Padang, Indonesia — Installing PLN electricity as an alternative power source in palm oil mills is financially feasible while improving operational reliability and reducing carbon emissions. This finding comes from research by Muharpi and Doni Satria of Padang State University, which evaluated the financial, operational, and environmental feasibility of PLN electricity investment over a 10-year period. The study also examined whether the investment would remain viable under changing economic and operational conditions.
The palm oil industry depends on reliable electricity to operate processing equipment, utility systems, lighting, and supporting facilities. Many palm oil mills normally generate electricity through steam turbines powered by biomass residues such as fiber and palm kernel shells. However, steam turbines cannot provide electricity continuously under every operating condition.
During boiler start-up, turbine maintenance, equipment failures, insufficient steam pressure, or production interruptions, diesel generators are commonly used as backup power sources. While diesel generators help maintain operational continuity, they also require substantial fuel consumption, increase operating and maintenance costs, and contribute to greenhouse gas emissions. These challenges have encouraged palm oil mills to consider PLN electricity as an alternative source of power.
Muharpi and Satria evaluated whether installing PLN electricity could reduce dependence on diesel generators while providing reliable and economically efficient power. However, connecting a palm oil mill to the PLN network requires significant capital expenditure, including electrical substations, distribution systems, protection equipment, and network installation. The researchers therefore assessed the investment using a comprehensive financial and risk evaluation.
The study employed a quantitative case study approach. Data were collected through field observations, company document analysis, and a literature review. The researchers examined the existing electricity supply system and operational characteristics of the palm oil mill, as well as historical information on diesel generator costs, electricity consumption, PLN installation costs, operating hours, and other technical data needed to estimate project cash flows.
The investment was evaluated using six capital budgeting indicators: Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), Return on Investment (ROI), Payback Period (PP), and Discounted Payback Period (DPP). Sensitivity analysis was also conducted by changing PLN electricity tariffs, diesel fuel prices, discount rates, and PLN supply reliability to determine whether the investment would remain viable under different conditions.
The financial results were strongly positive. Under the base scenario, the PLN electricity investment generated an NPV of IDR 15.784 billion, indicating that the present value of future benefits exceeded the initial investment cost.
The Internal Rate of Return reached 180 percent, substantially above the 10 percent discount rate used in the analysis. The Profitability Index reached 16.36, while the Return on Investment reached 2,796 percent. Capital recovery was also relatively fast, with a Payback Period of approximately 0.59 years and a Discounted Payback Period of 0.65 years. All six financial indicators met the established investment feasibility criteria.
Beyond financial performance, the investment also provided operational benefits. Reducing diesel generator use can lower fuel consumption and maintenance expenses while improving the reliability of electricity supply when steam turbine generation is unavailable or insufficient. PLN electricity can therefore become part of the mill’s broader energy management strategy rather than serving only as an emergency alternative.
Environmental benefits were another important finding. The reduction in diesel generator use was estimated to lower annual carbon dioxide emissions by 548,430.83 kilograms. This means that the proposed investment could provide economic benefits while also supporting cleaner energy use and reducing emissions from palm oil mill operations.
The researchers also tested the resilience of the investment through optimistic, moderate, and pessimistic scenarios. The analysis considered changes in electricity tariffs, diesel prices, discount rates, and PLN supply reliability. The investment remained financially feasible across all scenarios examined.
PLN electricity tariffs emerged as the most sensitive variable affecting project value. The difference between the optimistic and pessimistic tariff scenarios produced an NPV variation of approximately IDR 4.04 billion. The discount rate was the second most influential factor, followed by PLN supply reliability, while diesel fuel prices had the smallest impact on overall investment performance. Despite these variations, all simulated scenarios continued to meet the investment acceptance criteria.
The findings provide practical implications for palm oil mill managers considering investments in electricity infrastructure. PLN installation can be considered as a long-term strategy to reduce diesel generator costs, improve electricity supply reliability, and support more efficient energy management. However, investment decisions should still consider the characteristics of each mill, including production capacity, electricity requirements, network conditions, and operating costs.
Muharpi and Satria argue that the study provides a broader approach to investment evaluation than assessments based solely on financial indicators. By combining operational performance, environmental benefits, financial feasibility, and sensitivity analysis, investment decisions can account for both potential benefits and risks throughout the project’s life cycle.
The researchers recommend that future studies examine multiple palm oil mills with different production capacities and operational characteristics. Comparative research involving alternative energy sources such as biogas, solar photovoltaic systems, and hybrid energy systems is also recommended to expand sustainable energy investment options within the palm oil industry.
Overall, the study concludes that installing PLN electricity in palm oil mills offers strong economic prospects. The investment is financially feasible, reduces dependence on diesel generators, improves electricity supply reliability, lowers operating costs, and contributes to reducing CO₂ emissions.
DOI: https://doi.org/10.55927/eajmr.v5i8.285
Journal Link: https://journaleajmr.my.id/index.php/eajmr
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