STRATEGIC VALUE OF GEOTHERMAL ELECTRICITY AND THE IMPACT OF ITS PRICING

Anang Yahmadi

PT PLN (Persero) – Directorate of Construction and New/Renewable Energy – New/Renewable Energy Division

INDONESIA INTERNATIONAL GEOTHERMAL CONVENTION AND EXHIBITION 2014

Jakarta, June 5th, 2014

Assembly Hall JCC

AGENDA

GEOTHERMAL FOR ELECTRICITY

PLN POLICY ON GEOTHERMAL DEVELOPMENT (NOT LEAST COST VS PLN TARIFF)

GEOTHERMAL OPERATION MODE (BASE VS PEAK)

GEOTHERMAL TARIF IMPACT (SUBSIDY)

FACTORS IMPACT TO GEOTHERMAL TARIFF

CONCLUSION

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Power Plant Capacity (PLN + IPP): • Non RE has share 86 %• RE has share 14 % (geothermal 3,5 %)

Generation (PLN + IPP): • Fossil power plant is dominant by 91 % (Coal, Oil and

Gas ).• Share of RE only 9 % (geothermal 4%)

Generation Share (2013)

Existing Total Capacity 38,320 MW

Coal Steam PP

Combine Cycle PP

Gas Turbine PP

Diesel PP

Geothermal PP

Hydro PP

0 2000 4000 6000 8000 10000 12000 14000 16000

14006

7704

3224

3267

564

3524

4797

645

291

60

745

345.4

IPP

PLN

Geothermal, 3.5% Hydro,

10.2%

Coal STPP,46.6%

CCPP,21.7%

GTPP,9.2%

Diesel,8.8%

Power plant composition (35.617 MW in 2012)

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The Significance of Geothermal for Electricity( Geothermal share of 4 % )

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Gas

Geothermal

Hydro

LNG

HSD MFO

Coal

• Strengthening the power capacity and energy supplied to meet the electricity demand

• To reduce the dominant of Coal Fired Power Plant in Java Bali and Sumatra or large systems

• To replace the fossil fuel oil consumption in the system with fossil fuel oil generation (mostly in the small systems)

• To achieve more competitive the generation cost of electricity

• To increase energy security due to its highest capacity factor

The Role of Geothermal for Electricity

Gas

Geothermal

LNG

HSD MFO

Coal

To support the National Policies on utilizing RE development (including geothermal) such as : Geothermal Law (UU 27/2003), Government Regulation for Geothermal Development (PP 59/2007), President Regulation for Contribution of RE (Perpres 5/2006), President Decree for Fast Track Programs II (Perpres 4/2010) and also related Ministries Regulation.

Consistently increasing the role of RE as capacity expansion: to supply electricity demand growth, to meet the electrification ratio target and to achieve the target of Fossil Fuel Consumption Reduction Program

In line with policy of prioritising the utilization of local energy source and vision on environmental perspective

The development of geothermal is not based on “least cost” but on the readiness of the scheme but should comply with the concept of demand – supply balance to avoid over capacity of base loader power plant in the system.

Expected to reduce the electricity generation cost in the related system or less than the electricity tariff.

Policies on Geothermal Development for Electricity

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HydroGeothermal

Coal

Gas

LNG

Fuel Oil

PLN’s 10 YEARS ELECTRICITY DEVELOPMENT PLAN (RUPTL 2013 – 2022) ( Expected share of Geothermal increase from 4 % to 11 % by 2022 )

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Total 60 GW additional capacity in the period of (2013 – 2022) consisting of:

Coal fired : 38 GW Hydro : 6.5 GW Geothermal : 6.0 GW Combined cycle : 5.0 GW Gas Turbine/Engine : 3.7 GW Other : 0.3 GW

Coal will be more dominant and geothermal is expected to increase significantly (from 4% to 11%)

Fuel Mixed Projection

Capacity Expantion Plan

Capacity Expantion Plan

Geothermal Capacity Expansion Plan (2013-2022)Total 6060 MW

• Expected commissioning years mostly after 2016.

• Geothermal development will be dominated by IPP (96 %)

• Majority is part of the Second Fast Track Program (FTP II) by 4965 MW (82 %)

• Mostly, 93%, developed in Java Bali and Sumatra system with base load operation mode to reduce the dominant of CFPP.

