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GOVERNMENT POLICIES TO BOOST GEOTHERMAL DEVELOPMENT IN INDONESIA

MINISTRY OF ENERGY AND MINERAL RESOURCES OF REPUBLIC OF INDONESIADIRECTORATE GENERAL OF NEW. RENEWABLE ENERGY. AND CONSERVATION ENERGY

Jakarta. June 5th 2014

Presented on:Indonesia International Geothermal Conference and Exhibition (IIGCE)

By :Rida Mulyana

Director General of New. Renewable Energy and Energy Conservation

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CONTENTS

I. BACKGROUND

3

II. GEOTHERMAL POTENTIAL

5

III.REGULATION AND POLICY

7

IV.MAIN CONSTRAINT ON GEOTHERMAL

DEVELOPMENT

AND THEIR MEASURES 10

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I. BACKGROUND

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1. Indonesia’s primary energy supply is mainly based on fossil fuels, but the reserves decreased significantly.

2. Located in the Ring of Fire, Indonesia is blessed with an enormous geothermal potential, more than 28 GWe and the locations are spread in almost all regions. Up to 2014, total installed capacity of geothermal energy is only 1,341 MW (< 5%).

3. The Government intends to accelerate and speed up the development of geothermal energy and achieve the targets of 9,500 MW in 2025 as stated in Presidential Decree No. 5/2006 on National Energy Policy;

4. Up to 2014, The Government has determined 58 GWAs. Nineteen of the GWAs were established before the issuance of Law No. 27/2003 while 39 of them were established afterwards.

5. Geothermal Energy cannot be exported which make it suitable to meet domestic energy needs, reducing the dependence of foreign fuel and provide added value in energy diversification;

6. Geothermal energy is clean, environmentally friendly and sustainable;

7. The Government have been issued crash program to accelerate electricity generation. Geothermal power plant is expected to contribute 4,965 MW;

8. To boost geothermal development and provide certainty of geothermal energy price, goverment re-structure the regulation related to the purchase of electricity from geothermal power plant.

GEOTHERMAL ROLES TO MEET NATIONAL ELECTRICITY DEMAND

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II. GEOTHERMAL POTENTIAL

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PLTP SIBAYAK: 12 MW

PLTP GUNUNG SALAK: 377 MWPLTP WAYANG WINDU: 227 MW

PLTP KAMOJANG: 200 MW

PLTP DARAJAT: 270 MW PLTP DIENG: 60 MW

PLTP LAHENDONG: 80 MW

Note:

Production Phase

Ready to Developed

Detailed Survey

Preliminary Survey

Sources : Geological Agency. MEMR (2013)

PLTP ULUBELU: 110MW

PLTP ULUMBU: 5 MW

PLTP MATALOKO: 2.5 MW

GEOTHERMAL DISTRIBUTION MAP

RESOURCES(MWe)

RESERVE(MWe)

INSTALLEDCAPACITY

Speculative Hypothesis Possible Probable Proven

7.454 4.931 13.315 823 2.288

12.385 16.426 1.341

28.811

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III. REGULATION AND POLICY

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I. Law No. 27/2003 on Geothermal

II. Law No. 30/2007 on EnergyArtc. 20 (4) : Government and regional government in accordance with their authority obliged to increase the supply of new and renewable energy.

III. Law No. 30/2009 on ElectricityArtc. 6 : The utilization of primary energy sources for national electricity need should prioritize the sources of new and renewable energy.

IV. Government Regulation No. 59/2007 on Geothermal Business Activities, as amanded in GR No. 70/2010

V. Presidential Regulation No. 04/2010 on Assignment to PT. PLN (Persero) to Accelerate The Development of Power Plant from Renewable Energy, Coal and Gas

VI. MEMR Regulation No. 11/2008 on The Procedure for Determination GWA

VII. MEMR Regulation No. 02/2009 on The Guidelines for Geothermal Preliminary Survey Assignment

VIII. MEMR Regulation No. 11/2009 on The Guidelines for Implementation of Geothermal Business

IX. MEMR Regulation No. 22/2012 on Assignment to PT PLN (Persero) to Purchase Electricity from Geothermal Power Plant and Geothermal Power Purchase Benchmark Price by PT PLN (Persero)

X. Regulation related to Financial Support and Guarantee:• Government Regulation No. 62/2008 jo No. 1/2007 provides Income Tax Facilities For Investment• MoF Regulation No. 139/PMK.011/2011 which Guarantee The Feasibility Of PT PLN (Persero) To Develop Power Plant Through Public

