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Policy, Financing &

Institutional Innovationsfor Geothermal Power

Generation in Indonesia

Asia Clean Energy Forum8 June 2012

Mike CrosettiDirector



Overview of the Indonesian Geothermal Sector

• Largest geothermal resource base in the world

• Third largest producer of geothermal power in the world~ 1,200 MW installed

• Geothermal Law in 2003 and numerous implementingregulations since

– Licenses awarded prior to Geothermal Law remain under legacyarrangements

– After Geothermal Law, licenses awarded by regional governmentsthough price-based tender

• The Government targets an additional 3,967 MW of geothermal capacity additions by end of 2014

• Geothermal power to help Indonesia achieve GHG reductiontargets

2



Legacy

Geothermal

Working Areas

Industry Structure

3

MEMRMSOE

PLN Pertamina

Sets policy & regulatesServes asGovernment shareholder

PLNG GeoDipa PGE

Chevron Star Energy

Producing WKP

- Salak 1-6

- Drajat 1-3- Lahendong 3

Producing WKP

- Wayang Windu 1&2

Producing WKP

- Kamojan 1-3

- Lahendong 1-4

- Sibayak

WKP not yet operating

- Ulubelu

- Kotamubagu

- Sungai Penuh

- Hulu Lais

- Lumut Balai

Producing WKP

- Dieng

WKP under dev.

- Patuha

WKP not yet operating

- Tulehu

- Ulumbu- Mataloko

- Cibuni (under dispute)

Sarulla33%

67%

Joint venture of Itochu,Ormat, Kyushu, Saratoga(under development)

Private geothermal companies

State-owned enterprises

Subsidiaries of state-owned enterprises

M

o

F

Providesguarantees

New Geothermal

Working AreasNumerousCompanies



Progress has been limited

• Development has stagnated since passage of Geothermal Law

– Only ~260 MW of new capacity additions over past decade

• New capacity additions likely to reach only

– < 600 MW by 2014

– < 1,400 MW by 2016

4

Several initiatives underway to revitalize the sector



Principal elements of sector reform

5

1. Address

exploration

risks for new

working areas

2. Introduce

Feed-in Tariffs

3. Rationalize

the tender

process for

new working

areas

MoF MEMR MEMRRegulations inplace; Insitutional

preparationunderway

New regulationsunder

consideration

New regulationsunder

consideration



Regulations under MoF auspices

• Law 17/2003 – State Finance Law Risk mitigation

– Min Reg 139/2011: Government guarantee for PLN payment risk

– Min Reg 3/2012: Procedures for Geothermal Fund

• Law 19/2003 – State Enterprise Law Incremental cost coverage

– Min Reg 111/2007: Procedures for the Electricity Subsidy

• Min Reg 21/2010 – Tax Exemptions for Geothermal Incentives

6



Regulations under MEMR auspices

• Law 27/2003 – Geothermal Law

– Gov Reg 59/2007: Geothermal Business Activities

– Pricing

• Min Reg 2/2011: Pricing for Geothermal Power

–

Transaction process• Min Reg 11/2008: Definition of Working Areas

• Min Reg 2/2009: Preliminary Assignment

• Min Reg 11/2009: Management Guidelines for Geothermal Business

Activities

7

Revision of these regulations under consideration



These changes can beaccommodated under

Law 27/2003

MEMR AUSPICESMoF AUSPICES

Possible institutional arrangements

8

PLN

GeothermalDeveloper

GeothermalAdvisor

NationalGovernment

ExplorationContractor

LocalGovernment

SalesRevenue

APBN

PSO

Feed-in tariff

Taxes

Loans

Exploration data(provided for tenders)

2

PIP

MOF

KMK 286/2011

PMK 1/2012PMK 3/2012

~ USD 220 million

for Geothermal

Fund as of 2012

GeologicalAgency

New data

Existing data

Tender package

& license

Information, Agreements,Licences

Funds

Owns all data

Regional funding

3

Data

Data Agreement

1

Exploration

repayment



Some issues to consider

• The benefits of tendering

– Minimizes second-guessing

– The greater the resources or larger the government support, the more

important it becomes

• The value of pre-tender exploration by the government

–Pay me now, or pay me more later

• Maximize exploitation or minimize price? tender criteria

• Maximize speed or minimize price? value of feed-in tariffs

• The challenge of prioritizing government support

– Coordination of licensing with government exploration

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