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YEAR 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 TOTALSUMATRA 0 0 0 55 330 445 360 490 405 770 2855JAVA-BALI 0 55 30 30 225 0 1275 110 220 855 2800OUT OF JBS 0 5 0 0 25 50 30 50 45 200 405TOTAL 0 60 30 85 580 495 1665 650 670 1825 6060COMULATIVE 0 60 90 175 755 1250 2915 3565 4235 6060

14183

20820

19915

22751

4000

8000

12000

16000

20000

24000

28000

1 8 15 22 29 36 43

MW

Jam

Beban Harian Tipikal Sistem Jawa Bali

Idul Fitri Sabtu Minggu B. Puncak 2013

.

CFPP

GothermalPP CCPP

GTPP

Demand and Supply Typical Curve of Java – Bali System

Typical Daily Load of Java Bali System

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Hydro Res & LNG/CNG

Gas

Geothermal

Hydro

LNG

HSD MFO

Coal

• Geothermal power plant operated : total 1313 MW (566 MW of PLN and 747 MW by IPPs)

• Energy produced from geothermal (realization and projection):

• Energy cost from geothermal (at power plant) :

• National cost of electricity production (at power plant) : 9.23 c USD/kWh (RKAP 2014)

• Average tariff of electricity : 7.97 c USD/kWh (RKAP 2014)

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COST OF ELECTRICITY FROM GEOTHERMAL

Year 2012 2013 2014 2015 2016

TWh 9.4 9.8 10 10.9 16.0

Geothermal electricity price (2012) 6.67 c USD/kWh

Geothermal electricity price (contracted)

Existing WKP (9 PPA)

New WKP (6 PPA)

8.04 c USD/kWh (5.6 – 18.2)

7.02 c USD/kWh (6.79 – 8.25)

9.08 c USD/kWh (8.09 – 9.55)

Geothermal electricity price (bidding result) 8.25 c USD/kWh (5.6 – 18.2)

Gas

Geothermal

Hydro

LNG

HSD MFO

Coal

• The contract of IPP Geothermal will increase PLN subsidy since the generation cost of geothermal electricity higher than coal fired electricity, except in small system, which the electricity mostly supplied by diesel oil. For example in Flores system, IPP Geothermal expected to reduce subsidy.

• Referring to Geothermal Tariff study by consultant of World Bank – ADB (2014), PLN avoided cost for geothermal tariff based on coal power plant : 6.92 c USD/kWh (2014) escalated to 8.50 c USD/kWh (2019)

• With assumption the average tariff of 3.5 GW IPP geothermal at 11.5 c USD/kWh in 2020, additional subsidy through PLN (estimate) : 0.78 bill USD in 2020. If the contract of IPP Geothermal about the ceiling price (14.7 c USD/kWh – WB/ADB study) the subsidy will be more than double.

The Impact of Geothermal Tariff to PLN Subsidy

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Gas

Geothermal

Hydro

LNG

HSD MFO

Coal

The Factor Impact to Geothermal Tariff

• Royalties, fees, retribution, taxes, incentives, guarantees : The Government has provided regulations to promote the attractive tariff for geothermal

• Permits (number and duration) : Need improvement

Regulation

• Cost of fund : Developer should give the best effort to have access on the lowest cost of fund

• Capacity Factor, escalation, TOP/DOP : has been standardised in the PPA

• Cost of investment increase due to market condition: Cost of drilling increase due to many projects come in the same schedule

Commercial

• Drilling success ratio : More developers state high difficulties to meet the success ratio target

• Well characteristic (capacity, steam fraction, chemist, etc)

• Project management (when the COD) : More developers fails to commit the COD target

Technical

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Gas

Geothermal

Hydro

LNG

HSD MFO

Coal

• The contribution of geothermal for electricity is more to support the government policy on RE and more in line with PLN vision to doing business with environmental perspective and

• Geothermal power plant will reduce the high dependency on coal as power plant with base load operation mode, in which the GPP commonly have a higher security of supply than CFPP.

• Geothermal power plant will increase PLN cash out therefore, it is important to clearly defined and transparency disclosed the portion of geothermal tariff will be responsible cost of PLN, government incentive or pass trough to the consumer.

Conclusion

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Thank youThank you

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