Private Partnership Mechanism• MoF Regulation No.03/PMK.011/2012 provides Geothermal Fund For Exploration Activities In Order To Mitigate Upstream Risk• MoF Regulation No. 177/PMK.011/2007 regulates The Exemption Duties On Imported Goods• PMK No. 22/PMK.011/2011 states that Government Borne Value Added Tax On The Imported Goods For The Upstream Activities

GEOTHERMAL REGULATIONS

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GOVERNMENT POLICIES FOR GEOTHERMAL DEVELOPMENT

Improving and Harmonizing Regulations and Policies

Crash Program II on Electricity Generation

Provide Fiscal Incentive, Financing Support, and Guarantee

Preliminary Survey Assignment to Third Party which Provide “first

right refusal“

Memorandum Understanding between Energy and Mineral

Resources Minister and Forestry Minister

Control-Mechanism by UKP4

Preparing The Second Amendment of PP No. 59/2007 on Geothermal Business Activities

Revise Law No. 27/2003 on Geothermal

Drafting The Revision of MEMR Regulation No.11/2009 on Guidelines of Geothermal Activities and MEMR Regulation No.22/2012 on Electricity Price from Geothermal Energy

Geothermal is expected to contribute 4,965 MW

POLICIES

For the projects that enrolled in Crash Program II

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III. MAIN CONSTRAINT ON GEOTHERMALDEVELOPMENT AND THEIR MEASURES

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Overlapping Area- Most of geothermal potential are located in the forestry. Among 299 existing locations, around 6,157 MW

(21.5%) are located in the conservation forest and around 6,391 MW (22.33%) are located in protected forests.

- Solution : Revise The Law 27/2003 on Geothermal It is expected at the Plenary Session of Parliament, 24 June 2014. The Revision of Geothermal Law

could be approved.

- In addition, Ministry Of Energy And Mineral Resources is currently coordinating with the Ministry Of Forestry on issues related to forestry for geothermal activities.

Energy Price- Pricing policies which previously set by the government does not provide a significant impact on

geothermal development. The inability of the policies to encourage the use of geothermal is considered because they are not taking into account some crucial aspects.

- Solution : Government is preparing a new tariff model to boost geothermal development Ministerial regulations which regulates new geothermal prices has been signed by the Minister of

Energy and Mineral Resources, and is currently waiting to be promulgated by the Ministry of Justice and

Human Rights.

MAIN CONSTRAINT AND SOLUTIONS

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The terms of "Mining" in geothermal business will be removed in order not to have conflict with the Law of Forestry;

Geothermal activities can be conducted in protected, production, and conservation forest areas;

Regulate the utilization of geothermal energy for direct use and indirect use (electricity);

IUP’s holders are obligated to offer 10% of Participating Interest to State-owned enterprises (BUMN) or local government-owned enterprises (BUMD) before exploitation stage taken place.

PRINCIPAL SUBSTANCES OF THE REVISION

ON GEOTHERMAL LAW

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1. The government is currently developing a comprehensive pricing structure in order to provide legal certainty and overcome constraints which have caused many geothermal projects been delayed.

2. The government set the ceiling price for electricity purchase by PT PLN (Persero) based on Commercial Operation Date (COD) and divide into 3 regions.

3. The ceiling price is the basic price at the time of Commercial Operation Date (COD), exclude escalation and construction of transmission lines.

4. The Escalation in the PPA will take into effect on the Commercial Operation Date (COD) of First Unit.

5. Transmissions lines are undertaken by PT PLN (Persero).

6. The selling price of electricity as the result of GWA tender which refered to ceiling price and written in the PPA is non-negotiable price, valid for 30 (thirty) years from the Commercial Operation Date (COD) of unit I.

NEW TARIFF FOR GEOTHERMAL ENERGY

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Notes: Distribution of Regions:

Region I : Sumatera, Jawa and Bali; Region II : Sulawesi, West Nusa Tenggara, East Nusa Tenggara, Halmahera, Maluku, Irian Jaya and Kalimantan; Region III : Remote Areas within Region I or Region II in which most electrical power are generated from fired-fuels

power plants

CP is applied at the time of COD, exclude escalation and construction of transmission lines Transmission lines are undertaken by PT PLN (Persero)

G W A(Next Tender)

Assignment to Purchase Electricity Based on GWA

Tendering Price

Tendering Price Result (≤ CP)

Signing PPA* No later than 6 months from the date of Assignment

The PPA has not signed within 6 months due to IUP’s Holder subject to administrative penalties

Tendering Process

Ceiling Price(Consist of 3 Regions Price based

on COD)

IUP

The PPA has not signed within a year due to IUP’s Holder

assignment letter will declared void by the Law

GEOTHERMAL POWER PURCHASE MECHANISM (1/2)

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IUP’s Holder

The Signing of PPA/SPA no later than 12 months

after the proposal is received

Capacity Development Extension of PPA

Concession, Permit, and

Contract Holders (Existing

GWA) Designation of an Independent Party when the

PPA is not signed

Agreed

Decline

Minister Agreemen

t

Approval of Independen

t PartyAgreed

Minister Agreemen

t

Power Plant Cap. Dvlpmt

Extension of PPA Price Adjustment* Based on Both Parties Agreement

Development of steam cap.

