of Mini Hydro Power Plants for supporting to the main grid of electricity (Jawa Bali Network) and remote areas that have not reached the electricity network or areas that do not have other sources of fuel, so that the potential for the development of the Mini Hydro Power Plants is not optimal. However, the request for a Water Power Business Permit under 10 MW in Indonesia has only reached 33 Commercial Operation Date (COD) Permits from 266 Permits during 2015 to date. Until now, the company's performance is only 65%-75% of 86.1 MW installed yet, due to the frequent down time. This problem is caused by lack of optimal partnership and also supply chain management in mini hydro power plants companies, especially in the technology to be used, expertise people and financial investor. The Previous study has not address on Supply Chain Management and Strategic Partnership during the operation phase of Mini Hydro Power Plant. The form of partners relationship proposed by Cravens (2013) that includes a vertical relationship consisting of relationships with suppliers and customers and the relationship horizontally consisting of lateral and internal partnerships. In the era of decentralization of the energy sector in Indonesia, the key to sustainability success is extensive coordination with private parties, local government offices, state electricity company, and communities. On the other hand, Clement, Clement, Joseph (2013) suggests that the performance of a company with partnership is better than a single-ownership company. In addition, Agus and Hassan (2012) demonstrate that the product quality performance and business performance dependence on practices of strategic suppliers partnerships. Another factor that is alleged to have an impact on the optimum business performance of micro hydro power plant companies is regard to the aspects of the supply chain. Turban, Rainer & Porter (2004) mentions supply chain includes 3 components ie upstream supply chain, internal supply chain management, and downstream supply chain. Lia, Ragu-Nathan, Ragu-Nathan, Rao (2006) found that higher levels of SCM practice lead to increased competitive advantage and improved organizational performance.

Based on this background, the aim of this study is to examine;

1. Identify the components of the supply chain management and specify how this process can be implemented to improve the performance of the micro hydro power plant in West Java. (10marks)
2. In this case, this study are expected to be used by the Government in their policies and private sectors to boosting the e-business infrastructure and may also provide benefits to the next Mini Hydro Power Plant Business to extend this process by the use of business partnership and build their business performance. (10marks)

Answer 1

Ans 1.

According to Turban, Rainer & Porter (2004), supply chain includes 3 (three) kinds of components: Upstream Supply Chain, with main activity is procurement; Internal Supply Chain Management covers all the processes of goods imported into warehouses used in transforming upstream inputs, so it main concerns include production, manufacturing and inventory control; and downstream supply chain, encompassing all activities involving the delivery of goods to end customers, so that the main concern is directed to distribution, warehousing, transportation and service.

Lateral partnership play a major role in encouraging business performance, then supported by supplier partnership, internal partnership and customer partnerships. Lateral partnerships can be done through joint operations, joint ventures, and outsourcing.

While on the aspect of supply chain management, it is that Downstream Supply chain is more dominant aspect in boosting business performance. Downstream Supply chain covers all activities that involve the delivery of electricity to the PLN interconnection station. In the downstream supply chain, the main concern is directed to water volume m3/second transporting to turbine and generator at powerhouse.

The research findings show that supply chain management and business partnership have the effect on business performance. Business partnership has greater influence than supply chain management in improving business performance in business units of micro hydro power plant in West Java.

Ans2 :  A domestic supply chain is a key component of lowering prices for renewable energy project development. The development of domestic inputs, follow the growth in the market rather than the current government policy of imposing local-content requirements at the earlier stages of market development.

As the market grows, this creates opportunities for joint ventures with foreign companies, value added manufacturing, and transfer of technology to the local industry. While there are some exceptions, the status of the Indonesian renewable energy industry coupled with domestic-content requirements essentially adds cost for inefficient project development, higher manufacturing costs, and lower performance. Meanwhile, caps on foreign ownership restrict access to international equity sources and lowercost capital from international lenders

The Indonesian government’s strategy for hydropower development aims at boosting industrial growth, reducing carbon emissions and achieving energy independence. The Government of Indonesia has formulated several policies for incentivising the private sector in the development of renewable energy.

It is expected that these various policies could accelerate the development of hydropower sustainably and create a big impact in our economic development. The critical point in developing hydropower is making sure that the project is ready and attractive for investment. Thus, the comprehensive assessment of social, technical, economic and environmental aspects should be promoted.

Private independent power producers (IPPs) are taking on an increasing role in developing, owning and operating powerplants with long-term power purchase agreements (PPAs) with PLN. Each project is set up as a Special Purpose Vehicle and can include shareholdings of foreign and domestic investment companies and equipment suppliers. IPPs play a critical role in the renewable energy sector, as they often take risks that PLN is not willing to take, for example, in developing and operating unfamiliar technology such as wind and solar PV plants.

IPP projects range from 800 MW coal projects to bio energy, mini hydro and solar PV projects with capacities of less than 10 MW. All IPP projects are now developed under a Build Own Operate and Transfer (BOOT) scheme whereby the generation assets are transferred to PLN at the end of the term of the PPA contract.

Equipment suppliers and service providers are a critical part of the supply chain whether for PLN, IPPs or captive power users. Indonesia relies on foreign suppliers for major power plant components and for consulting and engineering services, particularly for larger-capacity power plants. Financing institutions that are active in the Indonesia power sector consist of multilateral development banks such as the Asian Development Bank and The World Bank/ International Finance Corporation, bilateral development finance institutions, private international and domestic banks, and specialized foreign and domestic private equity funds. Note that Indonesia is a relationship-based market; to secure future high-value contracts, UK firms need to be on the ground developing their stakeholder networks in the medium term