The current PLN's cost+ margin revenue model originates from the Law 19/2003 on State Enterprise, which obligates the government to compensate for their costs incurred plus a margin when undertaking a government assignment that is not financially viable. This approach is backward-looking and does not incentivize PLN to invest more beyond its BAU. Considering the ambitious target for energy transition, the JETP Secretariat proposes a new revenue model structure for PLN that would allow a forward-looking methodology in determining PLN's allowed revenue for new investments in renewables.

The new approach is called as PLN Annual Revenue Requirements (ARR) which would allow PLN to link the cost recovery to capital expenditure, instead of only operating costs. The ARR is a hybrid method that would allow full cost recovery for capital expenditure (specificallly for RE projects) plus operating costs. This approach is seen to be reflective of the required annualized return on new investment, and should be reviewed every 5 years as a control period. This way, PLN is allowed to not only recoup its operating expenses, but also to receive return on equity that would be closer to a rate appropriate for SOEs. 

The new hybrid method shall be discussed and studied in more detail by the JETP Secretariat, MoF, and PLN as the beneficiary. 

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