Study on Economic Partnership Projects in Developing Countries in FY2007

Transcription

1 Study on Economic Partnership Projects in Developing Countries in FY2007 Study on East Java Sea Water Pumped Storage Power Project in Indonesia SUMMARY March 2008 Electric Power DevelopmentCo., Ltd.

2 SUMMARY 1 Background and Necessity of Project As for electricity business in Indonesia, power generation is assumed by Perusahan Listrik Negara Persero (PLN), Subsidiary Companies, and IPP, and transmission and distribution of electricity is exclusively done by PLN. The Electric Power Provision Plan (RUPTL) revised by PLN based on the National Power Development Plan (RUKN) from 2006 to 2010 says that the growth rate of power demand and peak demand is estimated to be 9 % and 6 to 7 %, respectively. As a result, electric energy sources of around 3,000 to 4,000 MW are estimated to be required to meet the peak demand in Java-Bali system in At present, the electric energy to satisfy the peak demand is provided by thermal power plants fueled by oil. The procured cost of oil fuel in PLN occupies higher than 70 % of the total cost of energy production due to the global hike of crude oil price. RUPTL says that it is the basic strategy that the ratio of the energy production by coal thermal power plants is to be increased without large change of that by gas fueled power plants, and that by oil fueled power plants dramatically reduced. Under such circumstances, new large scaled pumped storage power plants are urgently required in addition to the ongoing Upper Cisokan (1,000 MW) pumped storage power plant and the existing reservoir type hydropower plants so as to satisfy the peak demand. At present, PLN is planning to develop two conventional pumped storage power plants, however, the maturity of the plan is low with pre-feasibility stage. Therefore, East Java Seawater Pumped Storage Power Project is proposed herewith to meet the peak demand which has advantages of less alteration of the land and less negative impact on the environment due to the lower reservoir being unnecessary. 2 Issues to be Studied for Project Design Okinawa Sea Water Pumped Storage Power Project was constructed, comprehensively tested its performance through operation as a demonstration plant by Electric Power Development Co., Ltd. (J-POWER) at Churasaku, Kunigami Village, Okinawa Prefecture, having been consigned by former Ministry of International Trade and Industry (present Ministry of Economy, Trade and Industry) from 1987 to The demonstrative operation was successfully completed in 2003 confirming the feasibility of the project. Okinawa Sea Water Pumped Storage Power Project is the sole sea water pumped storage power plant in the world having been operated by J-POWER from Okinawa Sea Water Pumped Storage Power Project has its effective head of around 140 m, maximum output of 30 MW, on the other hand, the equipment applied to the proposed project is vastly enlarged in the scale. In addition, the meteorological and bathymetry conditions at the proposed site will be largely different from those in Okinawa. Therefore, in order to develop East

3 Java Seawater Pumped Storage Power Project, it is essential to obtain the economic advantages over the other power plants for peak demand and to solve the following technical issues, as well. (a) Dispersion of salty materials and infiltration of seawater into the surrounding area (b) Countermeasure against corrosion by seawater (c) Countermeasure against adhesion of the marine lives (d) Operation under the marine ambience 3 Outline of Project The proposed East Java Sea Water Pumped Storage Power Project is located near the Watangan Mountain in Lojejer Village Wuluhan County Jember Province of East Java State. This project has the plant capacity of 800 MW with 242 m 3 /s maximum discharge of sea water and m effective head by connecting the upper pond placed near the top of the mountain and the Indian Ocean as the lower pond by around 1,900 m long waterway. The dam for upper pond is funneled type rock fill dam faced by asphalt concrete with around 47 m height and with around 5,900,000 m 3 effective water storage. The waterway consists of around 850 m long headrace tunnel (steel penstock included) and 1,050 m long tailrace tunnel. The powerhouse is to be located underground at the end of headrace tunnel. The generating hour is designed to be 6 hours maximum per day. The energy produced is transmitted to Paiton Kediri transmission line through the newly constructed around 80 km transmission line. Through the transmission line, the energy for pumping is obtained from Paiton Thermal Power Plant. Proposed Site Figure 1 Project Site of East Java Seawater Pumped Storage Power Project (Indonesia)

4 Figure 2 Project Site of East Java Seawater Pumped Storage Power Project (Java) Blulan National Park Bromo Tengger Semeru National Park EAST JAVA Lumajang Site Jember Banyuwanggi 0 20km Nusa Barung Reserve Meru betiri National Park Figure 3 Project Site of East Java Seawater Pumped Storage Power Project (East Java) 3.1 Project Cost The project cost is estimated to be US$ Mil. including transmission line. The cost is estimated based on the unit rates of resources as of October, 2007 taking into account the meteorological, geological, regional conditions and scale of the project. The construction cost consists of the costs of preparatory work, mitigation measures of environmental impact, civil

