Regulatory Revitalizati on of Indonesia’s … Energy Asia 2010/2_5...Development status &...
Transcript of Regulatory Revitalizati on of Indonesia’s … Energy Asia 2010/2_5...Development status &...
Agenda
• Prevailing framework & Government targets
• Assessment of geothermal resources, costs and regulatory processes
• Policy options to address impediments
2
• Draws on analysis & findings of the on‐going Geothermal Pricing & Policy Study
• Conducted for Indonesia Ministry of Energy & Mineral Resources (MEMR)
• Financed by World Bank/GEF• Views presented here are not necessarily those of the
World Bank or the MEMR
The Government has set ambitious targets for geothermal
• “It is my intention that Indonesia
become the largest user of
geothermal energy [in the world]”. –
President SBY, World Geothermal
Congress 2010
• Current installed capacity is 1,191 MW
• Permen 15/2010 targets 3,967
additional MW of geothermal by end
of 2014– 1,751 MW from existing geothermal
working areas (GWA)
– 2,116 MW from new geothermal working
areas
• Both new and legacy GWA additions
are required to meet targets
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….but there are tremendous challenges
• A legal framework is in place– Presidential Decree 45/1991 governs “Legacy GWA”
• GWA were granted to State‐Owned Enterprises (SOE), which may engage
a Joint Operating Contractor (JOC) to develop the field
• Legacy contracts remain intact– Law 27/2003 governs “New GWA”
• Opens sector to all players• Award of Geothermal Working Area (GWA) based on competition• Recognizes role of regional government
• Numerous tenders are planned, in process or have been
conducted
• However…– Tenders must be completed, licenses issued and other permits (land
use, environmental) arranged
– The resources must be proven– Power purchase agreements (PPAs) must be completed– Projects must be financed– The offtaker (PLN) must be credit worthy– Fields must be developed 4
Development status & Government targets
Legacy WKP
Operated by JOC
2,159 MW
Geothermal field
retained by JOC1,769 MW
Currently
producing859 MW
Legacy WKP
Operated by SOE
1,235 MW
New WKP2,316 MW identified
Geothermal Field
under SOE Control1,625 MW
Presidential Decree 45/1991 Geothermal Law 27/2003
Total 5,710 MW
Currently
producing332 MW
Planned by
end 20142,316 MW
UNDER JOC CONTROL
UNDER SOECONTROL
NEW
GREEN‐
FIELD
SITES
Source: Adapted from World Bank, and updated based on Permen 15/2010 and MEMR data on other plants under tender
Original
situation
Current
situation
390 MW
Transferred
to public
control
9 GWA (722
MW) have
been
awarded but
not yet
developed
Planned by
end 2014910 MW
Planned by
end 20141,293 MW
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Scope of the Geothermal Pricing & Policy Study
World Bank/GEF is financing assistance to MEMR to address
pricing & policy issues
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Phase 1:Analyze
Issues &
Define Policy
Options
Phase 2:Agree a New
Policy
Framework
Phase 3:Prepare
Implementing
Regulations
Current
Phase
Principal Activities of Phase 1• Confirm the resources
– “Due diligence”
on Government targets and other estimates– Field‐by‐field review of all available data– Probabilistic approach using “volume method”
• Assess production costs– Financial levelized cost of energy (LCOE) on probabilistic basis– Geothermal and competing conventional technology– Segmentation as a basis for policy formulation
• Identify impediments to development– Stakeholder consultations– Review of laws and regulations
• Define policy, regulatory & pricing options– Risk allocation & mitigation– Compensation– Pricing– Tender process– Targets targets depend on the policies to be adopted
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Phase 1 activity flow
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Production Cost Analysis Review of Development TargetsInitial
Iden
tification
Resource
Review
Develop
men
t Re
view
Prod
uction
Cost
Analysis
50 Fields* 50 Fields*
Fields that cannot be
developed & resource
adjustments
Fields that face “non‐technical”
impediments
* List drawn from Permen15/2010 (43), less dropped projects (1), plus other projects under tender or development (8)
High cost, low variance projects
Low cost, low variance projects
Target under Policy Option 1 Target under
Policy Option 2High variance
projectsTarget under Policy Option
3
Define Policy Options
Target Update
1
4
3
2
6
Stakeholder inputs & legal review to identify impediments
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Resource review
• Adjusted max
potential
value is 38%
lower than
prevailing
targets
• Some fields
do not offer
development
