Survey for Enhancement of Private Sector Investment on ... · JICA Survey for Enhancement of...

JROS

15-041

Surveyfor

Enhancement ofPrivate Sector Investment on

Small Hydro IPP Projectsin Indonesia

Final Report

June 2015

KRI INTERNATIONAL CORPORATION

Surveyfor

Enhancement ofPrivate Sector Investment on

Small Hydro IPP Projectsin Indonesia

Final Report

June 2015

KRI INTERNATIONAL CORPORATION

JICA Survey for Enhancement of Private Sector Investment on Small Hydro IPP Projects in Indonesia Final Report

i Nippon Koei KRI International

Survey

for Enhancement of Private Sector Investment on

Small Hydro IPP Projects in Indonesia

Final Report

Table of Contents

Chapter 1 Background and Objectives of the Survey ........................................................................... 1

1.1 Background of the Survey ......................................................................................................... 1 1.2 Outline and Scope of the Survey ............................................................................................... 1

Chapter 2 Status of Small Hydropower Sector and Related Legal Framework .................................... 3

2.1 Power Supply and Demand, Development of Power Generation Facilities and Hydropower Potential ............................................................................................................... 3

2.1.1 Electric Power Supply and Demand ................................................................................. 3 2.1.2 Development of Power Generation Facilities ................................................................... 6 2.1.3 Hydropower Potential ....................................................................................................... 8

2.2 Overview of Policies and Institutions of the Indonesian Government .................................... 10 2.2.1 Policy and Institutions on Electric Power Development ................................................ 10 2.2.2 Electric Power Development System ............................................................................. 11 2.2.3 Power Development Plan ............................................................................................... 11 2.2.4 Electricity Tariff ............................................................................................................. 12 2.2.5 Budget and Financial Sources ........................................................................................ 15 2.2.6 Enhancement of Private Investment and Development .................................................. 16

2.3 Current Status of Development Policy for Promotion of Private Sector Participation on Small Hydropower Business ........................................................................ 18

2.3.1 Regulation of the Ministry of Energy and Mineral Resources ....................................... 18 2.3.2 PPA and Power Tariff .................................................................................................... 19 2.3.3 Revision of PPA ............................................................................................................. 21 2.3.4 Permission/License Required for Small Hydropower Business ..................................... 22

Chapter 3 Parties Concerned with Small Hydro IPP Projects ............................................................. 23

3.1 Investor .................................................................................................................................... 23 3.2 Financial Institutions ............................................................................................................... 23 3.3 Construction Equipment Manufacturer ................................................................................... 23 3.4 Equipment Suppliers/Manufacturer ........................................................................................ 24

Chapter 4 Selection and Identification of Small Hydropower Projects to be Promoted ..................... 25

4.1 General .................................................................................................................................... 25

Chapter 5 Financing Structure for JICA-PSIF .................................................................................... 27


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5.1 Credit Overview for Small Hydropower Independent Power Producers (IPPs) in Indonesia ................................................................................................................................ 27

5.2 Issues in the FS and the Transaction Costs for Small-scale Projects ...................................... 29 5.3 Financing Structure for Several Small Hydropower IPP Projects .......................................... 30 5.4 Financing Structure for Several Projects Initiated by a Single Developer .............................. 32

Chapter 6 Preliminary Action Plan ..................................................................................................... 34

Attachment: Guideline for Feasibility Study for Small Hydropower Project (Draft)


iii Nippon Koei KRI International

List of Table Table 2.1.1 Installed Capacity (2013) ................................................................................................... 4 Table 2.1.2 Power Generation (2013) ................................................................................................... 4 Table 2.1.3 Capacity Factor and Load Factor (2013) ........................................................................... 5 Table 2.1.4 Increase in Installed Capacity (PLN only, MW)................................................................ 6 Table 2.1.5 Power Development Plan (RUPTL 2013-2022) ................................................................ 6 Table 2.1.6 Outline of Crash Programs ................................................................................................ 7 Table 2.1.7 (1) 35 GW Power Development Plan (2015-2019) ........................................................... 7 Table 2.1.7 (2) 35 GW Power Development Plan (2015-2019) in Each Region .................................. 8 Table 2.1.7 (3) 35 GW Power Development Plan (2015-2019) in Each Source .................................. 8 Table 2.1.8 Potential of Renewable Energy ......................................................................................... 8 Table 2.1.9 Development Plan of Renewable Energy .......................................................................... 9 Table 2.1.10 Status of Small Hydropower Development (as of the end of February 2015) ................. 9 Table 2.1.11 Historical Revision of Electricity Tariff ......................................................................... 13 Table 2.1.12 Subsidy from the Government to PLN .......................................................................... 15 Table 2.1.13 Power Generation Cost by Sources ............................................................................... 15 Table 2.3.1 Power Purchase Price for Small Hydropower Project ..................................................... 19 Table 2.3.2 Power Purchase Price for Small Hydropower Project Utilizing Existing Structures ...... 20 Table 2.3.3 Permission/License for Small Hydropower Business ...................................................... 22

List of Figure Figure 2.2.1 BKPM One Stop Service Related to Power Generation Business ................................. 17 Figure 2.3.1 Procedure for Small Hydropower Development ............................................................ 18 Figure 4.2.1 Flow of Project Screening .............................................................................................. 26 Figure 5.3.1 Equity Investment Structure via Fund ........................................................................... 30 Figure 5.3.2 Financing Structure of Two-step Loan for Several Projects .......................................... 31 Figure 5.4.1 Financing Structure for Several Projects Initiated by a Single Developer ..................... 33 Figure 6.1.1 Example of Schedule of Small Hydropower Development ........................................... 34


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Abbreviation AMDAL (Analisis Mengenai Dampak Lingkungan)

Environmental Impact Analysis

FIT Feed-In Tariff HGB (Hal Guna Bangunan)

Land register

HO (Hinder Ordonantie)

Obstacle permission

IMB (Izin Mendirikan Bangunan)

Construction permission

IPP Independent Power Producer IUPTL (Izin Usaha Penyediaan Tenaga Listrik)

Formal electricity business license

IUPTLS (Izin Usaha Penyediaan Tenaga Listrik Sementara)

Provisional electricity business license

SIPPA (Surat Izin Pengambilan dan Pemanfaatan Air)

Water use permission

SIPTPP (Surat Izin Pemanfaatan Tanah Pemerintah Provinsi)

River use permission

UKL/UPL (Upaya Pengelolaan Lingkungan Hidup/ Upaya Pemantauan Lingkungan Hidup)

Environmental monitoring study/ Environmental management study

RUPTL Power Supply Business Plan


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Chapter 1 Background and Objectives of the Survey

1.1 Background of the Survey

In order to respond to the rapidly growing demand for electric power that has been increasing at an annual rate of approximately 8%, the Government of Indonesia (GOI) has been promoting a new power development by launching the First and Second “Crash Program” consecutively. According to RUPTL 2013-2022, PT PLN plans to develop an additional 59,518MW of electric power facilities by 2022. In this plan, 836 MW will be filled through the development of small hydropower generation facilities. Specifically, GOI attaches importance to the system of utilizing small hydro IPP projects for 10 MW or less capacity. GOI is thus politically expediting small hydropower development, which is small in size but can be developed in a short period of time with relatively small amount of investment. Under these circumstances, the number of private companies related to small hydro IPPs has been increasing significantly, although actual physical construction has not been progressing smoothly. The reasons for this are: (a) lack of technical experience in planning, designing, and engineering of power generation facilities especially in local private companies, and (b) absence of Indonesian rupiah-denominated long-term loans under project-based finance scheme. However, since no bidding process is required under Indonesian laws, and also because business profitability is somewhat secured by the feed-in tariff (FIT) system, small hydro generation is the area of interest among Japanese companies with high technical capacities in terms of equity investment and equipment supply. At the same time, the Japan International Cooperation Agency (JICA) provides a comprehensive framework to support the enhancement of renewable energy in developing countries, from grant assistance for feasibility study conducted by a private sector through the private sector investment finance (hereinafter referred to as PSIF). As described above, promoting small hydropower generation conforms to GOI’s challenge and its development policy. By utilizing the Japanese companies’ technology as well as JICA’s PSIF, it is possible to solve technical and financial problems, which have been the bottlenecks to promote small hydro IPPs by the private sector. Therefore, this survey is designed to collect and verify related information, and to coordinate needs and solutions of relevant parties.

1.2 Outline and Scope of the Survey

1) Objectives In order to promote private small hydropower projects, the survey aims to: - Examine the existing situation of small hydropower sector, the features and progress of the

projects, and the intention of Japanese companies and financial institutions on the sector; and - List up the projects which will be suitable for JICA-PSIF as well as participation of Japanese

companies. 2) Target Projects Small hydropower projects listed by PLN.



3) Survey Area Sumatra and Sulawesi islands in Indonesia 4) Targeted Project Small hydropower project under FIT system (less than 10 MW) 5) Counterpart Ministry of Energy and Mineral Resources (MEMR), PT PLN (Persero)



Chapter 2 Status of Small Hydropower Sector and Related Legal Framework

2.1 Power Supply and Demand, Development of Power Generation Facilities and Hydropower Potential

2.1.1 Electric Power Supply and Demand

Indonesia's recent economic growth has exceeded an annual average of 6%. Due to the high economic growth, demand for power shows an increase of 8%. Due to land acquisition issues and other matters, the power development plan is delayed and the power demand and supply condition has become very tight. In North Sumatra, some rolling blackouts are carried out and will potentially hinder economic development. Rapid realization of electric power development is therefore desirable. The installed capacity, power generation, and power source in 2013 are presented below. 1) Installed Capacity (MW) Overall, power generation is highly reliant on coal-fired steam power. IPP capacity is only one-fourth against the entire Indonesia. Percentage of renewable energy sources such as small hydro, solar, and wind is still small. As a notable point, capacity from diesel (mainly rental) covered a large portion outside of Java-Bali; it is thus obvious that rural power is covered by diesel. Ongoing small hydropower IPP development is expected to replace these diesel power sources. Capacity per capita was 0.2 kW/person in year 2013. Compared with 2.2 kW/person in Japan, this capacity is still at a low level. 2) Power Generation (GWh) Amounts of generated power are the same as the installed capacity. Power generation is mainly dependent on thermal coal. The high ratio of diesel outside of Java-Bali is indicated and the combined cycle ratio is relatively high in Java-Bali. 3) Capacity Factor and Load Factor Peak load exceeds the installed capacity outside of Java-Bali. Figures shown above do not include one of IPP, lack of peak load covered from IPP, and rolling blackouts in the region. Throughout Indonesia, the power supply and demand conditions are toughest, and the delay in power development will likely cause a stumbling block for continuous economic growth.