5 work, hydro-mechanical equipment, electromechanical equipment, transmission line, administration, engineering services, and physical contingency. The VAT levied on the project is 10 %, and import duties is assumed to be exempted in case of PLN being executing agency. Six years are estimated for construction period, and the first unit is to be put into commercial operation after 71 month from the commencement of the construction work and the second unit after 72 month. 3.2 Summary of Economic and Financial Analysis Economic Analysis Economic analysis of a project is carried out by comparing the cost of an alternative thermal power plant having the equivalent capacity to the project with that of the project. The project life is set as 50 years. The analysis results are shown in the form of the evaluation indices of 20.35% for EIRR, US$399.60Mil. for NPV and 1.67 for B/C with discount rate of 10%, and US$254.56Mil. for NPV and 1.49 for B/C with discount rate of 12%. Thus, the proposed project could be feasible from the economic point of view, since its EIRR exceeded the opportunity cost of capital, not only 10% but also 12% Financial Analysis In financial analysis of a project, the financial benefit is obtained in the form of the revenue by electricity charge. The analysis results are shown in the form of the indices of 6.37 % for FIRR, negative US$166.41Mil. for NPV, and 0.75 for B/C with discount rate of 10 %. From the financial point of view, accordingly, the proposed project may not be said to be feasible in case of a discount rate of 10 %. This is caused by the distortion of electricity tariff of PLN, which is politically decided, that can not reflect the energy charge in the cost at peak time. However, the project could be viable from the financial point of view, if a financial source with interest rate of less than 6.37 % were procured for execution of the project under favorable management conditions. 3.3 Comparison Result of Alternative Project and Optimization of Capacity At present, PLN is proceeding with the study on conventional pumped storage power projects of Upper Cisokan (250 MW x 4) with the detailed study having been completed, and two other conventional ones with just pre-feasibility study having been completed with less maturity of the study. As stated in Demand Forecast, it is forecasted that peak electric power supply of 3,000 to

6 4,000 MW will be necessary in the year 2016, in other words electric power supply of 2,000 MW will be necessary in addition to the existing reservoir type hydropower plants and Upper Cisokan project. Therefore, any conventional pumped storage power projects under study by PLN are not the alternatives to this project. The economic and financial analysis results show that the proposed project will play an important role in the Indonesian economy as a project being counted on for peak demand. Maximum dam height (reservoir storage capacity) of fresh water pumped storage power project has its upper limit resulted from topographical and geological constraints, since upper and lower ponds are generally constructed at natural river(s). And, in terms of economics of pumped storage power project, project with the larger capacity can generally attain the better economics due to economies of scale in spite that it is sometimes depending on site conditions. The maximum storage capacity of lower pond is infinite because the lower pond of the proposed project is sea. In addition, it is physically possible to construct large upper pond with maximum power plant capacity of 2,000 to 3,000 MW in light of the topographical conditions at the site. However, the maximum capacity of each pumped storage power project is limited up to around 1,000 MW with the objective of diversification of risk to avoid negative impact to the grid in case of forced outage due to disaster and accident. In addition, taking into account the manufacturing upper limit and project economics, the project capacity is designed to be 800 MW (400 MW x 2). 3.4 Environmental and Social Impact The impacts deriving from the project is divided into tow aspects of natural impact and social impact. The temporal impact is divided into two periods of construction period and operation period Impact on Natural Environment The followings are revealed through the site reconnaissance and literature search regarding the natural environmental condition of the surrounding region of the project. The important issue is to survey the habitat and feeding area of Banteng identified at the site, which is designated as Endangered (EN) according to International Union for Conservation of Nature and Natural Resources Red List of Threatened Species (IUCN), and to develop and execute measures of monitoring and protection. (1) Flora The site for the proposed project is designated as national protected forest, which aims for protecting the area from natural disaster, but not for protection of local ecology. Most of the area is classified into land with weeds after deforestation, and the degree of natural vegetation is around 5 out of 10, which means the degree of natural state of the area is not high. No threatened species designated in IUCN Red List is found at the site.

7 (2) Fauna The following species identified through the site survey are designated as Endangered (EN), Vulnerable (VU), Near Threatened (NT), Least Concern (LC), according to IUCN. They are Banteng (EN) and Malayan Porcupine (VU) of mammals. Black-banded Barbet and Rhinoceros Hornbill categorizes in (NT) of birds, and Black-thighed Falconet and White-collared Kingfisher in (LC) of birds. In addition, Reticulated Python of reptiles is identified as domestically protected species. These are identified by visual observation, hearing and trace. (3) Dispersion of Salty Substances from Upper Pond The dispersion of salty substances from the upper pond under windy conditions simulated based on the current available wind data does not affect the ecology of surrounding area because the salty substances originated from the sea is dominant. Further analysis is to be carried out based on the data obtained through the future survey Impact on Social Environment The entire project site consists of national land and sites for forestation handled by national enterprises. This project does not require the involuntary relocation of local residents since there are no residents living or cultivating activities at the project site. The nearest construction area to the local living quarter is around 4 km away, therefore, the construction activities is judged to have no serious negative impact on the residential quarter, however, the protective measure against noise by barrier wall and monitoring will be applied, if necessary. The murky water deriving from the construction activities is managed by installing the water treating plant for land area and by measures against the diffusion of the water for the sea area. The water quality of effluent discharged directly into the sea is, in principle, same as that of water taken from the sea, therefore, it could be concluded that such water has no negative impact on the surrounding ecology and fishery activities. The equipment for energy generation is installed in the underground powerhouse, therefore, the negative impact on the surrounding environment is barely expected during the plant operation. During the construction work in the sea area, the measure is applied to keep fishermen away from the construction area for safety reasons, however, the restricted area is to be minimized. During plant operation period, the velocity of discharged water from outlet is controlled under the certain limit so as no to have negative impact on the surrounding sea, therefore, it could be concluded that the discharged water has no negative impact the fishery activities. 4 Project Schedule The project implementation procedure consists of financial arrangement, detailed design (preparation of tender documents included), tendering procedure, construction work. The schedule

