Regulatory Revitalizati on of Indonesia s Geothermal Program. Mike Crosetti 3 November 2010

Transcription

1 Regulatory Revitalizati on of Indonesia s Geothermal Program Mike Crosetti 3 November

2 Agenda 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 Prevailing framework & Government targets Assessment of geothermal resources, costs and regulatory processes Policy options to address impediments 2

3 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 ,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 3

4 .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

5 Development status & Government targets Presidential Decree 45/1991 Geothermal Law 27/2003 Original situation Legacy WKP Operated by JOC 2,159 MW Legacy WKP Operated by SOE 1,235 MW Total 5,710 MW New WKP 2,316 MW identified Current situation Geothermal field retained by JOC 1,769 MW 390 MW Transferred to public control Geothermal Field under SOE Control 1,625 MW 9 GWA (722 MW) have been awarded but not yet developed Currently producing 859 MW Planned by end MW Currently producing 332 MW Planned by end ,293 MW Planned by end ,316 MW UNDER JOC CONTROL UNDER SOE CONTROL NEW GREEN FIELD SITES Source: Adapted from World Bank, and updated based on Permen 15/2010 and MEMR data on other plants under tender 5

6 Scope of the Geothermal Pricing & Policy Study World Bank/GEF is financing assistance to MEMR to address pricing & policy issues Phase 1: Analyze Issues & Define Policy Options Phase 2: Agree a New Policy Framework Phase 3: Prepare Implementing Regulations Current Phase 6

7 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 7

8 Phase 1 activity flow Production Cost Analysis Review of Development Targets Initial Identification Resource Review Fields* * List drawn from Permen 50 Fields* 15/2010 (43), less dropped projects (1), plus other projects under tender or development (8) Fields that cannot be developed & resource adjustments Development Review 3 Fields that face nontechnical impediments Production Cost Analysis 4 High cost, low variance projects Low cost, low variance projects 5 Stakeholder inputs & legal review to identify impediments High variance projects 6 Define Policy Options Target under Policy Option 1 Target under Policy Option 2 Target Update Target under Policy Option 3 8

9 1 2 Resource review 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 MWe 1 Tangkuban Perahu 1 West Java Sungai Penuh Jambi Kamojang 5 & 6 West Java Hululais Bengkulu Ijen East Java Kotamobagu 1 & 2 North Sulawesi Iyang Argopuro East Java Kotamobagu 3 & 4 North Sulawesi 40 incl. above 5 Wilis/Ngebel East Java Sembalun NTB Rawa Dano (Kaldera Danau Banten) Banten Tulehu Maluku Cibuni West Java SUBTOTAL Cisolok Cisukarame West Java Darajat West Java Karaha Bodas West Java Other Projects Currently Under Tender or Legacy WKP MWe 11 Patuha West Java Suoh Sekincau Lampung Salak West Java Sipoholon Ria Ria North Sumatera Tampomas West Java Bukit Kili West Sumatera Tangkuban Perahu 2 West Java Gunung Talang West Sumatera Wayang Windu West Java Suwawa Gorontalo Baturaden Central Java Bedugul Bali Dieng Central Java Ulumbu NTT Guci Central Java Mataloko NTT Ungaran Central Java SUBTOTAL Seulawah Agam NAD Jaboi North Sumatera 7 4 Targets under Permen 15 and Other WKP in Process 22 Sarulla 1 (Namora I Langit) North Sumatera Legacy WKP 2, Sarulla 2 (Silangkitang) North Sumatera New WKP 1, Sorik Merapi North Sumatera Prelim. Assgnmnt Muaralaboh West Sumatera Status Unclear Lumut Balai South Sumatera , Rantau Dadap South Sumatera of which, Permen 15/2010 3, Rajabasa Lampung Ulubelu 3 & 4 Lampung Updated Maximum Total Potential 30 Lahendong 5 & 6 North Sulawesi Legacy WKP 1, Bora Central Sulawesi 5 0 New WKP Merana/Masaingi Central Sulawesi 20 0 Prelim. Assgnmnt Huu NTB Status Unclear Atadei NTT 5 5 2, Sukoria NTT 5 5 of which, Permen 15/2010 2, Jailolo North Maluku Songa Wayaua North Maluku 5 5 SUBTOTAL 3,627 1,974 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 3 9

10 4 3 Production cost analysis: Geothermal is part of a prudent energy mix Geothermal is characterized by greater uncertainty But LCOE is not correlated with fossil fuel price Environmental externalities Sumatera Incremental significantly Generation increase Cost geothermal attractiveness Coal Financial LCOE Lumut Balai Geothermal LCOE Coal with Externalities LCOE / kwh 10

11 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 30 Mean Gross Power Output 30 Exploration Status 30 Location Mean LCOE - Cents per kwh Largest plants Mean LCOE Cents per kwh Proven fields Mean LCOE Cents per kwh % 15% 20% 25% 30% 35% 40% Standard Deviation LCOE / Mean LCOE Less than 25 MWe 25 to 75 MWe Over 75 MWe 0 10% 15% 20% 25% 30% 35% 40% Standard Deviation LCOE / Mean LCOE Blind Greenfield Unproven Greenfield Proven Greenfield Brownfield 0 10% 15% 20% 25% 30% 35% 40% Standard Deviation LCOE / Mean LCOE Java Bali Sumatera Other Islands 11

12 5 Permen ESDM 2/2009 Permen ESDM 11/2008 Key issues for processing new WKP under Law 27/2003 Firm applies for preliminary survey MEMR assigns preliminary survey Firm conducts preliminary survey MEMR 1 designates GWA Inputs from Geological Agency 1. Standards for readiness to tender should be strengthened 2. Limited provision for stakeholder input ( market sounding ) into project design 3. Lack of rigorous prequalification criteria and use of lowest price award criteria allows unqualified bidders and winners 4. Lack of pre feasibility study precludes government guarantee, as required by PPP regulations 5. 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 bidders 9. Project financing may run into bank legal lending limits Government Authority tenders GWA & awards on price Permen ESDM 11/2009 Firm conducts exploration 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 consuming 14. Prevailing price cap precludes some economically justified development Firm conducts feasibility study Permen ESDM 10/2005 Permen ESDM 26/2008 Commercial operation Power plant construction Field exploitation Firm applies for generation license Firm negotiates MEMR PPA with approves PLN price Permen ESDM 32/

13 Implications for achieving Government targets Policy, Pricing & Regulatory Issues Other Issues Affecting New WKP Development 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 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 Affecting Legacy WKP Development 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 Availability of debt and equity for SOE operators Availability of human and other supporting resources for project development & implementation Substantial changes in geothermal policy & pricing are required for the Government to achieve its geothermal development targets 13

14 6 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 14

15 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 Mean LCOE US Cents per kwh Small Plant Feed in tariff for proven GWA? Large Plant Feed in tariff for proven GWA? GWA requiring further exploration? 0 10% 15% 20% 25% 30% 35% 40% 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 15

16 Example of how incremental costs could be funded THESE MECHANISMS ARE NOT MUTUALLY EXCLUSIVE (Rp.467) (Rp.723) (Rp.78) (Rp.93) (Rp.47) (Rp.38) Key assumptions: Total geothermal installed 5000 MW target CDM Revenue contribution $10/tCO2, 0.8 per kwh emission factor Mandatory passthrough contribution 5% rate increase premium, base of 147 TWh Green electricity scheme contribution 10% participation rate of all rate payers, paying full cost of geothermal (147 TWh) Source: World Bank 16

17 7 Geothermal policy options for Indonesia 17

18 THANK YOU! 18