JICA’s Cooperation in Geothermal Energy Development in Indonesia

1. JICA’s Cooperation in
Geothermal Energy Development
in Indonesia
March 19, 2014
Ichiro Sato
Office for Climate Change
Global Environment Department
Japan International Cooperation Agency

2. 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?

3. 33
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 Indonesia
Potential and Policies
Country
Geo
Potential
(MW)
USA 30,000
Indonesia 27,790
Japan 23,470
Phillipines 6,000
Mexico 6,000
Iceland 5,800
New Zealand 3,650
Italy 3,270

4. Policy Goal Achievement (Roadmap, etc.)
Gov’t-led
Projects
IPP Projects
4
II. JICA’s Cooperation in Geothermal Energy Development
1. 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

5. 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 Development
2. Support to Government-led Projects
JICA-financed Projects (Target Year of Commercial Operation Date: COD)
Hululais
55MW x 2
( ～ 2015)
Lumut Balai 1&2
55MW x 2
(～ 2014)
Lumut Balai 3&4
55MW x 2
(～ 2015)
Ulubelu
55MW x 2
(～ 2012)
Lahendong
20MW
(completed)
Tulehu
20MW
( ～ 2015)
▲COD
Sumatra
Java
Sulawesi
Maluku
Kalimantan
▲COD
▲COD
▲COD
Source: Electricity Provision Plan (RUPTL) 2011-2020
▲COD

6. 6
II. JICA’s Cooperation in Geothermal Energy Development
3. 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 necessary
Technical 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. 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 contribution
Feed 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 Development
3. 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

8. 8
II. JICA’s Cooperation in Geothermal Energy Development
3. IPP Promotion: in line with GOI’s Key Policy Improvement
GOIPoliciesJICAContributions
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

9. 9
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 Development
3. IPP Promotion: Way Forward

10. 10
II. JICA’s Cooperation in Geothermal Energy Development
3. 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 management
PIP: 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

11. 11
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)

12. Thank you for your attention.
Japan International Cooperation Agency