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Table 2.1.1 Installed Capacity (2013) (MW)

Region Power Source Sumatra Sulawesi Kalimantan Maluku, Papua &

NusaTenggara Java - Bali IPP Entire Indonesia

Hydro 863.82 223.56 32.11 7.97

2,392.03

11,898.37

3,519.49 10.3%

Steam (Oil and Coal) 1,182.00 112.00 260.00 30.00 13,970.00 15,554.00 45.5% Gas Turbine 635.60 134.72 89.00 0.00 2,034.56 2,893.88 8.5% Combined Cycle 857.88 0.00 60.00 0.00 7,896.23 8,814.11 25.8% Geothermal 110.00 80.00 0.00 3.00 375.00 568.00 1.7% Diesel 1) 1,047.57 454.55 613.90 631.13 100.63 2,847.78 8.3% Solar 0.43 3.08 0.61 3.82 0.00 7.98 0.0% Wind 0.00 0.08 0.00 0.35 0.00 0.43 0.0%

Subtotal 4,696.70 1,007.88 1,046.62 673.27 34,205.63 100.0% (74.2%)

IPP 11,897.37 (25.8%) Total 7,437.18 26,768.45 11,897.37 46,104.00 (100.0%)

1)：Includes diesel gas and rental. (Source: Study Team, created from PLN Statistics 2013 and 2013 PLN Annual Report)

Table 2.1.2 Power Generation (2013) (GWh)

Region Item Sumatra Sulawesi Kalimantan Maluku, Papua &

NusaTenggara Java - Bali Entire Indonesia

Hydro 3,699.16 1,453.10 163.53 30.60 7,663.15 13,009.55 6.0% Steam (Oil and Coal) 5,233.94 470.43 1,760.37 147.07 73,314.28 80,926.10 37.4% Gas Turbine 1,967.09 54.35 257.10 0.00 3,637.97 5,916.51 2.7% Combined Cycle 3,482.29 0.00 393.38 0.00 32,547.75 36,423.42 16.8% Geothermal 825.18 521.09 0.00 27.93 2,970.89 4,345.09 2.0% Diesel 1) 707.06 472.67 956.14 1,006.98 69.27 3,212.13 1.5% Diesel Gas 371.19 3.76 6.80 0.00 - 381.75 0.2% Solar 0.36 2.05 0.44 2.64 - 5.48 0.0%


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Region Item Sumatra Sulawesi Kalimantan Maluku, Papua &

NusaTenggara Java - Bali Entire Indonesia

Wind 0.00 0.00 0.00 0.00 - - - Rental 9,536.02 2,014.83 3,959.75 2,690.28 1,544.87 19,755.71 9.1% IPP 7,337.42 3,657.65 869.52 149.00 40,209.21 52,222.79 24.2% Total 33,159.71 8,649.93 8,367.03 4,054.50 161,957.39 216,188.55 100.0%

(Source: Study Team, created from PLN Statistics 2013 and 2013 PLN Annual Report)

Table 2.1.3 Capacity Factor and Load Factor (2013) Region

Item Sumatra Sulawesi Kalimantan Maluku, Papua & NusaTenggara Java - Bali Entire Indonesia

Installed Capacity (MW) 4,697.30 1,007.99 1,055.62 676.27 26,768.45 34,205.63 Peak Load (MW) 5,329.11 1,346.88 802.00 770.48 22,575.21 30,833.60 Load Rate (%) 113.5% 133.6% 76.0% 113.9% 84.3% 90.1% Reserve Ratio (%) -13.5% -33.6% 24.0% -13.9% 15.7% 9.9% Total Yearly Power Generation (GWh) 2) 41,148.3 8,830.0 9,247.2 5,924.1 234,491.6 299,641.3

Yearly Power Generation (GWh) 3) 25,822.29 4,992.28 7,497.51 3,905.5 12,1748.18 163,965.75

Capacity Factor (%) 4) 62.8% 56.5% 81.1% 65.9% 51.9% 54.7% Yearly Peak Power Generation (GWh) 5) 46,683.00 11,798.67 7,025.52 6,749.40 197,758.84 270,015.44

Total Yearly Power Generation (GWh) 6) 33,159.71 86,49.93 8,367.03 4,054.5 161,957.39 216,188.54

Total Load Factor (%) 7) 71.0% 73.3% 119.1% 60.1% 81.9% 80.1% (Source: Study Team; created from PLN Statistics 2013 and 2013 PLN Annual Report) Note: 1) IPP is not included.

2) Capacity x 8,760 hours 3) Power generation at power station side. 4) Capacity Factor = Yearly Power Generation / Capcity x 8,760 hrs 5) Peal Load x 8,760 hrs 6) Total power generation including imported one. 7) Total Load Factor = Total Yearly Peak Power Generation / Peak Load x 8,760 hrs



2.1.2 Development of Power Generation Facilities

Development of electric power in Indonesia is carried out under the National Electric Power General Plan (RUKN) and the Electric Power Implementation Plan (RUPTL) to develop power generation facilities associated with economic development to cope with the power supply. The situation of the development (increase of installed capacity) for the year of 2005-2013 is as follows:

Table 2.1.4 Increase in Installed Capacity (PLN only, MW)

(Source: PLN Statistics 2013)

In the nine years from 2005 to 2013, the installed capacity of 11,690 MW has increased. On the other hand, RUPTL 2013, which involves the construction of power plants of 59,518 MW including IPP is planned in the ten years up to 2022. It means 6,000 MW capacity power plants every year shall be constructed. In the plan, 836 MW of small hydropower is to be developed.

Table 2.1.5 Power Development Plan (RUPTL 2013-2022) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total

Existing 46,104 Addition 2,832 3,786 2,838 5,948 5,459 10,627 9,154 7,473 5,348 6,053 59,518Total

Capacity 46,104 49,890 52,728 58,676 64,135 74,762 83,916 91,389 96,737 102,790

Planning PLN 2,518 2,908 2,013 2,919 1,869 1,234 55 90 2,003 1,244 16,853IPP 314 878 729 2,003 1,506 6,838 6,410 3,948 1,391 1,535 25,552Unallocated 96 1,026 2,084 2,555 2,689 3,435 1,954 3,274 17,113Total 2,832 3,786 2,838 5,948 5,459 10,627 9,154 7,473 5,348 6,053 59,518

Power Source Steam 2,464 2,931 1,545 2,891 2,014 7,339 6,933 5,640 2,932 3,280 37,969Geo-thermal - 60 30 85 580 495 1,665 650 670 1,825 6,060Combined 90 80 330 1,200 950 2,350 - - - - 5,000Gas 250 539 642 1,376 273 128 165 60 123 120 3,676Diesel - - - - - - - - - - -Mini-hydro 21 107 180 249 241 31 5 3 - - 836Hydro - 20 45 10 341 284 386 671 1,173 824 3,753Solar - - - - 1,040 - - 450 450 - 1,940Others 6 50 65 137 20 - - - - 4 282



The Indonesian government will supply the rapid increase in power demand and to reduce its dependence on oil. As part of the urgent power development plan, two crash programs were formulated and implemented. The outline of the crash programs is as follows:

Table 2.1.6 Outline of Crash Programs Item 1st Crash Program 2nd Crash Program

Development Plan Period (Initial) 2006-2009 2010-2014

Purpose - Emergency power development in Java-Bali system mainly

- Reduction of dependence of oil

- Emergency power supply development

- Power diversification - Utilization of renewable energy

Developed Capacity 10,000 MW (Java-Bali: 6,900 MW Outside the territory : 3,100 MW)

10,000 MW (Java-Bali: 5,070 MW Outside the territory : 4,452 MW)Review in 2012 and 2013, with 18,000 MW as target.

Power Supply Configuration

Coal: 100% Renewable energy 54% (Geothermal 41%, Hydro 13%) Fossil fuel 46% (Coal 36%, Gas 1%, Combined Cycle 9%)

Progress in 2014 Completed: 7,368 MW In progress: 2,439 MW

Completed: 55 MW In progress: 17,403 MW

Both crash programs are experiencing significant delays, main reasons for which are delays in land acquisition and various licensing/permission procedures. Projects in the 1st crash program were mainly contracted with Chinese companies. However, many problems such as lack of cash for construction have been reported. Moreover, there were many out of orders and insufficient rated output of the power generation equipment even it was completed. Furthermore, the 2014 new president, Mr. Jokowi, announced his ambitious plan to develop a 35.5 GW power plant over the next five years.

Table 2.1.7 (1) 35 GW Power Development Plan (2015-2019)

No Status of Process Owner Total Capacity PLN IPP (GW)

1 Construction 4.2 3.2 7.4 2 Committed 2.9 4.3 7.2 3 Procurement 2.2 11.3 13.6 4 Plan 5.1 9.6 14.7

Total (incl. Construction) 14.4 28.5 42.9 (excl. Construction) 10.2 25.2 35.5

Each region and power source of the 35 GW Power Development Plan are shown in Table 2.1.7 (2) and Table 2.1.7 (3), respectively.



Table 2.1.7 (2) 35 GW Power Development Plan (2015-2019) in Each Region (Unit: GW)

Sumatra Jawa-Bali Kalimantan Sulawesi Maluku Nusa

Tenggara Papua Total

PLN 1.1 5.0 0.9 2.0 0.3 0.7 0.2 10.2 IPP 7.6 15.9 1.0 0.7 0.0 0.0 0.1 25.3 Total 8.7 20.9 1.9 2.7 0.3 0.7 0.3 35.5*)

(Source: PLN) *) 35.5 GW corresponds to Total (excl. Construction) in Table 2.1.7 (1)

Table 2.1.7 (3) 35 GW Power Development Plan (2015-2019) in Each Source (Unit: GW)

Steam Steam (Mine

Mouth)

Gas/ Combined Hydro Geo-

thermal Others Total

PLN 5.6 7.2 1.4 0.1 0.1 14.4Extension 5.2 5.2IPP 12.3 1.6 6.2 0.2 1.1 0.7 22.1PPP 1.2 1.2Total 23.1 2.8 13.4 1.6 1.2 0.8 42.9*)

(Source: PLN) *) 42.9 GW corresponds to Total (incl. Construction) in Table 2.1.7 (1)

2.1.3 Hydropower Potential

In the Hydro Power Potential Study carried out in 1999, hydro power potential amounting to 22.0 GW passed the third screening including planning and implementation. Furthermore, the Indonesia Hydropower Master Plan in 2011 estimated potential capacity of 14.6 GW will be implemented until 2027. According to RUPTL (2013-2022), the potential of renewable energy and developed power capacity is as follows:

Table 2.1.8 Potential of Renewable Energy

No. New and Renewable

Energy Potential Developed Capacity Ratio (%)

(1) (2) (3) (4) = (3)/(2) 1 Mini/Micro-hydro 7,500 MW 86.1 MW 1.15 2 Biomass 49,810 MW 445.0 MW 0.89 3 Solar Power 4.80 kWh/m2/day 12.1 MW - 4 Wind Power 9,290 MW 1.1 MW 0.01 5 Ocean 240 GW 1.1 MW 0.01

(Source: RUPTL 2013-2022) The development plan for renewable energy until 2022 is listed below by year.



Table 2.1.9 Development Plan of Renewable Energy1

(Source: RUPTL 2013-2022) Small hydro-electric power takes the major share in renewable energy and its development is expected. According to the PLN, a total of 318 projects with less than 10 MW capacity as well as under FIT scheme has been proposed to PLN in the entire Indonesia. Out of 318 projects, 49 projects are currently in operation and 49 projects are under construction. About 220 projects are at present before financial closure status.

Table 2.1.10 Status of Small Hydropower Development (as of the end of February 2015)

(Source: PLN)

1 In Table 2.1.5, the development capacity of mini hydropower until 2022 is 834 MW. On the other hand, the total development capacity is 1,481 MW in Table 2.1.9, thus there is a discrepancy between the tables. Taking the present application condition of FIT projects into consideration, Table 2.1.9 is deemed to be correct.

No.New/Renewable

Energy Unit 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total

1 Mini/Microhydro MW 33 42 96 149 237 192 186 156 190 200 1,4812 Solar Power MWp 6 104 75 54 36 60 75 75 75 75 6343 Wind Power MW - - 50 20 20 20 30 40 50 50 2804 Biomass MW 48 10 15 20 30 40 50 50 50 50 3635 Ocean MW - - 1 - 1 3 3 5 5 10 28

MW 87 156 237 243 324 315 344 326 370 385 2,786Total

Status Number Capacity (kW)Indonesia Timur 84 305,720

Operation 21 59,840Construction 11 39,700Financing Proces 7 32,700PPA Process 21 88,330Proposal 24 85,150

Jawa Bali 114 413,885Operation 17 17,870Construction 15 60,070Financing Proces 10 62,620PPA Process 33 111,206Proposal 39 162,119

Sumatera 120 713,730Operation 11 37,625Construction 23 156,458Financing Proces 26 162,948PPA Process 27 185,700Proposal 33 170,999

Grand Total 318 1,433,335



2.2 Overview of Policies and Institutions of the Indonesian Government

2.2.1 Policy and Institutions on Electric Power Development

Indonesia's energy policy is established by the National Energy Policy (KEN), with the National Energy Total Plan (RUEN) as a base. Under these policies, the National Electric Power General Plan (RUKN) and Electric Power Implementation Plan (RUPTL) are prepared as implementation plans. The National Energy Policy (KEN) was revised in January 2014 and the target values for each electric power energy resource are set as follows:

- Oil: less than 25% by 2015 and less than 20% by 2050. - Natural gas: more than 22% by 2025 and more than 24% by 2050. - Coal: less than 30% by 2025 and less than 25% by 2050. - Renewable energy: more than 23% by 2025 and more than 31% by 2050.

