Anjar Priandoyo – MSC EM University of York 2015

Small Geothermal Power Plant

A historical approach

Disclaimer: Some pictures is taken from public license such as library, wikipedia, this

presentation is for educational purpose only

Mount Tambora Eruption, 10 April 1815Largest eruption in the 10,000 year

80 times bigger than Vesuvius 79 AD,

VEI-7 scale, dropping world global temperatures by 3’c degree

200

A Year Without Summer

1816 Lord Byron’s Darkness, 1818 Shelley’s Frankenstein, 1819 Polidori’s

Vampyre/Dracula

200

500

Beginning of Age of Discovery

22 April 1529 Treaty of Zaragoza (Moluccas). 7 June 1494 Treaty of Tordesillas

A first multinational, public listed company

20 March 1602 VOC open it’s trading post in Banten, Indonesia

400

400• 18% annual

dividen for 200

years, 40% in 1699

• 400% profit

in first Voyages to

Moluccas

• $7.4 trillion

business (adjusted,

Exxon $0.5 T,

Chevron $0.2 T)

Lesson #1: Skill > Resources

Having skill is more important than having a resources

Business & Finance

Macro Political Risk

Micro Political Risk

Geothermal is a perfect case study to apply the

engineering principles in business

Why Small Geothermal Power Plant?

Criteria Explanation

Background • Indonesia home of 40% world geothermal reserve (28 GW)

• 73% electrification, a country of 44GW expecting 35GW in next 5 year.

• Developing countries, with multiple issues in political, economy and

socio culture

Engineering

principles

• Technology selection (Geothermal vs Solar vs Hydro: Energy Mix)

• Design of Plant (Binary Cycle, Condensed System vs Multiple small

scale vs single medium scale

Business

model

• A public private partnership with academic and community involvement

• High risk business model

• High capital and long period return of investment

• Complex operating model?

International

Business

• Chevron own the biggest Geothermal facility in the world (354 MW),

largest Oil field in Indonesia since 1880-1952 (BP, Shell)

• US – Indonesia relationship perspective

• An understanding of micro political and macro political risk

Kamojang Geothermal Plant 1935

Power

Plant

Capital

Cost *

$mil / MW

LCOE **

(Fixed &

Var Cost)

Wind Off-S 4.91 100

Nuclear 3.98 60

Solar 2.60 280

Geothermal 2.42 60

Hydro 2.09 20

Coal 1.42 40

*IEA 2014 Report

**OpenEI 2014

Geothermal

Technology

Notes

Micro & Small 100 KW, 2 MW Back

Pressure, 5 MW

Condensing

Large Dry Steam, Flash

Steam, Binary Cycle

Enhanced

On what scale and condition the

business is feasible?

Fundamental Question

004• 26% world

market share for

Honda Motorcycle

• 6% Country

annual growth

• 250 Million

people

Opportunity

004• $3,475

GDP Percapita

• 107th Corruption Index

• 300 Ethnic

group, Potential for

horizontal conflict

300km/h speed, 1000’c, poisoned gas

Risk & Threat

010

0012004 Indonesian 9.2 SR TsunamiKilled 240,000 people, Cease Fire for Separatism

Newly president for 10 years relative stable politics after 32 years

under Soeharto

A good strategy with understanding of macro & micro risk

Benefit > Risk

Lesson #2: Benefit > Risk

Business is where benefit bigger then the risk

Business & Finance

Macro Political Risk

Micro Political Risk

Key assumption

What assumption made in this report?

Criteria Explanation

Plant Size • 10 MW

Capital • 30 Million USD

Party

Involved

• Investor: Chevron Indonesia 25% of share, Pertamina Indonesia 20%

• University of York, UK Technical Expertise

• BBPT/Agency for Assessment and Application of Technology, Indonesia

Ministry of Research and Technology

• Main Contractor: JGC-Alstom-Rekin

Construction

Period

• 2 Years

How accurate is our estimation?

