Unlocking Indonesia's Geothermal Potential

  • View
    220

  • Download
    1

Embed Size (px)

Text of Unlocking Indonesia's Geothermal Potential

  • ASIAN DEVELOPMENT BANK

    Unlocking Indonesia's Geothermal Potential

    About the Asian Development Bank

    ADBs vision is an Asia and Pacific region free of poverty. Its mission is to help its developing membercountries reduce poverty and improve the quality of life of their people. Despite the regions many successes,it remains home to two-thirds of the worlds poor: 1.6 billion people who live on less than $2 a day, with733 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusiveeconomic growth, environmentally sustainable growth, and regional integration.

    Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments forhelping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants,and technical assistance.

    About the World Bank

    ASIAN DEVELOPMENT BANK6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org

    U

    NLO

    CKING

    IND

    ON

    ESIA'S G

    EOTH

    ERMA

    L POTEN

    TIAL

    UNLOCKINGINDONESIA'SGEOTHERMALPOTENTIAL

    The World Bank Group (also known as the Bank Group) is the largest anti-poverty institution in the world, oering loans, advice, knowledge, and an array of customized resources to more than 100 developing countries and countries in transition. Established in 1944 and headquartered in Washington DC, the Bank Group is a specialized agency of the United Nations that is made up of 188 member countries. It works with country governments, the private sector, civil society organizations (CSOs), regional development banks, think tanks, and other international institutions on a range of issuesfrom climate change, conflict, and food crises to education, agriculture, finance, and tradein its eorts to accomplish two goals: end extreme poverty by 2030 and boost shared prosperity for the bottom 40 percent of the population in all developing countries.

    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.

    THE WORLD BANK1818 H Street NW Washington, DC 20433 United Stateswww.worldbank.org

  • Unlocking indonesias geothermal Potential

  • Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

    2015 Asian Development Bank and The World Bank

    Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, PhilippinesTel +63 2 632 4444; Fax +63 2 636 2444www.adb.org; https://openaccess.adb.org

    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.

    Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products does not imply that they are endorsed or recommended by ADB.

    By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

    The World Bank. This work is a joint product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

    Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank or the Asian Development Bank all of which are specifically reserved.

    Open Access. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of said license as well as the Terms of Use of the ADB Open Access Repository at https://openaccess.adb.org/termsofuse and that of The World Bank Open Access Repository at https://openknowledge.worldbank.org/terms-of-use

    This CC license does not apply to non-ADB or non-World Bank copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce. Neither ADB nor The World Bank can be held liable for any claims that arise as a result of your use of the material.

    AttributionIn acknowledging ADB and The World Bank as the source, please be sure to include all of the following information: Asian Development Bank and The World Bank. 2015. Unlocking Indonesias Geothermal Potential. Asian Development Bank

    and The World Bank. https://openaccess.adb.org; https://openknowledge.worldbank.org. Available under a CC BY 3.0 IGO license.

    TranslationsAny translations you create should carry the following disclaimer:Originally published by the Asian Development Bank and The World Bank in English under the title Unlocking Indonesias Geothermal

    Potential 2015 Asian Development Bank and The World Bank. All rights reserved. The quality of this translation and its coherence with the original text is the sole responsibility of the translator. The English original of this work is the only official version.

    AdaptationsAny translations you create should carry the following disclaimer:This is an adaptation of an original Work 2015 Asian Development Bank and The World Bank. The views expressed here are those

    of the authors and do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent nor of the World Bank, its Board of Executive Directors, or the governments they represent. Neither ADB nor the World Bank endorse this work or guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

    Please contact OARsupport@adb.org or publications@adb.org if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. For use of the World Bank logo, please contact The World Bank at pubrights@worldbank.org

    Notes: In this publication, $ refers to US dollars.Cover photo of Wayang Windu geothermal power plant in West Java, Indonesia by Star Energy.

    The World Bank1818 H Street, NW, USWashington, DC 20433Tel +202 473 1000; Fax +202 477 6391www.worldbank.org; https://openknowledge.worldbank.org

  • iii

    contents

    list of tables, Figures, and Boxes vi

    list of stakeholder comments ix

    abbreviations x

    currency and Units xii

    Foreword xiii

    acknowledgments xiv

    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

  • ivCONTENTS

    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