ASIAN DEVELOPMENT BANK
Unlocking Indonesia's Geothermal Potential
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This report was produced jointly by the Asian Development Bank and the World Bank and is based on a series of technical assistance activities conducted during 2013-2014. The study documents key issues that have constrained the development of Indonesia's geothermal power development sector, including taris, tendering processes, financial considerations, permitting, and inter-agency coordination. The report then makes a set of comprehensive recommendations to unlock the potential of the sector, including a new tari regime, improvements to the tendering process, re-negotiation of power purchase agreements, and innova-tive modes of financing and project de-risking.
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Unlocking indonesias geothermal Potential
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2015 Asian Development Bank and The World Bank
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Some rights reserved. Published in 2015. Printed in the Philippines.
ISBN 978-92-9254-901-5 (Print), 978-92-9254-902-2 (e-ISBN)Publication Stock No. RPT146821-2
Cataloging-In-Publication DataAsian Development Bank and The World Bank. Unlocking Indonesias geothermal potentialMandaluyong City, Philippines.
1. Geothermal energy. 2. Indonesia. 3. Energy economics. I. Asian Development Bank.
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Notes: In this publication, $ refers to US dollars.Cover photo of Wayang Windu geothermal power plant in West Java, Indonesia by Star Energy.
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list of tables, Figures, and Boxes vi
list of stakeholder comments ix
currency and Units xii
executive summary xv
1 introduction 1
1.1 Background 11.2 Objectives 21.3 Defining the Geothermal Resource 21.4 Geothermal Targets 31.5 Scope 9
2 tariff design 10
2.1 General Principles of Tariff Design 102.2 Fixed Tariffs or Competitively Bid Tariffs 112.3 Ceilings 132.4 Production Costs or Benefits as a Basis for Ceiling Prices? 15
3 implementation issues and Procedures 18
3.1 Tariff Ceilings and Escalation 183.2 Transparency 183.3 Recovery of Incremental Cost 193.4 Tariff Setting as a Process 213.5 Conclusions on Implementation Procedure 21
4 tariff ceilings Based on Benefits 22
4.1 Alternatives to Geothermal 224.2 The Components of Avoided Costs 244.3 Macroeconomic and Global Energy Price Forecasts 244.4 Avoided Fixed Costs 254.5 Avoided Variable Costs 264.6 Avoided Global Externalities 294.7 Local Environmental Externalities 33
4.8 Premium for Price Volatility 364.9 Avoided Cost of Transmission 404.10 Local Economic Development Benefits 414.11 Proposed Tariff Ceilings 43
5 Power Purchase agreements 46
5.1 Escalation and Indexation 465.2 Renegotiation of Power Purchase Agreements 485.3 Adjustment for Project Size 505.4 Adjustment for Delay 515.5 Procedure 58
6 recovery of incremental costs 59
6.1 Cost of Existing Projects 596.2 Incremental Costs of Future Projects 606.3 Impact on Ministry of Finance 65
7 tendering 67
7.1 The Issues 677.2 Evaluation of Past Tenders 687.3 Options for Improving the Tender Process 69
8 the tariff impacts of Front-end de-risking 73
8.1 Cost Recovery Options for the Fund 758.2 Sensitivit