29 2. CHAPTER 2 – BUSINESS ISSUE EXPLORATION 2.1. Conceptual Framework Scenario composed list of sense of description from a relatively unsurprising projection of the present, not a forecast. Scenario planning is a process of a strategic planning, not only about scenario writing (Lindgren & Bandhold, 2003). Companies and organization creating a scenario planning to calculate the effects of alternative decisions. Scenario planning will be an effective strategic planning of a company or organization for medium to long-term planning under uncertain conditions that may happen in the way achieving company or organization goal. Scenario planning will help company or organization to sharpen up strategies and creating plans for the unexpected and keep the company or organization running in the right direction and on the right issues. Scenario planning is an integrative process in a company or organization that includes imaginative actions, creative thinking to ensure the strategic planning for the future (Garvin & Levesque, 2006). Process of a scenario planning start with conducting research to understand the major forces that might move to different directions, then composing numbers of possible alternative futures called scenarios, and finally develop options for the organization for managing the future. In the process of developing a scenario planning, it will involve several components that will composing the possible futures of a company or organization. The components of a scenario planning will include the process of components as follow: Key focal issue: Scenario planning will be built around significant issues, critical choice of key focal issue. It will include strategic uncertainty that in long-range consequences for the fortunes of the organization. Scope and timeframe for choices and concern should be clearly identified. Driving forces: Part of research of scenario planning to gather the information from key stakeholder of the organization who may related to the issues. 30 Critical uncertainties: Include the list of uncertain driving forces that are will significantly change the future of organization. Critical uncertainties are ranked from the top two uncertainties in driving forces that are most influential and informative. Scenario framework: Critical uncertainties will be plotted into matrix of uncertainties with four different quadrants of uncertainty to be explored. Scenarios: List of different futures plan as the result of scenario and critical uncertainties exploration for each quadrant of scenario framework. Narratives: Scenario that have been identified for each critical uncertainty framework then be explored into narrative story. The narratives should be coherent and consistent from the scenarios. Implications: The process of exploring implications that might happen for each alternative scenario, including identification of strengths and vulnerabilities, alternative strategies, and capabilities. Early warning signals: Identification of leading indicators that highlight the likely emergence of one scenario or another. Interaction withing the components in Scenario Planning process as in Figure 2.1. Figure 2.1 Scenario Planning Components Source: (Garvin & Levesque, 2006) 31 Process of a scenario planning will involve key stakeholders of organization to provide key information and include following steps: orientation, exploration, scenario creation, identification of options and implications, and integration into current management processes as in Figure 2.2. Figure 2.2 Scenario Planning Stages Source: (Rothaermel, 2017) 2.2. External Environment Analysis 2.2.1. General Environment External environment analysis is conducted to determine the opportunity of the company to conduct the business in general environment. PESTEL framework is conducted in this study to get an overview external condition of the industry of electricity utilities in Indonesia in macro level. PESTEL framework model will provides integrative way to scan, monitor, and evaluate the important external factors and trends that might affect the running of an organization (Rothaermel, 2017). Stage 1: ORIENTATION Focal Issues defined Stage 2: EXPLORATION Driving Forces defined Stage 3: SCENARIOS CREATION Scenarios Created with Narratives Stage 4: OPTION CONSIDERATION Strategies, actions, and changes defined Stage 5: INTEGRATION Early Warning Signals developed 32 Figure 2.3 Firm within External Environment subject to PESTEL factors Political PLN as a State-Owned Enterprises in Indonesia has the main concern as Public Service Obligation to fulfill the electricity needs of Indonesia. Strategic position of PLN in Indonesian economic activity due to the economic scale of operation has led the company to become the center of attention from various stakeholders in Indonesia. Referring Presidential Decree No. 22/2017 concerning the National Energy Plan, renewable energy target is 23% in 2025. Government policy to stimulate energy transition to renewable becomes the major concern of PLN to define the strategy of renewable energy transition in power generation. Analysis from IESR, one of the first priorities to accelerate renewable energy transition in Indonesia is strengthening government political commitment to energy transition (IESR, 2021). The Government (Ministry of Energy and Mineral Resources) had set Electricity Tariff Adjustment as stipulated in MEMR Regulation No.19/2019, but due to government policy to encourage economic growth the electricity tariff was set flat from 2017 until now. Flat electricity tariff become one of challenges of PLN to ensure the financial capability to do the investment. Due to flat electricity tariff, the Government disburse compensation to PLN to compensate the operation cost and tariff for non-subsidy customer segments. 33 To increase financial capability of PLN to do the investment strategy, the Government as shareholder of PLN provides capital injection to PLN in terms of State Equity Participations (Penanaman Modal Negara) that need approval from Republic Indonesia House of Representatives. As the Government policy to encourage national spending, reduce the economic burden of peoples, and increase purchasing power amid COVID-19 pandemic, the Government has required PLN to provide free electricity for 450VA and discount tariff for 900VA subsidized residential customer segments, including MSMEs business segments. Those policies of electricity subsidy, compensation, capital injection, and COVID-19 stimulus give a massive increasing financial stress of PLN before the cash disbursed by the Government and will increase financial dependency of PLN to the Government. Economic The National Electricity Business Plan (Rencana Usaha Penyediaan Tenaga Listrik - RUPTL) 2019 – 2028 has been compiled with the assumption of Indonesian Economic Growth on 5.4% to 6.1%. COVID-19 pandemic that hit Indonesia since March 2020 has made national economic growth decline into recession due to COVID-19 social restriction measures. In Q2, Q3, and Q4 – 2020, national economic growth plunged into -5.32%, -3.49%, and -2.19% respectively (BPS, 2021). Analysis from Asian Development Bank (ADB) and World Bank predicted economic growth of Indonesia will be still at minus point around -2.2% in Q1-2021. Declining national economic growth and electricity sales growth amid pandemic becomes a challenge of PLN to do business innovation to reduce the negative effect of pandemic in terms of financial and operational condition. PLN as off-taker and single buyer of Independent Power Producer is facing economic challenges in terms of payment obligation to IP under Take-or-Pay scheme which need PLN to pay certain amount to the IPP on minimum dispatch operation. 34 Study from Asian Development Bank (2020) explained that to overcome the massive investment in the renewable energy transition, green bonds will be one of the solutions to increase the green investment attractiveness. In 2017, Government of Indonesia enacted the national framework and regulation for green bond issuance, including national Green Bond and Green Sukuk Framework. The green bonds will only be used to finance eligible green projects either related to renewable energy, energy efficiency, resilience to climate change or disaster risk reduction, sustainable transport, waste to energy and waste management, sustainable management of natural resources, green buildings, green tourism, and sustainable agriculture.