Implementation of Risk Analysis using Monte Carlo Simulation on Electricity Investment Decision Making : Case Study: Steam and Combined Cycle Power Plant Development in Indonesia by PT Pembangkitan Jawa-Bali

In order to support the development of national economic, the government of Indonesia has issued a breakthrough program called development of 35GW to provide electricity accross nation. The composition of the power plant in this program is still dominated by conventional power plants, namely steam and combined cycle power plant with composition 60% and 21% respectively. A huge capital of Rp 1,200 trillion is required to support the 35GW program. With these huge capital requirements, the risk of developing this project will also increase. For this reason, investors like PT Pembangkitan Jawa-Bali (PJB) need to make investment decisions that consider comprehensive risk analysis. In the initial stage, identification of risk factors is required to create the mapping of the risk factors that affect the cash flow through investment activities in power plant development. The next step is conducting the risk factor evaluation to determine the critical risk factor. Furthermore, risk analysis is carried out using simulation methods, one of which is Monte Carlo simulation. The aim of Monte Carlo simulation is to produce large number of outputs of varying financial parameters based on changes in the value of critical risk factors. Based on the results of risk factor evaluation, the risk factors that significantly influence the development of steam and combined cycle power plant in Indonesia are EPC Cost, Net Plant Heat Rate and Debt to Equity Ratio. By conducting risk analysis using Monte Carlo simulation, a range of Internal Rate of Return value is obtained and can be used as a guide in making investment decisions. Electricity investment decision making that considers comprehensive risk analysis will produce optimal rate of return that will lead to a decrease in Basic Cost of Supply (BPP) of PT PLN (Persero).