potential
• Does not take
into account
current
development
status
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2
3
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Adjusted max potential value
Adjusted max potential value
Permen 15/2010: Projects to be Conducted by Private MWe Permen 15/2010: Projects to be Conducted by PLN MWe1 Tangkuban Perahu 1 West Java 110 0 1 Sungai Penuh Jambi 110 662 Kamojang 5 & 6 West Java 100 60 2 Hululais Bengkulu 110 1373 Ijen East Java 110 0 3 Kotamobagu 1 & 2 North Sulawesi 40 744 Iyang Argopuro East Java 55 0 4 Kotamobagu 3 & 4 North Sulawesi 40 incl. above5 Wilis/Ngebel East Java 165 39 5 Sembalun NTB 20 06 Rawa Dano (Kaldera Danau Banten) Banten 110 217 6 Tulehu Maluku 20 207 Cibuni West Java 10 59 SUBTOTAL 340 2978 Cisolok‐Cisukarame West Java 50 309 Darajat West Java 110 010 Karaha Bodas West Java 140 79 Other Projects Currently Under Tender or Legacy WKP MWe11 Patuha West Java 180 94 1 Suoh ‐ Sekincau Lampung 230 21912 Salak West Java 40 0 2 Sipoholon Ria‐Ria North Sumatera 75 013 Tampomas West Java 45 0 3 Bukit Kili West Sumatera 83 2314 Tangkuban Perahu 2 West Java 60 0 4 Gunung Talang West Sumatera 36 015 Wayang Windu West Java 240 180 5 Suwawa Gorontalo 110 1416 Baturaden Central Java 220 0 6 Bedugul Bali 10 20817 Dieng Central Java 115 41 7 Ulumbu NTT 10 1018 Guci Central Java 55 0 8 Mataloko NTT 2.5 2.519 Ungaran Central Java 55 62 SUBTOTAL 557 476.520 Seulawah Agam NAD 55 24
21 Jaboi North Sumatera 7 4 Targets under Permen 15 and Other WKP in Process22 Sarulla 1 (Namora I Langit) North Sumatera 330 330 Legacy WKP 2,13823 Sarulla 2 (Silangkitang) North Sumatera 110 128 New WKP 1,36124 Sorik Merapi North Sumatera 55 40 Prelim. Assgnmnt. 95525 Muaralaboh West Sumatera 220 30 Status Unclear 6526 Lumut Balai South Sumatera 220 204 4,51927 Rantau Dadap South Sumatera 220 172 of which, Permen 15/2010 3,96728 Rajabasa Lampung 220 49
29 Ulubelu 3 & 4 Lampung 110 146 Updated Maximum Total Potential30 Lahendong 5 & 6 North Sulawesi 40 40 Legacy WKP 1,78031 Bora Central Sulawesi 5 0 New WKP 71732 Merana/Masaingi Central Sulawesi 20 0 Prelim. Assgnmnt. 25133 Huu NTB 20 20 Status Unclear 5934 Atadei NTT 5 5 2,80735 Sukoria NTT 5 5 of which, Permen 15/2010 2,27136 Jailolo North Maluku 10 1037 Songa Wayaua North Maluku 5 5
SUBTOTAL 3,627 1,974
Production cost analysis: Geothermal is part of a prudent energy mix
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Sumatera Incremental Generation Cost
0
0.5
1
1.5
2
2.5
3
4 5 6 7 8 9 10 11
¢ / kWhCoal Financial LCOE Lumut Balai Geothermal LCOE Coal with Externalities LCOE
• Geothermal is characterized by greater uncertainty• But LCOE is not correlated with fossil fuel price• Environmental externalities significantly increase geothermal
attractiveness
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Cost drivers
• Size matters• Exploration status also matters. Flow tested exploration wells and
brownfield developments generally minimize resource uncertainty• Location less so. Fields in Java generally seem to have lower
resource uncertainty, probably due to most exploration. Sumatera
& Outer Island fields have greater uncertainty
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0
5
10
15
20
25
30
10% 15% 20% 25% 30% 35% 40%
Mea
n LC
OE
-Cen
ts p
er k
Wh
Standard Deviation LCOE / Mean LCOE
Mean Gross Power Output
Less than 25 MWe 25 to 75 MWe Over 75 MWe
0
5
10
15
20
25
30
10% 15% 20% 25% 30% 35% 40%
Mea
n LC
OE
Cen
ts p
er k
Wh
Standard Deviation LCOE / Mean LCOE
Location
Java Bali Sumatera Other Islands
0
5
10
15
20
25
30
10% 15% 20% 25% 30% 35% 40%
Mea
n LC
OE
Cen
ts p
er k
Wh
Standard Deviation LCOE / Mean LCOE
Exploration Status
Blind Greenfield Unproven Greenfield Proven Greenfield Brownfield
Largest plantsProven fields
12Permen ESDM 32/2009
Perm
en ESD
M
11/200
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Permen ESDM 10/2005Permen ESDM 26/2008
Permen ESDM 11/2009
Perm
en ESD
M 2/200
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MEMR assigns
preliminary
survey
Firm conducts
preliminary
survey
MEMR
designates GWA
Firm applies for
preliminary
survey
Inputs from
Geological
Agency
Government
Authority
tenders GWA &
awards on price
Power plant
construction
Firm conducts
exploration
Field
exploitation
Firm conducts
feasibility
study
Firm
negotiates
PPA with
PLN
Commercial
operation
Firm applies for
generation license
MEMR
approves
price
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8
32
1
7
4
6
11
10
9
12
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Key issues for processing new WKP under Law 27/2003
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1.