In addition, the electrification rate is targeted at 85% by 2015 and nearly 100% by 2020. Domestic primary energy shall be used for domestic purposes as much as possible. As a related policy, the National Energy Management Blueprint (BP-PEN) 2006-2025 was established and national targets related to energy were set. Based on the policy in KEN, in the electric power sector, the MEMR established the National Electric Power General Plan (RUKN) and developed PLN, who is the only power supply company in Indonesia. It also prepared the Electric Power Implementation Plan (RUPTL) and implemented the power development plan. The RUPTL is formulated for a period of ten years, however, it is revised every year. As a relevant economic policy, national development plans such as the National Long-term Development Plan (RPJPN) are formulated every 20 years. Governed by the RPJPN, the National Medium-term Development Plan (RPJMN) is formulated every five years. The latest RPJMN was prepared in 2014. As for the laws on energy and power, these are the: 1) Energy Law (2007), 2) Electric Power Law (2009), 3) Decree on Save Energy (2009), and 4) Geothermal Power Law (2003). The Energy Law of 2007 covers management and usage of all energy resources such as 1) management of energy resources by the government, 2) stable energy supply, 3) resources development promotion, 4) formulation of national energy policy and energy plan, and 5) use of renewable energy. The new power law is a revision of the old energy law in 1985. In the power law, the government is responsible for power supply. However, aimed at the improvement of power supply, it is now possible for state-owned companies other than PLN, public enterprises, private enterprises, cooperatives, and civic groups to participate in the power generation business. RUKN and the revision of power tariff require parliament approval. The Decree on Save Energy stipulates to oblige energy saving in large consumers of energy. The Geothermal Power Law acknowledged the participation of private investors in integrated development of geothermal projects including steam development, supply and power generation for geothermal development promotion. The processes of getting permits and licenses in each phase of geothermal energy development have become clear.



2.2.2 Electric Power Development System

As the administrative organization for the electricity sector, the formulation of the overall policy for the development and use of energy is done by the National Energy Board (DEN). The Ministry of National Planning and Development (BAPPENAS) manages the national project development policy and coordination. The Department of Energy and Mineral Resources (MEMR) is the administrative organization for the entire energy sector including the power sector. The PLN and state-owned enterprises are under the control of the Ministry of State-Owned Enterprise (MSOE), while the Ministry of Finance (MOF) manages the budget. The MEMR is the supervisory institution for the energy sector and performing management and regulation of state-owned energy companies in addition to policy planning. The Directorate of Electricity in MEMR acts as the electric power administrator of the electricity sector and plays the role of regulation and supervision, including coordination of the formulation of policy, procedures, and standards. It is responsible for the formulation of the National Electric Power General Plan (RUKN). In 2010, MEMR has organized the Directorate of New and Renewable Energy and Save Energy (DGNREEC) for the development of renewable energy. The geothermal section of the Directorate of Minerals, Coal and Geothermal, and renewable section of the Directorate of Electricity were integrated into the DGNREEC. In the power generation business in Indonesia, PT. PLN (the national electric power company) and its subsidiary companies and IPPs are carrying out power generation. For transmission and distribution of electricity, PLN has monopoly. The Java-Bali system has larger scale power generation and supply. Power generation is being undertaken by PLN, its subsidiary companies such as Indonesia Power (IP), Pumbankit Jawa Bali (PJB), and IPPs. Transmission and distribution of the Java-Bali system are managed by the power transmission and distribution center (P3B Jawa Bali) and five distribution offices. In Sumatra, two units are doing power generation. As for transmission and distribution, the Sumatra power transmission and distribution center (P3B Sumatra) and seven regional offices are doing these tasks. In other areas, the regional branch offices are carrying out integrated operation of power generation, transmission, and distribution.

2.2.3 Power Development Plan

Based on the national energy policy, the MEMR established RUKN and consequently, the RUPTL is prepared and power development is carried out by PLN. The RUKN describes major development policies as shown below. Power supply planning policy

• Support MP3EI (2011-2025 in the Indonesian accelerated and enlarged economic development master plan);

• Avoidance of lack of power supply; • Sufficient energy reserves; • Development of peak load power plants by gas, pumped storage power plant; and • Competitive electricity tariff structure.



Diversification of power source • Enhancement in the use of new and renewable energy; • Establishment of sustainable power supply system for various energy power sources; and • Support of gas supply for gas power generation and storage of coal for coal-fired power

generation as a reduction measure for oil-dependency of fuel. The RUPTL is a ten-year plan, but due to actual delays of the plan and changes in conditions, it is updated every year. It is a power development plan prepared based on the present situation. The power development plan is established to satisfy the electricity demand which is forecasted to consider future economic and population growths. Construction of the transmission and distribution networks are planned in order to harmonize with the power development plan. Further, the required construction costs for these electric power development and fuel costs required for operation are estimated.

2.2.4 Electricity Tariff

Indonesia's electricity tariff has been kept low by government subsidies. However, in order to mitigate the financial burden of the government, an increase in electricity tariff and the reduction of subsidies was approved by the Parliament in 2013. The increase in electricity tariff is done gradually. The power cost deficit, which cannot cover PLN’s income from electricity sales, is made up by government subsidies. Government subsidies are calculated by the Ministry of Finance. By these subsidies, electricity tariff has been kept to a low and stable level without the effect of fuel costs. Government subsidies were Rp3-4 trillion in the early 2000s. After then, due to the rise in oil prices, the power generation fuel price has also increased. Finally, government subsidies were increased at Rp101 trillion in 2013. In 2013, although the average generation cost was at Rp1,207/kWh, the average sold electric price is Rp818.4/kWh. Electrical tariff was increased by about 15% in October 2013. In addition, electricity tariffs for industrial use (large-demand customer) were changed from May 01, 2013. Tariff for the customer in contract capacity of more than 200 kVA is increased by 38.9% but this was implemented at 8.6% every two months. For the size of the contract of more than 30,000 kVA, tariff increase is 64.7%, but was implemented at 13.3% every two months. In November 2014, another price increase was conducted. The revised tariffs are as follows:



Table 2.1.11 Historical Revision of Electricity Tariff

Condition before 2013 Oct. 2013 Nov. 2014

S-1/TR 220 VA (per month) 14,800 14,800 14,800Block I : 0 - 30 kWh 123 123 123Block II : 30 - 60 kWh 265 265 265Block III : > 60 kWh 360 360 360Block I : 0 - 20 kWh 200 200 200Block II : 20 - 60 kWh 295 295 295Block III : > 60 kWh 360 360 360

S-2/TR 1,300 VA 605 708 708S-2/TR 2,200 VA 650 760 760S-2/TR 3,500 VA-200 kVA 755 900 900

Peak K x P x 605 K x P x 735 K x P x 735Off peak P x 605 P x 735 P x 735kVArh - 925 925

Block I : 0 - 30 kWh 169 169 169Block II : 30 - 60 kWh 360 360 360Block III : > 60 kWh 495 495 495Block I : 0 - 20 kWh 275 275 275Block II : 20 - 60 kWh 445 445 445Block III : > 60 kWh 495 495 495

R-1/TR 1,300 VA 790 979 1,352

R-1/TR 2,200 VA 795 1,004 1,352

R-2/TR 3,500 VA-5,500 VA 890 1,145 1,352

Block I H1 x 890Block II H2 x 1,380

Block I : 0 - 30 kWh 254 254 254Block II : > 30 kWh 420 420 420Block I : 0 - 108 kWh 420 420 420Block II : > 108 kWh 465 465 465

B-1/TR 1,300 VA 790 966 966B-1/TR 2,200 VA-5,500 VA 905 1,100 1,100

Block I H1 x 900Block II H2 x 1,380Peak K x 800 K x P x 1,020 K x P x 1,020Off peak 800 P x 1,020 P x 1,020kVArh - 1,117 1,117

Social

Residential

Business

B-1/TR 900 VA

6,600 VA-200 kVAB-2/TR

B-3/TM more than 200 kVA

S-3/TM more than 200 kVA

B-1/TR 450 VA

R-1/TR less than 450 VA

R-1/TR 900 VA

R-3/TR more than 6,600 VA1,352 1,352

1,352 1,352

11,000

20,000

23,500

26,500

Usage Tariff (Rp./kWh) Customer/Category Contract Voltage

Basic Tariff(Rp./kVA/month)

10,000

15,000

S-2/TR 450 VA

S-2/TR 900 VA



Condition before 2013 Oct. 2013 Nov. 2014

Block I : 0 - 30 kWh 160 160 160Block II : > 30 kWh 395 395 395Block I : 0 - 72 kWh 315 315 315Block II : > 72 kWh 405 405 405

I-1/TR 1,300 VA 790 930 930I-1/TR 2,200 VA 905 960 960I-1/TR 3,500 VA-14 kVA 915 1,112 1,112

Peak K x 800 K x P x 972 K x P x 972Off peak 800 P x 972 P x 972kVArh - 1,057 1,057Peak K x 680 K x P x 803 K x P x 1,115

Off peak 680 P x 803 P x 1,115

kVArh - 864 1,200

Peak & Off Peak 605 723 1,191

kVArh - 723 1,191

P-1/TR 450 VA 20,000 575 575 575P-1/TR 900 VA 24,600 600 600 600P-1/TR 1,300 VA 880 1,049 1,049P-1/TR 2,200 VA-5,500 VA 885 1,076 1,076

H1 x 885H2 x 1,380

Peak K x P x 750 K x P x 947 K x P x 1,115

Off peak P x 750 P x 947 P x 1,115

kVArh - 1,026 1,200

P-3/TR 997 1,352

Peak K x 390 K x 483 K x 483Off peak 390 483 483kVArh - 808 808

Peak & Off Peak K x 445 Q x 707 Q x 707kVArh 445 Q x 707 Q x 707

L/TR, TM, TT 1,450 1,650 1,650

Notes, 1) K : Factor for cost between Peak and Off-peak in each system (region) decided by PLN. (1.4 < K < 2.0)2) P : Factor for social building, (Pure social building : 1.0, General social building : 1.3 ) 3) kVArh : If monthly average power factor is less 85%, electric tariff for kVarh is added. 4) H1 : National average % saving on Lighting Time x Connected Power (kVA)5) H2 : Energy consumption - H16) Q : Factor depend on commercial use and non-commercial use decided by PLN (08 < Q < 2.0)

Bulk Use for Large Customer

Emergency/Multipurpose

Customer/Category Contract Voltage

Basic Tariff(Rp./kVA/month)

Usage Tariff (Rp./kWh)

T/TM more than 200 kV

C/TM more than 200 kV

Industry

Government Office & Public Use

Railway

P-1/TR 6,600 VA-200 kVA

P-2/TM more than 200 kVA

I-3/TM more than 200 kVA

I-4/TT more than 30 MVA

I-1/TR

I-1/TR

450 VA

900 VA

I-2/TR 14 kVA-200 kVA

23,000(30,950 after 2013)

30,000( 0 after 2013)

1,352 1,352

26,000

31,500



2.2.5 Budget and Financial Sources

Budget for electric power business basically depends on the PLN as national executing agency and IPP as private investor. Income of PLN is composed of electricity sales and government subsidy, and expenditure is composed of the purchase cost of electricity from IPP, fuel costs, maintenance costs, labor costs, and depreciation cost. The selling electricity tariffs are decided by the MEMR and should obtain the approval of the Parliament. IPP investors invest construction and operating costs and return by selling price to PLN. To cope with the rapid growth of electricity demand, the construction costs of the power plants, transmission lines, and distribution grids are covered by official fund as bilateral multilateral aid funds through the Indonesian government as official development assistance (ODA), funds of the Government of Indonesia and PLN’s own funds. However, because of lack of official funds, the use of private funds as IPP development such as export credit prepared by the contractor/supplier and finance from banks has increased. Government subsidies are compensating the deficit amount not covered by the income from the selling costs in PLN electricity fee. Subsidy amount is calculated based on a decree of the Ministry of Finance. If the electricity sales price is lower than the generation cost in each category, PLN can receive the difference in amount as subsidy. The stable electric tariffs are being realized by this system without relation to the fluctuation of fuel cost. However, progressively revising the electrical tariff to mitigate the financial burden is aimed at reducing subsidies. Subsidy amount from 2008 to 2013 is as shown below.

