JICA’s Cooperation inGeothermal Energy Development

in Indonesia 　

March 19, 2014

Ichiro SatoOffice for Climate Change

Global Environment DepartmentJapan International Cooperation Agency

Key Question 　

What aspects of enabling environments as well as capacities at various levels need to be strengthened to facilitate

scale-up of climate finance, and how?

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Projects with 55MW ≧Capacity (Fast Track Program 2)(a) Resource characteristics

– Large Potential• 96% of potential remains

undeveloped – Large-scale resources

• Average production capacity of wells is said to be larger than other countries

• 65% of Fast Track Program 2 (FTP2) are above 55MW (35/54)

(b) Policy Directions– Focus on IPP-development

• 87% of RUPTL & 70% of FTP2 (geothermal only) to be developed by IPPs

– Resource development as a part of IPP’s responsibility

IPP, 3312

PLN, 340

PGE, 665

JOC, 440

Fast Track Program 2(2010-2014)(4757MW)

MW

Capacity# of

projects %

(projects)≧55MW 35 64.8%<55MW 19 35.2%

Countries with Geothermal Potential

Electricity Provision Plan (RUPTL) 2011-2020(6079MW)

Share of IPPs

MW

IPP, 5327

PLN, 752

Source: International Energy Agency, 2010

I. Geothermal Energy in IndonesiaPotential and Policies

CountryGeo

Potential (MW)

USA 30,000Indonesia 27,790Japan 23,470Phillipines 6,000Mexico 6,000Iceland 5,800New Zealand 3,650Italy 3,270

Policy Goal Achievement (Roadmap, etc.)

Gov’t-led Projects

IPP Projects

4

II. JICA’s Cooperation in Geothermal Energy Development1. General Approach Strong partnership with GOI for achieving policy goals & expanding business opportunities.

JICA

Pertamina/PGE

PLN

IPP Regulation Framework

Tender Process

Improvements

Geothermal

Fund

Feed-in Tariff

Concessional Loans

Policy Studies/Tech. Assist.

GOI

• Cooperation to meet the objectives of both the Gov’t & Private Sector– Policy Goal Achievement (Overall Target)

• As a Financier of Government-led Projects

• As a Policy Development Partner for GOI: IPP Promotion– Worked with the GOI on Master Plan, Feed-in Tariff, Exploration Fund designs– Future focus: Geothermal fund implementation, feed-in tariff, tender process improvements

PlannedSchedule 2012 2013 2014 2015

Ulubelu (PLN)

Lumut Balai 1&2 (PGE) 　　

Tulehu (PLN)

Lumut Balai 3&4 (PGE)

Hululais (PLN & PGE)

5

II. JICA’s Cooperation in Geothermal Energy Development2. Support to Government-led Projects JICA-financed Projects (Target Year of Commercial Operation Date: COD)

Hululais55MW x 2( ～ 2015)

Lumut Balai 1&255MW x 2( ～ 2014)

Lumut Balai 3&455MW x 2( ～ 2015)

Ulubelu55MW x 2( ～ 2012)

Lahendong20MW

(completed)

Tulehu20MW

( ～ 2015)

▲COD

Sumatra

Java

SulawesiMaluku

Kalimantan

▲COD

▲COD

▲COD

Source: Electricity Provision Plan (RUPTL) 2011-2020

▲COD

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II. JICA’s Cooperation in Geothermal Energy Development3. IPP Promotion: “Enabling Environment” - Why is it important?

Some characteristics of geothermal energy development that affect IPPs’ investment behaviors

Characteristics Implications

Stable output of electricity Geothermal plants could supply base load power stable revenue for IPPs

Operation cost is relatively low (no need to fuel the plants)

Lower risks at operation stage for IPPs than other types of power generation

Strengths

Challenges

Characteristics Implications

Exploration cost is very high but no guarantee of success

The risk is too high for IPPs to take them alone Some mechanism of adequate risk sharing between private and public sectors is necessaryTechnical improvement of exploration also necessary to reduce overall risks and costs

Total generation cost is high (--> electricity price is high) due to high initial costs

Electricity companies may not buy (off-take) the electricity at the bidding price of IPPs Some mechanism to guarantee off-take price and volume is necessary

7

Profit

Cost

Operation costs

Capital costs

Off-take volume & guarantee

Average Selling Price (kWh)

Revenue

- Strong demand for additional power capacity - Site prioritization not available - Off-take guarantee not secured

- Uncertainty of PLN (Power Company) purchasing at concession bid price due to little incentive for PLN to buy at higher price than coal

- Very high and uncertain capital costs due to up-stream exploration uncertainty

- Lower operation costs compared to other sources

Strengths / Challenges JICA’s contributionFeed in Tariff Study (2008-2009)