8 of proposed project is estimated 25 months for detailed design, 18 months for tendering procedure (first 6 months out of 24 months of detailed design overlapped), and 72 months for construction work. The commissioning test of the first unit is commenced after 67 months from the start of the construction work, after 71 months from the start of the construction, 4 months behind the test, the first unit is put into commercial operation, and after 72 months for the second unit commercial operation. The construction work of upper pond, intake, penstock, and outlet is commenced independent of that of the powerhouse after completion of the preparatory work. Construction work of tailrace tunnel is commenced through the access tunnel branching from the access tunnel to the powerhouse independent of the powerhouse work. In addition, transmission line and its appurtenant facilities should be completed within 60 months after the start of the construction work, and several tests should be finished by the commissioning test of the first unit. Comprehensive schedule of this project is shown in Figure 4. F/S Items Comprehensive Schedule Design Work Supplementary F/S Selection of Consultant D/D & Tender Documents Tender Procedure Construction Work L/A Figure 4 Implementation Schedule 5 Application for Yen Loan EIRR of this project, which derives form the economic analysis, shows a favorable value of %. On the other hand, FIRR deriving from the revenue by electricity charge from peak time, shows a rather unfavorable value of 6.37 %. Taking into account PLN s financial strength and results of financial evaluation of the project, it is difficult for PLN to finance the whole cost of this project by his own financial resources, however, it would lead to significant benefit for PLN to develop this project by public funds with low-interest rate (soft loan). However, it should be noted that negotiation with the Japanese Government is required to apply Japanese yen loan in respect of the issue of at least 15 % of the project cost being borne by the Indonesian Government in case of general un-tied. As for prospect of the finance arrangement, PLN conceives it the issue to be solved on later stage, therefore, PLN has no intention to seek for finance from the other donors or private funds at this moment.

9 On the other hand, it is necessary that the proposed project is incorporated in RUKN prepared by the Indonesian Government through RUPTL prepared by PLN. In order to obtain the loan, it is necessary for PLN to carry out environmental impact assessment in parallel with making interest with National Development Planning Board (BAPPENAS) to list the proposed project on the Blue Book. As for the Japanese Government, it is necessary to share the information about the project among the agencies concerned beforehand to take smooth action for providing the project with Japanese yen loan, once the loan application has been brought up by the Indonesian Government. In addition, the frame work of the parties concerned in Japan is well prepared in order to fill each role of individual to render the loan. 6 Technical Advantages of Japanese Company Okinawa Sea Water Pumped Storage Power Project, which is located in Churasaku, Kunigami Village, Okinawa Prefecture in Japan, is sole commercial plant using seawater in the world, and has been owned, operated, and maintained by J-POWER for around 8 years without any significant troubles. Only Japanese consultant manufacturers, and contractors have the technical experience and know-how of survey, design, construction supervision, and operation and maintenance of seawater pumped storage power project. All mechanical equipment applied to Okinawa Seawater Pumped Storage Power Project is made in Japan, consequently, the competitive power of Japanese companies can be assumed extremely high for implementation of the proposed project. 7 Definite Schedule and Risk for Implementation of Project PLN is supposed to intend to revise RUPTL and RUKN based on this report in order to incorporate this project in the development program as soon as possible through the approval by the Indonesian Government. For that purpose, it is necessary for PLN not only to ensure the economical advantage of the proposed project but also to develop technical solution to several issues deriving from enlarging the scale of the capacity from 30 MW of Demonstration Plant to 400MW x 2 of the proposed plant in order that the approval procedure in Indonesia is expedited. In addition, the environmental assessment should be implemented swiftly and precisely because possible existence of endangered spices has been revealed by the site survey carried out in this study. It is essential requirements for PLN to ensure the economical advantage and to solve technical matters, and to study in depth the environmental issues in order that, by Japanese yen loan, PLN can achieve the commissioning of the project in 2017 as stated in 4. Project Schedule.