Table 2.1.12 Subsidy from the Government to PLN Year 2008 2009 2010 2011 2012 2013

Subsidy (Rp10^9) 78.6 53.7 58.1 93.2 103.3 101.2 (Source：PLN Statistics 2013）

As reference, generation costs of each power source are shown in Table 2.1.13.

Table 2.1.13 Power Generation Cost by Sources

(Source: PLN Statistics 2013）



2.2.6 Enhancement of Private Investment and Development

As described above, there is the limitation of official funds to cover construction of power plants in order to cope with the rapid growth in electricity demand. Investment and development through private funds in the power sector is being enhanced. In 2013, about 24% of electric power was supplied from IPPs. In the 2nd crash program currently in progress, out of all 79 projects having capacity of 17,918 MW, 59 projects with 12,169 MW are IPP projects. Also, of the 35 GW planned construction scheduled for completion by 2019, about 25.3 GW are from IPP projects. In order to enhance the development of small hydro power plants with less than 10 MW by private investors, the Indonesian government provided the FIT system and set the sold electricity price somewhat higher. Due to the requested large amount of equity and fund for small hydro power plant IPPs, numerous private investors showed interest and submit IPP proposals to PLN. On the other hand, for medium and large power projects more than 10 MW, MEMR indicated standard purchase prices from IPP in the ministry decree for enhancement of private investment. In addition, due to complaints from investors on the complicated and needed number of steps to get permits and licenses, the Government of Indonesia opened and launched a one-window process system named as Pelayanan Terpadu Satu Pintu (PTSP) PUSAT in the Investment Coordinating Board (BKPM) in January 2015. Its purpose is to mitigate and speed up the process of investment. As shown in Figure 2.2.1, application and acquisition of various permissions and licenses such as Izin Lokasi (permission of land acquisition) by local government, IUPTL (electricity business license) by MEMR, PPA (power purchace agreement) by PLN are to be done at BKPM. The Government of Indonesia has put in place several incentive policy programs in order to promote renewable energy development, which include the followings:

• Income Tax：Developers can obtain 5% reduction in the income tax rate of its investment each year for a period of six years.

• Accelerated Depreciation：Depreciation of fixed assets can be completed within ten years and hence, reduce the income tax.

• Incentives for Foreign Companies：Income tax on dividends of foreign investors can be 10%. • Import Duty：The import duty is exempted for equipment and machinery that cannot be

procured in Indonesia.


17

(Source: JICA Survey Team based on the information from BKPM）

Figure 2.2.1 BKPM One Stop Service Related to Power Generation Business



2.3 Current Status of Development Policy for Promotion of Private Sector Participation on Small Hydropower Business

2.3.1 Regulation of the Ministry of Energy and Mineral Resources

1) Procedures for Small Hydropower Development Indonesia is currently promoting private sector investment for small hydropower development through the FIT system. The legal basis for this policy is the Regulation of the Minister of Energy and Mineral Resources of Indonesia –Number 12 of 2014. (May 2, 2014) Private companies that apply for generation business through the FIT system need to submit the following documents with their application prior to the business commencement. These include:

a. Overview of the company; b. License documents based on laws and regulations from the government and local government; c. Result of pre-FS study confirmed by PLN; d. Expected total investment amount; e. Construction schedule until CoD (Commercial Operation date); f. Documents showing that land is available for the project; g. Confirmation letter to make a deposit of 5% of the total investment amount within 30 business

days after the decision for the business owner; h. Document confirming the implementation of PPA issued by PLN; and i. Confirmation letter that accepts the above conditions.

The project will follow the appraisal and approval processes based on these documents. This process aimed to sort out the troubled projects and promote moving projects. The procedure for the development process is presented in the following Figure 2.3.1:

(Source: JICA Survey Team)

Figure 2.3.1 Procedure for Small Hydropower Development

30 days 30 days 30 days 15 months 3 months

90days

※Feed-In Tariff(<10MW): 1～8 年 9～20 年

Rp.1,075.0/Kwh x F Rp.750.0/Kwh x F Factor F… Java,Bali and Madura: 1.00、Sumatera: 1.10、Kalimantan and Sulawesi: 1.20、West Nusa Tenggara and East Nusa

Tenggara: 1.25、Maluku and North Maluku: 1.30、Papua and West Papua: 1.60

Submission of application DG of EBTKE（appraisal of pre-FS by PLN)）

Receipt of decision DG of EBTKE

Deposit submission

Progress report：every 6 months DG of EBTKE、PLN(copy)

DG of EBTKE

Temp. IUPTL application MEMR、DG of EBTKE(copy)

Temp. IUPTL application MEMR

DG of EBTKE(copy)

Submission of all documents incl. FS report PL

Sign PPA DG of EBTKE(copy)

Financial closure

DG of EBTKE(evidence)

IUPTL appl. MEMR

IUPTL receipt MEMR

DG of EBTKE(copy)

Construction



2) Negative List The latest version of the Investment Negative List, which entered into effect on April 24, 2014, clarifies the situation regarding foreign direct investment (FDI) in the mini-hydro sector. Under the previous version of the list, such investment was stated as being 100% open to FDI subject to a “partnership arrangement” with a local firm. However, as it was unclear what precisely was meant by a “partnership arrangement,” thus this tended to discourage foreign investors. By contrast, the regulation states that the small hydro sector is now open to up to 49% FDI. 3) Issues on Process of Appraisal and Approval The current issues on the process of appraisal and approval for small-hydro IPPs can be identified as follows:

• When a developer has an issue on debt financing, the developer recognizes that the duration from the agreement of PPA to the financial closure is short.

• When the viability of a project has an issue on revenue and power tariff, the schedule for the feasibility study may be delayed.

• A developer identified the need for PLN and MEMR to strengthen their coordination in providing a clear direction for the application of the regulations such as PPA.

2.3.2 PPA and Power Tariff

In 2012, the MEMR issued Ministry Decree No.4/2012 and fixed the purchase price of renewable energy, which is aimed to enhance the development of renewable energy. Further, in 2014, a revision on the portions of small hydropower was made through Ministry Decree No.12/2014, and PLN has to purchase power at a fixed price from small-scale IPP having less than 10 MW. The fixed purchase price is Rp1,075/kWh for the first eight years and Rp750/kWh for the succeeding period up to 20 years. These fixed prices shall be multiplied by the regional coefficient. The fixed purchase prices are as shown as below.

Table 2.3.1 Power Purchase Price for Small Hydropower Project

Voltage/Capacity Feed-In-Tariff (Rp./kWh)

F Factor, Depending on the Location General Small Hydro Projects

Medium Voltage (up to 10 MW)

Year 1 - 8 : 1,075.0 x F · Java, Bali, and Madura: 1.0 · Sumatera: 1.1 · Kalimantan and Sulawesi: 1.2 · West Nusa Tenggara and East

Nusa Tenggara: 1.25 · Maluku and North Maluku: 1.3 · Papua and West Papua: 1.6

Year 9 - 20 : 750.0 x F

Low Voltage (up to 250 kW)

Year 1 - 8 : 1,270.0 x F

Year 9 - 20 : 770.0 x F

(Source: JICA Survey Team based on the Regulation of the Minister of Energy and Mineral Resources of Indonesia No. 12/2014)

The procedures necessary for implementing small hydropower projects such as required documents, permits, approvals, and necessary period became clear.



Due to this modification and clarification of the purchase prices and procedures, many have applied for small hydro projects under FIT. In August 2014, the Government of Indonesia through MEMR Regulation No. 22 of 2014 (Reg. 22/2014) revised the applicability of the FIT system to also cover mini- hydro power projects utilizing multipurpose dams and/or irrigation channel water resources. However, a lower FIT is applied for these projects. Table 2.3.2 below summarizes the FIT currently applicable to small hydropower projects utilizing existing structures. According to information source, there may be an ongoing review on the FIT price by PLN as of the study period (February 2015). The review would examine the increase of tariff as well as the currency for payment.

Table 2.3.2 Power Purchase Price for Small Hydropower Project Utilizing Existing Structures

Voltage/Capacity Feed-In-Tariff (Rp./kWh)

F Factor, Depending on the Location Small Hydro Projects utilizing multipurpose dams and/or irrigation

Medium Voltage (up to 10 MW)

Year 1 - 8 : 967.5 x F · Java, Bali, and Madura: 1.0 · Sumatera: 1.1 · Kalimantan and Sulawesi: 1.2 · West Nusa Tenggara and East

Nusa Tenggara: 1.25 · Maluku and North Maluku: 1.3 · Papua and West Papua: 1.6

Year 9 - 20 : 675.0 x F

Low Voltage (up to 250 kW)

Year 1 - 8 : 1,143.0 x F

Year 9 - 20 : 693.0 x F

(Source: JICA Survey Team based on the Regulation of the Minister of Energy and Mineral Resources of Indonesia No. 22/2014) The salient features of the power tariff can be described as follows: 1) No Escalation The FIT regulation explicitly states that the prescribed FITs, as set out above, are not subject to any escalation. The existence of this provision will prohibit parties to agree on any tariff escalation/indexation in the PPA. Consistent with this restriction, the standard PPA as published by PLN does not provide for any escalation mechanism. 2) Transmission Responsibility The FIT price needs to include the costs of procuring the transmission lines connecting the plant to the PLN grid. Accordingly, hydro plants that are located close to an adjacent grid will be at a significant cost advantage. On the other hand, if the transmission line is long, a project has more exposure to land acquisition risks and will be less competitive. 3) Transitional Arrangement Prices agreed for power supplied by small hydro plants prior to the coming into effect of the regulation will continue to be governed by MEMR’s Regulation No. 04/2012. However, prices may be adjusted upwards (except in the case of a plant that has reached the commissioning stage) provided the project sponsor first secures a designation by the directorate as hydropower producer. Such adjustment will be based on an agreement between PLN and the project sponsor, but may not be higher than the weighted



average price set out in the regulation, which is adjusted based on voltage and location. The new price is fixed and must be directly set out in a PPA. It remains valid for the duration of PPA. The price adjustment process must be completed within 90 working days of the designation of the project sponsor as a hydropower producer. The adjusted price must also be approved by the Minister. 4) Hydro Power Plants of more than 10 MW The power tariff from hydropower plants of more than 10 MW is stipulated in the MEMR’s Regulation (No.03/2015). The power tariff is charged at a maximum of US¢9.00/kWh for 10 MW to 50 MW, US¢8.50/kWh for 50 MW to 100 MW, and US¢8.00/kWh for more than 100 MW. The purchase price is subject to the agreement between PLN and the developer.

2.3.3 Revision of PPA

PLN is currently revising the template of the PPA. The contents appear to be slightly modified compared with the previous version. Out of the 315 projects that submitted their application, approximately half of them have already signed the PPA. The major points can be identified and reviewed as follows: 1) Termination of Agreement The clause stipulates the conditions for contract termination. It raises the event when the buyer (PLN) fails to make payment for three months. On the other hand, the penalty payment for PPA termination is not mentioned. The event can be covered by the Civil Law of Indonesia (Clause No.1243), which stipulates the claim for damages due to non-fulfillment of obligation. 2) Supplemental Document The PPA requires a certificate of cash deposit of 30% of the paid-in owned capital. This condition would raise the hurdle for developers, and the developers may wish to discuss the condition. 3) Issues associated with PPA The issues identified by the developers and financial institutions can be summarized as follows:

• Take-and-pay clause：The impact on revenue has been identified in case the plants cannot sell the scheduled energy due to the demand situation in the power grid.

• The power tariff is low, hence, the developer cannot secure a financial return. (This tariff may be being revised according to an information source.) PLN can consider a simple increase of power tariff as well as a two-part tariff of the fixed payment based on the output capacity and the energy production.