Standards for readiness to tender should be strengthened2.
Limited provision for stakeholder input (“market sounding”)
into project design3.
Lack of rigorous prequalification criteria and use of lowest
price award criteria allows unqualified bidders and winners4.
Lack of pre‐feasibility study precludes government
guarantee, as required by PPP regulations5.
Bid documents do not clarify risk allocation or include draft
PPA. 6.
Capability of tender committee uncertain. 7.
No involvement or commitment from offtaker (PLN). (PP
59/2007 precludes PLN participation on tender committee)8.
Tenders based on preliminary survey awards are not
attracting multiple bidders9.
Project financing may run into bank legal lending limits
10.
Firms will not typically invest in exploratory drilling
prior to PPA. 11.
Relationship between tender price and PLN
negotiation unclear.12.
PLN has disincentive to accept geothermal price
above cost of supply (Perpres drafted to address this)13.
One‐by‐one price negotiations are time consuming14.
Prevailing price cap precludes some economically
justified development
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Implications for achieving Government targets
Affecting New WKP Development Affecting Legacy WKP
Development
Policy, Pricing
& Regulatory
Issues
Unqualified bidders….….may be winning “unbankable”
or
“un‐developable”
projects….….to sell power at prices unattractive
to the offtaker….….based on negotiations that take
years
• Pricing based on lengthy,
labor‐intensive one‐by‐one
negotiations of projects
• Geothermal power is often
more expensive than
alternatives like coal‐fired
generation –
offtaker
disincentive
Other Issues • Lack of project documentation
such as PPAs
• Availability and capability of
procurement team personnel
• Availability of human and other
supporting resources for project
development & implementation
• Availability of debt and
equity for SOE operators
• Availability of human and
other supporting resources
for project development &
implementation
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Substantial changes in geothermal policy & pricing are
required for the Government to achieve its geothermal
development targets
Key Pricing & Policy Issues
• The nature of geothermal power– uncertain– diverse– one size does not fit all
• The need for a compensation mechanism– There is an economic justification for geothermal power
– But prevailing financial cost of geothermal is higher than conventional
alternatives
– Developers need reasonable returns– The offtaker (PLN) does not print money
– Incremental cost must be paid for by some combination of electricity
consumers, Government (taxpayers) and sales of CERs
• Policy & pricing must be explicitly consider risk allocation
• Processes & standards should reflect international practice
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6
Resource segmentation as an input to policy making• Plants may be characterized by both expected LCOE as well as
uncertainty in LCOE estimates
• Plant size and exploration status can be used for segmentation
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0
5
10
15
20
25
30
10% 15% 20% 25% 30% 35% 40%
Mea
n LC
OE
US
Cen
ts p
er k
Wh
Std Dev LCOE / Mean LCOE
WKP > 55 MW & Proven WKP<55 MW Other Islands & Proven WKP<55 MW on JB & Proven
WKP<55 MW on Sumatra & Proven Blind or Unproven Greenfields
Large Plant Feed
in tariff for
proven GWA?
GWA requiring
further
exploration?
Small Plant Feed
in tariff for
proven GWA?
Example of how incremental costs could be funded
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THESE MECHANISMS
ARE NOT MUTUALLY
EXCLUSIVE
Key assumptions:
Total geothermal
installed5000 MW target
CDM Revenue
contribution $10/tCO2 , 0.8 per
kWh emission factor
Mandatory pass‐
through contribution5% rate increase
premium, base of 147 TWh
Green electricity
scheme contribution10% participation rate
of all rate payers, paying full cost of geothermal (147 TWh)
(Rp.467)
(Rp.723) (Rp.78)
(Rp.93)
(Rp.47) (Rp.38)
Source: World Bank