1. Business Plan Estimation

• How accurate is the cost estimation of Geothermal Business

− Will be depending on geological survey and technical assessment

• How accurate is the current market share estimation

− The agreed FIT (Feed in Tariff) will be significant in business projection

• How accurate is the potential share that can be achieved

A sound of healthy economy performance in the

latest 10 years

2. International Business & Finance Perspectives

Indonesia Indicator US

5.01% Annual GDP Growth 2.5 %

7.5% Interest Rates 0.25 %

6.96% Inflation Rates 0.70 %

From Industry risk perspective, micro-political risk

is quite low and can be managed

3. Micro Political Risk

• Ensure robust project design such as well productivity, geothermal steam

resource availability and plant factor.

• Company can be set up using partnership with local company or local

government, so the risk can be shared.

• Transfer a risk using insurance claim

Any potential macro political risk must be

addressed as soon as possible

4. Macro Political Risk

• Define clearly the government’s role in electricity market reform and the

terms of its involvement as precisely as possible.

• Recognize that electricity price fluctuations are intrinsic to well-

functioning electricity markets

• Develop demand response within electricity markets.

• Be prepared to detect and to act upon wholesale electricity market

manipulation.

• Monitoring adequacy of gas markets and investments.

Carefully crafted entry strategy ensure the

business well executed

5. Mode of Entry

• The lifecycle of geothermal plant is to be estimated around 40 years.

• The high investment in the first three years and the following years in

the early production should be taken in to consideration carefully.

• A joint venture and partnership is required to mitigate some of the risk

• The cultural approach during the entry process is important to be

considered carefully.

• The development of geothermal business usually located in remote

area where infrastructure is difficult.

• The labor that will be used mainly from local and also there are also

number of possibilities of conflict with the local leader.

Question & Answer

Thank You …

Summary: A Small Geothermal Power Plant, with

10 MW Capacity, with Capital Cost of $ 300 Mil, is a

profitable and feasible business

A successful International business require a strong

understanding of business & finance perspective of

the two countries, a well managed macro and micro

risk, a condition where benefit is bigger than risk

Key Lessons:

1. Skill > Resources

2. Benefit > Risk

Sizing VEI SR Tons Volcanic Ash

Chernobyl 3.87 9 T

Hiroshima Bomb 6.00 15 KT

Tsar Bomba 8.35 50 MT

Merapi (ID) 2010 4

Vesuvius 79 AD 5 3

Krakatoa (ID) 1883 6 8.75 200 MT 18

Tambora (ID) 1815 7 80

Toba (ID) 75,000 BC 8 9.15 800 MT 2800 Biggest in 25 million y

Sumatra Tsunami 2004 9.20 950 MT

Appendix - 1

List of Images & URL

Appendix - 2

• http://upload.wikimedia.org/wikipedia/commons/6/66/Anonymous_The_Noord-Nieuwland_in_Table_Bay,_1762.jpg

• https://www.rijksmuseum.nl/en/explore-the-collection/timeline-dutch-history/1602-trade-with-the-east-voc

• https://ca.finance.yahoo.com/photos/most-valuable-companies-ever-adjusted-for-inflation-1351801906-slideshow/most-valuable-companies-in-history-adjusted-for-inflation-photo--1113431046.html

• http://www.publicresearchinstitute.org/Pages/geothermal/images/NesjavelirGeothermal30MwePlant.jpg

• http://en.wikipedia.org/wiki/Kamojang#mediaviewer/File:COLLECTIE_TROPENMUSEUM_Arbeider_aan_het_werk_op_de_Kawah_Kamojang_TMnr_10030172.jpg

• http://exergy.se/goran/cng/alten/proj/98/geotermal/Image6.jpg

• http://www.driever.nl/foto/achtergronden/JLM-NatGeo-Mount-St-Helens-1980-May-18.jpg

• http://www.tradingeconomics.com/united-states/gdp-growth-annual