Geothermal Masterplan Study (2006-2007)

Exploration Fund Design Study (2010-2011)

Provided justification for FIT and the benchmark price of 11.9 cents/kWh

II. JICA’s Cooperation in Geothermal Energy Development3. IPP Promotion: aspects affecting profits (and risks) of IPPs

Capacity Development for CGR (2010-2013)

Provided priority listing of promising sites and road map for geothermal development

Proposed an idea for exploration risk mitigation measure by setting up government fund to take the exploration risk

Support Center for Geothermal Resources (CGR) for resource data collection and analysis

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II. JICA’s Cooperation in Geothermal Energy Development3. IPP Promotion: in line with GOI’s Key Policy Improvement

GO

I Po

liciesJIC

A C

on

tribu

tion

s

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

• Geothermal Roadmap

(9,500MW by 2025)

• MEMR No.32 (Ceiling price of 9.7c/kwh)

• Exploration Fund Budget

• Fast Track Program 2 • MEMR

NO.2 (PPA obligation)

• MOF No.139 (gov’t guarantee)

• PP No.59 (Geothermal Concession

Bidding)

• Geothermal Master Plan

• FIT design study

• Exploration fund design study

• Capacity Development for CGR

• Geothermal Law

(27/2003)

• MOF NO.2 (Geo-Fund

Mechanism)

• PP No. 5 (5%

Geothermal in Primary Energy

Mix by 2025)

• Policy supports ranging from development of a master plan to building incentive mechanisms such as feed-in tariff & exploration fund

MEMR: Ministry of Energy and Mineral Resources MOF: Ministry of Finance CGR: Center for Geothermal Resources

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Profit

Cost

Operation costs

Capital costs

Off-take volume & guarantee

Average Selling Price (kWh)

Revenue

Current situations

PLN is mandated to buy geothermal power at the winning bid price under 9.7C/kWh, but limited to FTP 2 projects.

GOI launched FTP2 to promote 5000 MW of geothermal

PLN off-take risk mitigated by MOF for FTP 2 projects, others by IIGF (guarantee institution) if granted as a PPP project.

MOF established geothermal fund to promote local government exploration before concession bidding for new project, but for already tendered projects, risk not properly mitigated.

Detailed operation procedures of the fund need to be defined, and staff capacity be developed for full operation of the fund.

II. JICA’s Cooperation in Geothermal Energy Development3. IPP Promotion: Way Forward

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II. JICA’s Cooperation in Geothermal Energy Development3. IPP Promotion: Next challenges

1. Sub-Project 1 (Review and improvement of policies/regulations )Support EBTKE to review and revise (1) geothermal policy targets, (2) electricity tariff for geothermal

power plants, and (3) tender process for geothermal power plant projects EBTKE: Geothermal Directorate in the Ministry of Energy and Mineral Resources

2. Sub-Project 2 (Geothermal Fund operation capacity development) Support PIP to undertake (1) exploratory drilling (by contract) on the pilot basis, (2) PPP tender

preparation monitoring, and (3) fund cost recovery managementPIP: Indonesian Investment Agency (Managing body of Geothermal Fund)

3. Sub-Project 3 (Geothermal survey capacity development)Support CGR to improve the capacities of (1) resource survey and development planning, (2) resource

potential analysis and assessment, and (3) developing geothermal database CGR: Center for Geological Resources

New technical cooperation project to be launched

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Returning to the key question...“What aspects of enabling environments as well as capacities at various levels

need to be strengthened to facilitate scale-up of climate finance, and how?”What aspects should be strengthened? How?

Examples in the case of Indonesian geothermal energy development in brackets

Reduction of overall risks and costs (High risks and costs of exploration and resource assessment must be reduced)

Technical improvements to reduce uncertainty and increase efficiency(Improved resource surveys, data analysis, resource assessment, and resource database.)Administrative improvements to reduce costs (Well-defined operation procedures and staff capacity development for operation of geothermal fund, PPP tender, issuing development permits, etc.)

Risk & cost sharing mechanism (Mechanism to share risks and costs of exploration, resource development and construction of facilities need to be in place)

Adequate risk & cost sharing between government and private sector(FIT, off-take guarantee, geothermal fund to mitigate exploration risk and cost for IPPs, etc.)

Adequate communication between government and private sector

Clear development strategy, plan, priorities(Clear and reliable geothermal energy development road map, master plan, site prioritization, laws and regulations)Needs of private sector communicated to the government(Policy studies helped conveying such needs to GOI)

Thank you for your attention. 　

Japan International Cooperation Agency