• The feasibility study needs to deal with additional matters due to the request from the PLN equipment related with the receiving purchased power since there is a need to confirm the appropriateness of the current system.

• The capacity of the transmission line may be insufficient to accommodate evacuation of generated power by a small hydropower plant due to the location of the plant and sub-station. This can be examined by PLN.

• PLN may be able to take a proactive action for a project whose PPA will expire. • PLN could consider the power tariff payment in other currency other than Indonesian rupiah.



• In some cases SPCs have limited access to debt financing based on the credit record of SPC and may be requested to submit a collateral by parent companies. Since the execution of PPA may not be fulfilled by SPC alone, having a counterpart of the PPA may also be studied.

• Some developers hope that PLN can strengthen its capacity for guiding the developers and coordinating with the government offices.

2.3.4 Permission/License Required for Small Hydropower Business

In addition to the establishment of SPC (Special Purpose Company), the permissions and licenses required for small hydropower business are as follows:

Table 2.3.3 Permission/License for Small Hydropower Business No. Name Type Licenser 1 Izin Princip Development permission Local government 2 UKL&UPL Environmental permission Local government 3 Izin Lokasi Land acquisition license Local government 4 HGB Land register Local government 5 IMB Construction permission Local government 6 HO Obstacle permission Local government 7 SIPTPP River use permission River administrator 8 SIPPA Water use permission River administrator 9 HPO*)

(Hydropower Operation License) Hydropower plan permission MEMR (EBTKE)

10 IUPTLS Provisional electricity license MEMR (Kelistrikan) 11 IUPTL Electricity business license MEMR (Kelistrikan)

*) Tentative name because of no official name (Source: JICA Survey Team)

• No.1 to No.8 can be processed in parallel and the period is estimated to be around 9 months. • No. 2 UKL&UPL is usually prepared during Pre-FS. • After No.3 Izin Lokasi, land acquisition is carried out and then HGB is obtained. • For application of No.9 HPO, No.1, Pre-FS report and No.3-N.8 are required. In case that the project area includes public forest, Izin Pinjam Pakai (Forest Use Permission) from the Ministry of Forest is required.



Chapter 3 Parties Concerned with Small Hydro IPP Projects

3.1 Investor

To cope with the rapid growth in power demand, public funding for electric power development is not enough. Then, the Indonesian government has issued Presidential Decree No. 37/1992 in order to expedite participation of private companies into the power business, namely as IPPs business. Afterwards, due to the increase of IPPs in 2013, the power supply from the IPPs has reached 24%. According to government policy, the maximum use of renewable energy including hydropower, FIT to purchase fixed tariff for renewable energy was introduced in 2012. Further, in May 2014, MEMR issued Decree No.12/2014 in revising the part about small hydropower and PLN is obliged to purchase at the fixed prices from small hydro power plants of less than 10 MW. Introducing the FIT system means enhancing participation of private investors by buying at advantageous prices. In addition, rural electrification and replacement of diesel power plants will be accelerated. On the other hand, Presidential Decree No. 39/2014 (so-called Negative List) has been issued in April 2014. The decree stipulated that the maximum capital participation of foreign companies to IPP developer (SPC: Special Purpose Company) is at 49% in order to protect Indonesian investors and enhance incentives. As exemption, SPCs established before April 2014 can keep the original capital ratio. Based on these backgrounds, Indonesian private investors have high motivation to participate in IPP business in which FIT is applicable. According to PLN information, 318 IPP projects under FIT from the entire Indonesia have been submitted for approval, and pre-feasibility study (Pre-FS) and feasibility study (FS) reports have been filed. Out of the 318 projects, 49 projects are now in operation, 49 projects under construction, and 220 projects are under before financial closure status.

3.2 Financial Institutions

It was found that they have some experience of funding small hydropower project with difficulties on examination of loan application. Therefore, the corporate finance is more common than the project finance.

3.3 Construction Equipment Manufacturer

Considerable numbers of Indonesian contractors are participating in capital of SPCs for hydropower IPPs, however, it is hard to judge from the name of the SPCs only. Detailed information about SPC will be confirmed. State-owned construction company, PT. Wijaya Karya is active in the IPP business. There are not so much IPP applicable FIT projects under operation or under construction, as the contractors are joining as “the Contractor” as their main business. Participation of foreign contractors to IPPs is only for large-scale hydropower IPP as the contractor. Participation of Korean companies as the contractor is remarkable. On the other hand, foreign contractor participation to IPP project under FIT is almost nil.



Many developers planned to employ domestic civil construction contractors for the construction work. A few of them have plans to use the Chinese contractor by mobilizing the debt from China. Some developers undertake the design and engineering work on their own and outsource the construction work only, while for developers who do not have a construction team, a leasing company for construction equipment will construct the plant on its own using their own equipment and staff. Thus, the mode of the construction varied depending on the resources and situation of the developers.

3.4 Equipment Suppliers/Manufacturer

Equipment manufacturers/suppliers are participating as the contractors to IPP as per normal activity. Gates and penstock can be produced by domestic companies. Both domestic and foreign companies can design, manufacture, and install gate facilities. On the other hand, turbines, generators, and related equipment should be relied on foreign companies and design and manufacturing shall be by a foreign company except for some minor portions.



Chapter 4 Selection and Identification of Small Hydropower Projects to be Promoted

4.1 General

The issues for selection and identification of potential projects are: i) technical aspect, ii) organization and financial aspect, and iii) environmental aspect. In addition, the possibility of project bundling is considered. For the technical aspect, i) annual rainfall, ii) design discharge, iii) waterway length, iv) capacity and power generation, v) unit cost of construction and electricity, and vi) transmission line have been examined. In addition, detailed examination was carried out for potential projects. With regard to the organization and financial aspect, i) organizational capacity, ii) financial capacity, iii) status of project preparation, and iv) investment scale have been examined referring to the results of individual interviews in addition to the general review. For the environmental aspect, all projects must have already passed their initial environmental examination and it is assumed that there is no serious environmental problem. Therefore, related information such as UKL/UPL and FS was reviewed and environmental issues of the projects were examined.




Figure 4.2.1 Flow of Project Screening

Project bandlingTechnicalaspect

Organization andFinance

Environmentalaspect

PLN list

Project Information (FS etc.)

Detailed evaluation

DatacollectionGeneral review

DatacollectionGeneral review

Evaluation Evaluation

Potential Projects

2nd selection

1st selection

Complehensive evaluation



Chapter 5 Financing Structure for JICA-PSIF

5.1 Credit Overview for Small Hydropower Independent Power Producers (IPPs) in Indonesia

1) Construction Risks for Small Hydropower Facilities of IPPs The risk, which may have the most significant impact to the profitability of project, is the initial capital expenditure (CAPEX) for the construction of the IPP facilities because the revenue side of the cash flow is practically assured under the FIT system. It should be confirmed during the appraisal process that insufficient feasibility study (FS) may cause serious problems such as cost overrun of the construction. In general, the construction consists of three parts: i) steel works such as gate and penstock, ii) mechanical works such as turbine and generators, and iii) civil works such as construction of waterway, etc. The cost estimation of steel works and mechanical works can be regarded at a somehow reliable level. However, careful examination is needed for the civil works because it changes largely by reflecting the land and other geographical conditions of each project. There are some helpful selection criteria that were used in this report for establishing the list of potential IPP projects. A pre-screening is conducted by using obvious and easily-obtainable data, such as the length of waterway, penstock, and electricity transmission line to the transaction point of PLN, in order to confirm the basic geographical conditions. After the pre-screening, it should be confirmed that the estimated costs are below the benchmark cost of Rp30 billion from a reputable constructer. Moreover, the construction risks will be further mitigated if a guarantee is provided for completion of the construction, but it is subject to negotiations with the developer. 2) Drought, Flood and Discharge Risks In order to ensure the revenue in the cash flow projection, it is important to take into account drought, flood, and other discharge risks in small hydropower IPP projects. Sometimes, sufficient discharge data may not be available in small rivers for small hydropower IPPs, and practical treatment should be made on a case-by-case basis by referring to similar projects. Engineering analysis with regard to the discharge risks is important, but it is also worth considering a financial solution such as increasing the provision for the Debt Service Reserve Account in order to cover the drought risk for one or two years. 3) Risks Related to PPA to be Signed with PLN PLN is currently working on updating its template form of the PPA. The contracting conditions in the PPA templates will apply to most of future small hydropower IPP projects, and therefore the risk analysis for the PPA provides a global and comprehensive approach to the projects. First, before entering into the details of the PPA, the credit risk assessment of PLN should be conducted such as whether it has financial capacity to properly deliver the purchase obligation as stipulated in the PPA. According to its financial statement, PLN largely depends on government subsidy and other financial support. However, this report does not elaborate on this issue anymore because PLN maintains a credit rating of investment grade of BBB-, which is as good as the sovereign rating of Indonesia by the global credit agencies such as Moody’s and Fitch. The next step is to examine the details of the PPA’s contracting conditions and the procedures for daily operation, which were discussed in Chapter 2 of this report. Because there are concerns for most of the developers, it may be possible to rely on the analysis if it is conducted by experienced developers. It also includes clauses on insurance as well as



on events such as force majeure. Finally, the situation where the project SPC runs into financial difficulty should be examined, and the loan-providing banks should consider execution of collateral for recovery of the loan. This issue is not for the developers and therefore, it is extremely important for the banks to carefully examine their own resources.

According to Article 19 of the PPA template, which is under review by PLN, the termination of the PPA occurs if the project SPC (referred to as “SELLER” in the PPA) runs into bankruptcy or other similar situation. If the termination of the PPA occurs, the termination of purchasing obligations of PLN under the FIT system occurs accordingly. It is an extremely serious situation for the bank because the small hydropower IPP facilities become practically of zero value without the FIT system. ARTICLE 19 AGREEMENT TERMINATION 1. Each of the following events is the SELLER’s failure which may result in this AGREEMENT

TERMINATION: a. (omitted) b. (omitted) c. the occurrence of the following events: (i) the passing of judgment on bankruptcy, financial

inability, liquidation process, or liquidation or other similar events related to the SELLER; (ii) appointment of trustee, liquidator, custodian, temporary officer to implement the process set forth in point (i), where such appointment is not revoked or survives for more than 60 (sixty) CALENDAR DAYS, or (iii) court order to execute liquidation process, or confirm bankruptcy or financial inability, where such order is not revoked or survives for more than 60 (sixty) CALENDAR DAYS.

On the other hand, special consideration, as stipulated under Article 18 of the PPA, is made for

the lender of the loan in financing the construction of small hydropower IPP facilities.

ARTICLE 18 ASSIGNMENT OF AGREEMENT 1. (omitted) 2. (omitted) 3. If in the performance hereof, the SELLER assigns and delegates part or all of its rights and

obligations to any OTHER PARTY without the BUYER’s prior written approval, the BUYER may unilaterally terminate this AGREEMENT, save such assignment and delegation are obliged by the lender in connection with POWER PLANT construction financing. (underlined by the JICA study team)

One of the simple interpretations of these articles in a manner, which are rather favorable for the banks is that the project SPC under financial difficulty should sell its project assets to a third party by following the order of the bank in accordance with Article 18 before it goes into real bankruptcy as stipulated in Article 19. Then, it is possible that the assignment of the PPA will be made after the sales of the project assets, and the purchasing obligation of the PLN continues under the FIT system in accordance with the PPA. Another interpretation may be that Article 18 applies only when the project SPC were to assign the PPA to a third party and does not apply when 100% of the shares of the project SPC were to be sold to the third party without changing any legal status of the project SPC under the PPA. On the contrary, such an interpretation may be opposed by PLN because the share sales of the



project SPC may practically have the same impact of the assignment of the PPA. Obviously, these are the issues that should be consulted with Indonesian lawyers, but what is important is that the loan-providing banks should secure the legal status where the value of the project assets would not be seriously deteriorated. 4) Sponsor Risks of the Developers It should be examined if the developers have the necessary engineering capacity and operational organization to carry out a small hydropower IPP project. It is often the case where the developer becomes the operator of the IPP facility. The developer’s experience on hydropower operation should also be examined. Furthermore, the financial capacity of the developers should be confirmed in order to pay down the equity contribution of the project SPC, but the risk will be mitigated if the disbursement of the loan occurs only after the equity is fully paid. Other procedures and items to be confirmed are described below. 5) Legal Risks for Real Estate-related Contract, Water Utilization and Other Licenses

Including Those by the Local Government A stable business environment is indispensable for the project to generate the revenues estimated in the cash flow projection. For this purpose, it should be confirmed during the appraisal process that the legal status have been clarified such as land and water utilization rights and other authorization or licenses, including those from the local government. Sometimes in developing countries, these legal issues are not as rigid as in developed countries. In such a case, it may be realistic to accept the normal banking practice in the local market. 6) Environmental and Social Risks It should be confirmed that no serious issues exist with respect to the environmental or resettlement action plan. 7) Ability to Properly Respond to an Accident or Natural Disaster It should be confirmed that the action plans or manuals are/will be prepared for unexpected accidents and natural disasters as well as the insurances. In practice, it may be reasonably assumed that the experienced developers have sufficient capacity with regard to these issues.