Extension of PPA Steam Price

Adjustment* Based on Both Parties Agreement

GEOTHERMAL POWER PURCHASE MECHANISM (2/2)

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• PPA must be signed before 31 December 2014 ;

• Price adjustment after exploration and feasibility study;

• If PPA not signed before on 31 December 2014, can’t submit a price adjustment.

• PPA must be signed before 31 October 2014 or return IUP (re-tender)

• Price adjustment after exploration and feasibility study;

• If PPA not signed before on 31 October 2014, can’t submit a price adjustment.

• PPA must be signed before 31 August 2014 or return IUP (re-tender)

• Price adjustment after exploration and feasibility study;

• If PPA not signed before on 31 August 2014, can’t submit a price adjustment.

• PPA must be signed before 30 September 2014 or return IUP (re-tender)

• Price adjustment after exploration and feasibility study;

• If PPA not signed before on 30 September 2014, can’t submit a price adjustment

• Price adjustment after exploration and feasibility study;

• If exploration and feasibility study haven’t been finished and COD target’s hasn’t reached , IUP’s holder given punishment base on PPA

TRANSITIONAL PROVISIONS

Criteria 1Tender winner which hasn’t been obtained IUP

GWA: Seulawah Agam & Gunung Ciremai

Criteria 2IUP’s holder which has hasn’t been assignment and hasn’t been signed the PPA

GWA: Hu’u Daha & Suoh Sekincau

Criteria 3IUP’s holder which has been assignment and hasn’t been signed the PPA

GWA:Telaga Ngebel, Batu Raden, Guci, Gunung Endut, Gunung Tampomas, Cisolok Sukarame, Tangkuban Perahu.

Criteria 4IUP’s holder which has been assignment for negotiation and hasn’t been signed the PPA

GWA:Jaboi, Jailolo and Sokoria.

Criteria 5IUP’s holder which has been assignment and has been signed the PPA

GWA:Muaralaboh, Rantau Dedap and Rajabasa

NegotiationTender IUP Assignment PPA Explorati

on FS

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CEILING PRICE FROM GEOTHERMAL POWERPLANTS BY PT PERUSAHAAN LISTRIK NEGARA (PERSERO)

COD Years

Ceiling Price (cent USD/kWh)

Region I Region II Region III

2015 11.8 17.0 25.4

2016 12.2 17.6 25.8

2017 12.6 18.2 26.2

2018 13.0 18.8 26.6

2019 13.4 19.4 27.0

2020 13.8 20.0 27.4

2021 14.2 20.6 27.8

2022 14.6 21.3 28.3

2023 15.0 21.9 28.7

2024 15.5 22.6 29.2

2025 15.9 23.3 29.6

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GEOTHERMAL. ENERGY SOLUTIONFOR BETTER FUTURE

www.ebtke.esdm.go.id

Jalan Pegangsaan Timur No. 1A Cikini. Jakarta Pusat 10320; Telp/Faks : 021-31924540

MINISTRY OF ENERGY AND MINERAL RESOURCES

DIRECTORATE GENERAL OF NEW. RENEWABLE ENERGY. AND ENERGY CONSERVATION

Thank You

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ATTACHMENTS

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20250

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1,341 1,406 1,720

2,273

3,487

4,927

5,817 6,081

6,420

7,110 7,140 7,215

DEVELOPMENT OF GEOTHERMAL POWER PLANT UP TO 2025

Installed Capacity (MW)

II. DEVELOPMENT OF GEOTHERMAL POWER PLANT(2014 – 2025)

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16%

18.7 %

16.7%

48.4%

Distribution of Geothermal Potential in

Forestry

Conservation Forest

Protected Forest

Production Forest

Other Utilized Areas

21.5% *)

22.3%

13.6%

42.5%

Distribution of Geothermal Potential in Forestry

Conservation Forest

Protected Forest

Production Forest

Other Utilized Areas

*) Geothermal Potential in Conservation Forest is estimated around 6.157 MW

Geothermal Potential Location : 299

Geothermal Potential : 28.6 GW

PERCENTAGE OF GEOTHERMAL POTENTIAL IN FORESTRY