5.2 Issues in the FS and the Transaction Costs for Small-scale Projects

In consideration of the financing structure for small hydropower projects, the transaction costs such as for FS, due diligence, and legal fees for loan documents, including the collateral agreements are the most important issues from a practical banking point of view. In a typical type of project financed by investment banks in the private sector with loan amount of US$100 million, for example, it is anticipated that the FS and other transaction costs are approximately 2%-3% of the total loan amount, which is approximately US$2-3 million. The transaction costs should cover all the necessary credit risk analysis as discussed in the previous section of this report. On the other hand, it should be strongly mentioned that the issues to be covered does not change in the credit appraisal process of the project financing. For example, a project financing of US$10 million



requires almost the same degree of rigor in the credit appraisal process as that of US$100 million, and therefore, the FS and other transaction costs should be almost the same amount. Approximately US$2-3 million of the transaction costs represent 2%-3% in the project financing of US$100 million, but they represent 20%-30% of the US$10 million, which seriously deteriorates the profitability of the project. For small hydropower IPP projects regulated under 10 MW in Indonesia, the maximum initial investment should be limited below Rp300 billion, which is calculated by applying the benchmark of Rp30 billion/MW, as discussed in the previous section. Therefore, the project financing loan amount would be approximately Rp150-210 billion, which correspond to 50%-70% of the initial investment of Rp300 billion. In such small-scale project financing, it is important to secure the sufficient FS and other transaction costs. One of the solutions to the transaction cost issue is provided by JICA through the public offering initiative in the public-private partnership (PPP) infrastructure preparatory study, which supports up to JPY 150 million for FS to potential developers of various infrastructure projects. Some may claim that the support of JPY 150 million does not fully cover the necessary costs, but it certainly help the developers’ burden for FS and other transaction costs. Another approach may be considered by combining a few small hydropower projects to arrange a medium-scale project financing loan. In the next section, some financing structures will be studied for this purpose based on various efforts by the financial institutions in the Indonesian financial market.

5.3 Financing Structure for Several Small Hydropower IPP Projects

1) Financing Structure for Equity Investment Firstly, it is worth considering an investment to a fund, in which IFC and other governmental development assistance agencies participate in the same status as private sector investors. (Source: JICA Survey Team)

Figure 5.3.1 Equity Investment Structure via Fund There are some technical issues on this scheme such as limited timing for application because renewable energy funds are often raised in closed form, in which investors can submit application only within an application period. 2) Financing Structure for Bank Loan The two-step loan scheme is recommended in order to encourage these Indonesian banks to work on project financing. As a pre-condition, it should be mentioned that the target project for lending is small

JICA

Investment Fund (Armstrong etc.)

Project Project Project ・・・

Fund investment

Equity investment to projects

IFC Development Agenciesin Europe

Private Sector Investors



hydropower IPP with equity contribution by Japanese investors at a certain percentage, which differentiates the project target from the two-step loan that has been already implemented by the French development assistance agency AFD. (Source: JICA Survey Team)

Figure 5.3.2 Financing Structure of Two-step Loan for Several Projects As for the credit appraisal process, all the credit issues in the project financing approach should be covered in an appropriate manner, but adequate segregation of roles should be discussed between JICA and intermediary banks in order to avoid overlapping roles, which may cause increasing the FS and other transaction costs. As mentioned in Section 6.1, the main risks are as follows: ① Construction risks for small hydropower IPP facilities ② Drought, flood, and discharge risks ③ Risks related to the PPA to be signed with PLN ④ Sponsor risks of the developers [Issues, which JICA takes main role] Among other credit risks, it is recommended for JICA to be mainly responsible for “(3) Risks related to the PPA to be signed with PLN” because the template form of the PPA has been already publicly announced by PLN and it covers all the future small hydropower IPP projects in a comprehensive manner. If there is any serious credit issue, which may be identified in this phase, there is no need to go further in the credit appraisal process, including the engineering appraisal mostly conducted by the intermediary banks. In general, the credit appraisal process should not be conducted only by analyzing the contract, but it should be based on the specific project file in order to avoid idealistic arguments. However, a small hydropower IPP project is an exceptional case because the sales risk of the project SPC is mostly mitigated by the FIT system as defined in the PPA, and therefore the assumptions for the cash flow projections are foreseeable. Moreover, there are some files, which are already reviewed by the PPP infrastructure preparatory study and it is relatively easily anticipate the specific features of the project. In this context, it is recommended to conduct credit analysis based only on the PPA in exceptional cases.

JICA / PSIF

Intermediary Banks (SMI, IIF)


Loan

Project Financing Loans

[Issues, which JICA takes main role] (3) PPA-related risks (4-2) Japanese sponsor risks [Issues, which Intermediary

Banks take main role] (1) Construction costs and completion risk (2) Water flow risks (4-2) Indonesian sponsor risks



The issue of “(4-2) Japanese sponsor risks” is also recommended for JICA to take a main role for tackling the issue because most of such risks are often related to Japanese companies. [Issues, which the intermediary banks take main role with JICA’s support] Among other risks, it is recommended that “(1) Construction risks for small hydro IPP facilities” and “(2) Drought, flood and discharge risks” should be taken by the local intermediary banks because these are mostly related to engineering issues, which are reflected by the topographical conditions of each project site. It is practical to assume that the engineering works should be done by the consultants who know the local conditions and the intermediary banks confirm the validity. The overall procedure should be reconfirmed by JICA, which may also provide various advice if needed. As a conclusion, it is expected that all the credit issues should be covered without duplication. The other issue of “(4-1) Indonesia sponsor risks” is also recommended for JICA to take a main role for tackling such issue because most of these risks are often related to Japanese companies. With regard to the proposed credit guidelines for intermediary banks, it is recommended to include the following items. (1) The involvement by Japanese company to the project SPC with XX% or more equity contribution,

or other commitment to the management, which is explicitly confirmed such as secondment of board member, who is based in Indonesia if possible.

(2) The intermediary bank receives JICA’s capacity development program in the similar manner as AFD’s two-step loan.

(3) The necessary measures have been taken to mitigate the construction risks, such as “completion guarantee by a stakeholder who has strong financial bases”, “action plan is prepared for capital increase in case of cost-over-run”, “favorable opinion from engineering review by a reputable consulting firm” and so on.

(4) Other issues raised at the appraisal process of the PPA related risks. The proposed credit guideline is more focused on the engineering issues because it is assumed that JICA goes through the appraisal process of the PPA related before entering into the detailed negotiation with the intermediary bank. (1) is to confirm the Japanese involvement for PISF program of JICA. On the other hand, the final decision should be made by its own discretion without too much influenced by the credit guideline because the intermediary bank fully takes the credit risk under the two-step loan scheme. But, the capacity building program should be provided if the intermediary bank does not have sufficient experience in project financing.

5.4 Financing Structure for Several Projects Initiated by a Single Developer

A single developer that is considering to conduct several small hydropower IPP projects in the same river basin may be referred to the same technical data for “(2) Drought, flood and discharge risks”, which may contribute to the reduction of the FS cost. It may be applied for both direct loan structure under JICA-PSIF as well as two-step loan via local intermediary banks.




Figure 5.4.1 Financing Structure for Several Projects Initiated by a Single Developer However, it is advised to be identical for the developer because a holding company should be established for bundling the SPC of each project. The holding company will be the borrower of the JICA loan and the repayment sources will be served from the total cash flow of each project, and therefore it may be considered as if each SPC cross guarantees the holding company’s loan. If the equity contributors are different among the projects, it will be difficult to provide the cross guarantee among the project SPCs.

JICA / Intermediary Banks

Holding Company


Loan

Inter-Company Loans



Chapter 6 Preliminary Action Plan

Based on the survey results, the preliminary action plan considering the permissions/approvals procedure for small hydropower development in Indonesia, timing for project participation by Japanese companies, and procedures for JICA-PSIF was examined. Even though the actual development schedule seems to be different due to past revisions of regulations and individual situations of the various projects, a typical schedule for small hydropower development is shown in Figure 7.1.1 below. The development is divided into five stages, from project identification to project commissioning, as illustrated in the figure.


Figure 6.1.1 Example of Schedule of Small Hydropower Development ① Development stage In this stage, project identification, establishment of special purpose company (SPC), acquisition of principle permission, pre-feasibility study (pre-FS), approval of UPL/UKL, land acquisition and acquisition of necessary permissions (IMB, HO, SIPTPP, SIPPA) shall be carried out. In case that a Japanese company prefers to participate in greenfield projects, it is expected that the Japanese company joins to carry out the pre-FS and then continue to develop the project together. In addition, it is realistic that the local developer takes care of land acquisition and acquisition of the abovementioned permissions.

No. Item By 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 121 Project Identification Developer2 SPC establishment Developer

3 Principle permit Local gov.4 Pre-FS, UKL&UPL Developer5 Location Permit Local gov.6 Land acquisition Developer7 Permissions (IMB, HO, SIPTPP, SIPPA) Local gov., River authority

8 HPO Application with Pre-FS to MEMR(EBTKE) Developer9 Technical verification of Pre-FS PLN

10 HPO Approval by EBTKE MEMR(EBTKE)11 Deposit Developer12 IUPTLS MEMR(Kelistrikan)

13 FS Developer14 FS submission to PLN (incl. other required docs) Developer

15 PPA Developer, PLN

16 Share holders agreement Developer, Japanese company

17 Financial arrangement by JICA-PSIF JICA18 Financial closure Developer

19 IUPTL MEMR(Kelistrikan)

20 DD, Bid docs21 Bidding of contractor Developer22 Construction Developer23 COD Developer

4th Yr 5th Yr1st Yr 2nd Yr 3rd Yr

Developmentstage

Proposalstage

Proess PPAstage

Process financingstage

Implementationstage



② Proposal stage The SPC submits the pre-FS, UPL/UKL, and other necessary documents to EBTKE (New/Renewable Energy Department, Ministry of Energy and Mineral Resources), and HPO (Hydropower Operator Approval) is issued to the SPC through technical verification by PLN, and then the SPC shall be approved as the hydropower operator. For effective scheduling, depending on the reliability of the pre-FS, the feasibility study (FS) shall be carried out in parallel with the activities in the development stage. In case a Japanese company prefers to participate in brownfield projects, it is expected that the Japanese company joins to carry out the FS and then continue to develop the project together. ③ PPA stage After the HPO is issued, the SPC shall pay the deposit (equivalent to 5% of the total investment amount) to EBTKE, and then the IUPTLS, which is a temporary power supply business license, is issued to the SPC. In general, the FS is finished in this stage. In case that a Japanese company prefers to participate in brownfield projects, the Japanese company as investor should decide up to this stage. In the FS, the specifications and cost of equipment shall be almost fixed, therefore, project participation as equipment supplier should also be promised up to this stage. In the FS, the following issues should be carefully examined:

Available discharge for power generation The estimation of available discharge for power generation is one of the most important issues in hydropower planning. In case of overestimation, the required power generation capacity and energy may not be available, and therefore the project would become not feasible.

Function and stability of structures Fulfillment of the required functions of each structure should be carefully confirmed. In case of insufficient or over design, appropriate modifications are necessary. In order to ensure long-term safety operation, treatment of weak geology, protection of high-excavated slopes, and crossing structures of waterways are carefully examined.

④ Financing stage After the PPA is concluded, debt financing becomes possible. At this moment, corporate financing by local banks seems to be common in Indonesia. In case of application of JICA-PSIF, it may take time to examine the loan application. Therefore, earlier related actions including investment to the SPC by a Japanese company are preferable in parallel with the activities in the PPA stage and immediately after confirmation of almost all FS results. It is noted that the timing of acquisition of IUPLT is not critical in the schedule. ⑤ Implementation stage After the financing of the project is finished, the construction shall be started through bidding of contractors. The financing may take time in general. Therefore, the detailed design and preparation of bidding documents better to be carried out in terms of effective schedule. In case that the contractor is a local Indonesian company, the selection of capable contractors and establishment of quality control system is important. Moreover, it is necessary to examine schemes preventing troubles during construction and delays such as the bidding conditions fixing the construction method and equipment.



In addition, the following actions are required from the Indonesian and Japanese sides: Indonesian side a) Confirm the situation of project preparation such as financing, engineering, procurement

management, and project management, and identify the needs for reinforcement. Request appropriate assessment and consultation of experts.

b) For the above needs, examine the possibility of collaboration with the Japanese side in order to solve problems. Request appropriate consultation from JICA and experts.

c) In parallel with the project stages, prepare the contract conclusion in collaboration with the Japanese side. Include preparation of JICA-PSIF.

Japanese side a) Review the FS report of the project. b) Examine the needs of the Indonesian side, level, timing for projects and developers, and then

screen considering the company strategies and resources. c) Contact and consult the developer on future collaboration. d) In parallel with the project stages, prepare the contract conclusion of the collaboration with the

Indonesian side. Include preparation of JICA-PSIF.

JICA Survey for Enhancement of Private Sector Investment on Small Hydro IPP Projects in Indonesia

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Guideline for Feasibility Study for Small Hydropower Project (Draft)

Though the captioned survey, various feasibility study reports for small hydropower projects are preliminarily evaluated. Referring to the survey work, the required information and data to be included in feasibility study report and how to preliminarily evaluate them are summarized below.

Item Required Information/Data Evaluation

1.0 INTRODUCTION

1.1 Background, Objectives, Scope of Work

Background, Objectives, Scope of Work are described briefly and comprehensively.

Verify the description of the information/data.

2.0 STUDAY AREA CONDITIONS

2.1 Geographic features Administrative information etc. are described briefly and comprehensively.


2.2 Socio-economy Population, Gross domestic product etc. are described briefly and comprehensively.

Ditto

2.3 Power situation Power demand, Power generating facilities, Electrification situation etc. are described briefly and comprehensively.

Ditto

3.0 SITE CONDITIONS

3.1 Site Conditions General condition of the project site (topography, land use, existence of local people) is investigated and described.


3.2 Site Access The project location and access to the project including information of administrative area, close major city, land route to the site with distance, road condition (width, pavement condition) are described. The information especially for transportation of equipment (bridge, cross drain, topography of both sides of road, town/village on the route) is included. If transmission line route is assumed, condition of the route is described.


3.3 Topography

3.3.1 Regional Topography Regional topography around the project area including any lineament to show fault and special topography of land slide is examined.

Verify the description of the information/data. Regional topography may affect the overall project layout.

3.3.2 Topographic Survey Topographic survey is carried out and make topographic map. Topographic map needs to be 1/1,000-1/2,000 scale for general layout covering in and around the project and 1/100 -1/500 scale for design of structures. For the survey, bench marks need to be firmly established. The survey records such as bench marks, triangle points, base points, survey points including survey method and used equipment need to be kept for clarification. Information of geological investigation (location of core boring, seismic exploration lines) is also included in the topographic information.

Verify the description of the information/data. The topographic survey with the required accuracy is indispensable for FS stage.

3.4 Geology

3.4.1 Regional Geology Regional geology is investigated. Geological map of 1/250,000 scale is commonly available. General geology around the project is examined. Special geological condition such as existence of large fault needs to be carefully confirmed.

Verify the description of the required information/data. Regional topography may affect the overall project layout.


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3.4.2 Geological Investigation The related available data (geological map, record of earthquake, activity of volcano) are collected. Record of site reconnaissance includes geological property from the outcrop, existence of fault, possible land slide and water spring. Degree of weathering and depth of over burden is also estimated. Detailed geological condition is investigated by core boring together with geological test and seismic exploration if necessary. Major structures shall be founded on the sound rock. Core boring with SPT (Standard Penetration Test) and water pressure test are carried out; 3-5 holes at the intake dam, several holes at waterway and penstock, at least 1 hole each at head pond, and powerhouse site. The number may be increased at the site with special geological condition. Depth of bore holes shall be deeper than the rock surface by 5m at least. Laboratory test is carried out for the sampled materials. Seismic exploration will be carried out if waterway is planed as tunnel type or to be located at special geological condition. All results of geological test and laboratory test need to be included in the FS report.

In order to properly design the structures, geological information derived from the geological investigation shall be verified. Verify geological information for examining the project layout then structure design shall be specified.

3.4.3 Site Geology Geological condition at each structure site is specified. Sound rock surface at each structure site is investigated and estimated.

Intake site requires sound rock foundation and water tightness. Depth of river bed deposit is also investigated. Depth of overburden (soil, weathered rock) along waterway is estimated; excavation volume is subject to depth of the over burden. Possible land slide along the waterway needs to be examined. Geological condition at head pond, penstock especially anchor block shall be investigated. Powerhouse shall be founded on the sound rock.

3.5 Meteorology and Hydrology

3.5.1 Study Area River catchment area, length of main stream and each tributaries, average slope, and average basin elevation based on topographic map with 1/25,000 or 1/50,000 scale. These data are used as parameters of low flow and flood flow analysis.


3.5.2 Meteorological Data Monthly meteorological data in and around the river basin. The meteorological data is 1) monthly mean temperature, 2) monthly maximum temperature, 3) monthly minimum temperature, 4) monthly mean humidity, 5) monthly mean wind speed/direction, 6) monthly mean sunshine hour, and 7) monthly mean evaporation. The data are classified into 3 items by every year and figured; 1) Complete data, 2) Incomplete data (including missing data), and 3) Data not available.

Verify the description of the information/data. The data are used for hydrological analysis. All collected data shall be attached to the FS report.


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3.5.3 Rainfall Data Daily rainfall data in and around the river basin for low flow and flood flow analysis. Hourly rainfall data for design flood hyetograph of flood flow analysis, if available. The collected data is verified in terms of applicability for analysis. Typical way for data verification is double mass curve method. Through the verification, abnormal data are rejected.

The estimated annual rainfall will be more accurate when several rainfall stations exist around the project site. But, the estimation shall be inaccurate when there is few or no rainfall station around the project site.

Evaluation of annual rainfall: 1) The annual rainfall is estimated from records of rainfall

stations when more than two rainfall stations exist around the project site commonly by Thiessen method.

2) The annual rainfall is estimated from the isohyetal map created by BMKG when less than one rainfall station exists around the project site.

3)±20% of difference between the annual rainfall in FS and the above estimated rainfall is to be a permissible range.

3.5.4 Runoff Data Daily river water level data, daily discharge data, and H-Q (river water level - discharge) curve to convert river water level into discharge in and around the project river basin. Hourly river water level data and hourly discharge data for calibration of flood flow analysis, if available.

The required discharge data in the project river basin and vicinity of the river basin are compiled. If data is not enough, supplemental data shall be referred.

3.5.5 River Flow Measurement Data of river flow measurement at water level gauging station site. Frequency of the measurement is 2 times in a month at the minimum. The H-Q curve needs be properly updated by result of the measurement.

Verify the description of the information/data. The required data shall be used for hydrological analysis.

3.5.6 Low Flow Analysis For low flow analysis, F.J. Mock method and Nreca method are popular in Indonesia. These methods are half monthly or monthly basis, therefore these are applicable for Pre-FS stage. Daily basis analysis is required for FS stage. Referring to the available discharge data of water level gauging stations in and around the project river basin, discharge at the project intake site is calculate by catchment area ratios between the water level gauging station sites and the project intake site. Based on the estimated discharge, Flow Duration Curve (FDC) is prepared for examination of design discharge and calculation of annual energy production.

Evaluation of design discharge: 1) The design discharge shall be evaluated considering

runoff coefficient. If there is a large deviation between the design discharge and the estimated average discharge considering probable runoff coefficient (50%), it is considered that there are basic mistakes on the data, calculation, and estimation method for the design discharge.

2) The design discharge less than 1.5 times of the estimated average discharge is to be a permissible range.

3.5.7 Flood Flow Analysis Probable flood discharge for design of spillway and powerhouse shall be estimated. The probable rainfall is generally estimated using Gumbel or Log Pearson III methods. Those methods are common in Indonesia. For flood flow analysis, Nakayasu unit hydrograph method is common in Indonesia.

Evaluation of flood discharge: Adequacy of the estimated design flood discharge shall be evaluated by Creager’s Curve. Range of Creager’s coefficient (=C) in Indonesia is 20 to 100. Probability of flood discharge for intake weir and powerhouse is generally 100 years.

3.5.8 Sedimentation Sampling survey for suspended load and riverbed material survey is desirable for examining abrasion prevention countermeasure of turbine and generator. The sand trap basin is designed considering the survey result.

Based on the survey result, sand flush gate at intake and sand trap basin shall be suitably designed.


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4.0 HYDROPOWER PLAN FORMULATION

4.1 Layout Run-of-river type is generally applied for small hydropower project. Based on the topographic and geological condition, general layout of civil structures is examined and optimized using discharge data from result of low flow analysis. In order to optimize the layout, alternative study for several layouts is carried out. Penstock costs prominently and therefore shorter penstock for the head is theoretically economical. High water level at intake weir and Tail water level at tailrace are decided to match the topographical condition of the project site.

Evaluation of project layout: In this survey, the following value is used for evaluation.

Lengthofwaterway headrace penstockx2plantdischargexhead

This value is expected to be less than 10 for project feasibility.

Intake location at start of rapid flow of river is preferable. It is also noted that the layout should be avoid high and huge excavation.

4.2 Plant Discharge Based on the result of low flow analysis, daily (monthly) discharge is calculated and the FDC is established. Based on the FDC, alternative study for several maximum plant discharge is carried out in order to optimize project scale.

In general, maximum plant discharge is set so that the flow utilization factor (FUF) at the project site is approximately 70% even though the maximum plant discharge shall be set based on the result of alternative study.

4.3 Installed Capacity and Energy Production

Based on the layout and maximum plant discharge, installed capacity and annual energy production is calculated. Head loss in the waterway and efficiencies of turbine and generator shall be considered.

In order to correctly estimate energy production, maximum plant discharge, head losses, efficiencies of turbine and generator shall be properly set and seasonal and annual change of river discharge shall also be simulated.

5.0 BASIC DESIGN

5.1 Civil Works

5.1.1 Intake Weir and Intake 1) Intake Dam (Weir) The following issues shall be appropriately examined.a. Layout b. Foundation c. Dam shape d. Dam material

1) Intake Dam (Weir) a. Layout Layout shall be proper to the river course. It is better to locate straight portion as practicable. b. Foundation Foundation shall be sound rock. Special treatment such as grout is not common for small hydropower. c. Dam shape Downstream slope more than 1:0.75-0.8 is desirable and dam stability shall be checked. Top elevation of the non-overflow section is decided to have enough free board (1.0 m or more) to the flood water level. d. Dam material Wet rubble masonry covered by concrete is acceptable.

2) Spillway The following issues shall be appropriately examined.a. Design flood b. Type c. Width d. Stilling basin

2) Spillway a. Design flood Return period of design flood shall be 100 years and flood discharge per meter of spillway shall be less than 100-150 m3/s. b. Type Non-gated ogee crest type is common for small hydropower. c. Width Width shall be nearly same with river width. d. Stilling basin Stilling basin shall be designed to adjust topographical and geological conditions. If geological condition in downstream of stilling basin is not good, further protection measures are required.


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3) Sand Flush Way The following issues shall be appropriately examined.a. Bottom elevation b. Dimension

3) Sand Flush Way a. Bottom elevation Bottom of sand flush way shall be lower than that of power intake to flush sediment in the reservoir. Difference of elevation between bottom of sand flush and power intake is more than 2 m. b. Dimension Sand flush way shall have appropriate dimension to flush sediment and equip the gate.

4) River Diversion River diversion during construction shall be planned considering intake dam structures, topography and construction period. The following issues shall be appropriately examined.a. Method b. Return period

4) River Diversion a. Method Stage river diversion by open channel is common for small hydropower. Discharge capacity of each stage shall be confirmed. If stage river diversion cause huge volume excavation, the tunnel type river diversion is considered. Layout of the river diversion does not disturb the layout the permanent structure. Closing measure of the river diversion so considered. b. Return period Return period of design flood shall be 5-10 years depending on the construction schedule.

5.1.2 Power Intake and Sand Trap

1) Power Intake The following issues shall be appropriately examined.a. Layout b. Dimension c. Elevation

1) Power Intake a. Layout Layout shall be perpendicular to river or parallel to intake dam axis. b. Dimension Power intake shall have appropriate dimension. c. Elevation Bottom of power intake shall be set 1m or more higher than the sand flush way. Approach velocity shall be at around 1.0m/s.

2) Sand Trap Necessity of sand trap shall be examined and number of sand trap bay shall be studied.

2) Sand Trap If river water is clean, the sand trap may be omitted. Two or more number sand trap is desirable. Outlet of sand trap shall be higher than the river elevation, if not, flow velocity of sand trap is not enough and sand trap function will be down. Dimension of sand trap is correct. Target particle size shall be 0.5mm or less and flow velocity in sand trap shall be 0.5m/s or less and depend on length of sand trap.


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5.1.3 Headrace Channel Type Type of headrace as open channel or tunnel shall be studied. Usually, small hydropower project selects an open channel type waterway. However, if huge volume excavation due to steep topography, land slide and poor geology on the headrace route are expected, a tunnel type shall be considered. Section As for typical section, if geological condition is good, trapezoidal section leaning on the both excavation face with wet rubble masonry is adoptable. If geology if not so good, the reinforced concrete U flume is adoptable. Crossing The headrace crossing the deep river/valley shall provide the waterway bridge or siphon. Appropriate cross drain structure shall be provided at the crossing of small rive/valley. Along the headrace channel, access road shall be constructed for construction and maintenance purposes. Possible landslide along the waterway route shall be checked.

Route Selected headrace channel route shall be appropriate

based on the topographic and geological conditions.

In terms of the project layout, “length of headrace channel/head” is checked and the value less than 10 is preferable.

Section Typical section is leaning trapezoidal type or concrete flume type. Independent wet rubble masonry wall is not appropriate.

Slope and flow velocity The slope of open channel shall be around 1/1,000 at bottom. Flow velocity is around 1.0-1.5m/s. River/Valley crossing structures are designed correctly, and not disturb flowing of the flood water. If there is some possibility of land slide, appropriate countermeasure shall be designed.

5.1.4 Head Pond Location Head pond is located at the end of the headrace channel and the beginning of the penstock.

Function Head pond functions to supply water when power generation operation is started and waste surplus water when power generation is downed or stopped. In addition, Head Pond has sand trap function.

Spillway Spillway of Head Pond shall have capacity equal to Plant Discharge and chute way to the river shall protected appropriate structure.

Location Location of head pond is selected to suit to topography and geology and minimize the length of penstock.

Capacity Volume of head pond shall have about 3 minutes of the Plant discharge in general. Structure Reinforced concrete structure is desirable.

Spillway Spillway and chute way of Head pond have enough capacity and are correctly designed. Inlet of Penstock shall have water depth more than 2 x diameter of Penstock.

5.1.5 Penstock (Anchor Block) Route Route of penstock shall be selected properly. Longer penstock is costly and cause unstable condition of the start of power generation operation.

Diameter and Thickness Diameter of penstock shall be selected economical diameter. Thickness is also designed correctly.

Anchor block The anchor block shall be prepared at bending portion and at around 50-100 m interval. The anchor block shall be constructed on the sound rock. If not, the pile foundation shall be considered.

Length Layout and length of penstock shall be studied

carefully together with location of head pond.

In terms of the stability of operation, the case that penstock length is more than 500m shall be carefully examined In terms of the project layout, “length of penstock/head” is checked and the value less than 3 is preferable.

Flow velocity (Diameter) Flow velocity of economical diameter is usually at around 2-3m/s.


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5.1.6 Powerhouse and Tailrace Layout Layout of powerhouse is correctly arranged in relation with Penstock and Tailrace/River course. The Access Road to transport the equipment is correctly designed.

Type Type of Powerhouse, in general, is selected an open air type in mini hydropower project. The Powerhouse shall be constructed on the sound rock. Layout of Powerhouse/Tailrace shall be set not to enter sand and gravel of the river to the tailrace. Tailrace is constructed conjunction with powerhouse usually and shall have enough capacity to flow out the plant discharge in relation with water level of the river.

Powerhouse shall be reinforced concrete structures. The elevation of erection bay and yard around powerhouse shall be set higher than 100 years flood. Powerhouse shall have enough space to accommodate the Turbine and Generator, and finally, the design of the manufacturer shall be reflected. Access Road shall have slope of around 10% and enough radius curvature.

5.1.7 Main Transformer /Switchyard

Main transformer yard/Switchyard shall be set at around the powerhouse and same or higher elevation of powerhouse yard.

These yards shall be designed easy for construction and maintenance.

5.2 Hydro-mechanical Works

5.2.1 Gates, Hoists and Screen Necessity and function of screen, gate and hoist at each structure shall be studied carefully. Basic dimension of each screen, gate and hoist shall be decided taking civil structures into consideration. Operation method as manual or mortar driven shall be decided necessity of emergency operation.

Detail design will be made by the Contractor, design condition of each gate and hoist shall be prepared clearly.

5.2.2 Penstock General layout study and design of civil works decide the penstock layout. Diameter and thickness of penstock shall be designed based on the plant discharge and internal water pressure including of water hammer or minimum thickness for transportation. For allowable stress of steel, the available material in the country shall be considered.

Detail design will be made by the Contractor. The design condition shall be prepared clearly.

5.3 Electro-mechanical Works

5.3.1 Hydraulic Turbine Based on the decided effective head and plant discharge, the type of turbine is selected.

Selection of type of turbine is correctly done subject to reference. Francis type turbine with horizontal axis is widely selected for small hydropower projects. For the project with high effective head, Pelton type turbine is selected. For the project with low head, Kaplan type turbine is applicable. Consequently, rotational speed and turbine setting level shall be decided.

5.3.2 Generator Following the selected turbine, the type of generator shall be selected.

Selection of type of generator shall be correctly done. Flywheel effect (GD2), maximum speed rose and maximum pressure rise (water hammer) together with closing time of turbine shall be studied and calculated.

5.4 Transmission Line

5.4.1 Present Conditions of Transmission and Distribution Line

Transmission and distribution line system around the project is mentioned as diagram. If PLN has construction plan of new transmission and distribution line, the route and capacity need to be confirmed.


5.4.2 Connection to Power Grid System

Based on the above study, the connection point to PLN grid is decided. Length of transmission and distribution line shall be minimized. Required capacity of conductor is studied for new or the existing transmission and distribution line. Power flow analysis shall be carried out in order to secure the connection between the project and PLN grid.

Connection point to PLN grid, size and length of conductor shall be cleared.

Evaluation of transmission line: The case that length of transmission line more than 20km shall be carefully examined.


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6.0 INITIAL ENVIRONMENTAL EXAMINATION (IEE)

6.1 IEE IEE shall include the following issues. a. Laws and regulation b. Land acquisition/use c. Natural and Social Environment d. Environmental impacts at pre-construction, during

construction and operation stage IEE is used for preparation of UKL and UPL.

Verify the description of the information/data. UKL and UPL shall be prepared separately and the developer needs to get approval from the local government.

6.2 Social Environment Social environmental impact such as land acquisition and resettlement, if any, is studied carefully.


6.3 Natural Environment Natural environmental impact such as special fauna and flora, if any, is studied carefully.


7.0 CONSTRUCTION METHOD AND SCHEDULE

7.1 Construction Materials Type Materials of sand and gravel for concrete aggregate and masonry is important

Quantity Required quantities based on the design shall be secured.

Location As much as practicable, materials near by the project shall be used. Investigation of construction materials shall be done.

Investigation results shall be mentioned. Source of construction materials and volume shall be mentioned clearly.

7.2 Construction Method Method Construction method of each structure shall be studied and mentioned.

Equipment Required equipment to achieve the method and period shall be described.

Period Required period based on method above for each structure and total shall be described.

Expected construction method, employed equipment and period of main structures shall be studied and mentioned clearly.

7.3 Construction Schedule Construction schedule from mobilization to COD (Commercial Operation Date) is examined in detail.

Construction period of small hydropower project is expected to be around 24 months. In the schedule, sequence of various works as well as interface of the contract lots such as civil, hydro-mechanical and electro-mechanical works shall be considered.

8.0 CONSTRUCTION COST

8.1 Cost Estimate

8.1.1 Cost of Civil Works Construction cost of civil works is estimated generally referring to the market price and/or contract unit price of similar and/or neighboring projects. The work quantities for cost estimate refer to the basic design.

The related cost shall be appropriately estimated.

8.1.2 Cost of Hydro-mechanical Works (Gates and Penstock)

Construction cost of hydro-mechanical works is estimated generally referring to the past/similar projects. Quotation from manufacture is usable. The cost shall also include design, fabrication, transportation, installation and tests.

The related cost shall be appropriately estimated.

8.1.3 Cost of Electro-mechanical Works (Generating Equipment)

Construction cost of electro-mechanical works is estimated generally referring to the past/similar project. Quotation from manufacture is usable. The cost shall also include design, fabrication, transportation, importation, installation and tests. Cost of transmission/distribution line shall also be included.



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8.1.4 In-direct Cost Cost of in-direct cost including engineering, land acquisition, administration, general expenses and contingency other than the above direct construction cost is estimated.


8.1.5 Project Cost Total project cost includes the above direct costs, in-direct cost and tax.

Evaluation of cost: Unit construction cost is expected to be less than 2,500USD/kW for project feasibility.

Unit energy cost is expected to be less than 10US¢ for project feasibility. It is noted that the cost less than 1,000USD/kW or 2.0 US¢/kWh seems to be not reliable in terms of quality.

9.0 FINANCIAL EVALUATION

Conditions for Financial Analysis

1) Inflation rate for CAPEX (Capital Expenditure) and OPEX (Operational Expenditure) and

2) Revenue (Tariff, Energy) 3) Initial construction cost 4) Depreciation period of initial construction cost 5) OPEX 6) Corporate tax rate 7) Source of the fund (Debt equity ratio)

8) Bank loans: terms of conditions (IDC (Interest During Interest), interest rate, maturity, grace period)


Financial Analysis 1) Cash flow projection 2) Profit & loss statement 3) Balance sheet


Financial Evaluation 1) Equity IRR (Internal Rate of Return) 2) Project IRR 3) NPV (Net Present Value) 4) Financial sensitivity


10.0 CONCLUSION Both of technical and financial feasibility of the project shall be concluded.


Attachment -1 Design Drawings Check whether there is the required information/data.

Attachment -2 Investigation Data - Topography - Geology - Hydrology

Check whether there is the required information/data.

Attachment -3 Analysis and calculations - Hydrological analysis - Hydraulic calculation - Structural calculation - Cost estimation - Financial analysis

Check whether there is the required information/data.

Remarks)

For details of the colored evaluation, see the survey report.

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