Pre-Feasibility Study for Geothermal Power Development Projects in Scattered Islands of East Indonesia

Pre-Feasibility Study for Geothermal Power Development Projects in Scattered Islands of East Indonesia STUDY REPORT March 2008 Engineering and Consulting Firms Association, Japan

o l 10 INDONESIA ANDAMAN SEA THAILAND Bangkok Gulf of Thailand LAO P.D.R. CAMBODIA Phnom Penh VIET NAM 110 120 SOUTH CHINA SEA Manila PHILIPPINES SULU SEA PROVINCES OF INDONESIA 1. ACEH 2. BALI 3. BANGKA-BELITUNG 4. BANTEN 5. BENGKULU 6. GORONTALO 7. IRIAN JAYA 8. JAKARTA 9. JAMBI 10. JAWA BARAT 11. JAWA TENGAH 12. JAWA TIMUR 13. KALIMANTAN BARAT 14. KALIMANTAN SELATAN 15. KALIMANTAN TENGAH 16. KALIMANTAN TIMUR 17. LAMPUNG 18. MALUKU 19. MALUKU UTARA 20. NUSA TENGGARA BARAT 21. NUSA TENGGARA TIMUR 22. RIAU 23. SULAWESI SELATAN 24. SULAWESI TENGAH 25. SULAWESI TENGGARA 26. SULAWESI UTARA 27. SUMATERA BARAT 28. SUMATERA SELATAN 29. SUMATERA UTARA 30. YOGYAKARTA Banda Aceh BRUNEI DARUSSALAM Bandar Seri Begawan Kepulauan 1 Langsa MALAYSIA Natuna Talaud Besar Medan CELEBES Sangihe Kuala Lumpur PACIFIC OCEAN Tebingtinggi MALAYSIA SEA 26 Simeulue Borneo Tanjungredep Morotai Padangsidempuan SINGAPORE 22 Manado Kepulauan 16 Nias 29 Riau Pekanbaru 6 Halmahera Equator Payakumbuh Kepulauan Ternate Sumatra Kalimantan Waigeo 0 Lingga Pontianak Samarinda Teluk Tomini 0 Manokwari Padang 13 Palu 24 Selat Biak Sorong Jambi Bangka Kartimata 15 Peleng 19 Biak 27 9 Pangkalpinang Palangkaraya Balikpapan Sulawesi Yapen Siberut Obi Misool Teluk Sungaipenuh (Celebes) Cenderawasih Jayapura 28 3 Kepulauan 14 Palembang Billiton Sula G r e a t e r 23 Ceram Buru Pare Pare Wamena Lahat Laut Kendari Ambon 7 5 S u n d a I s l a n d s Kotabumi 25 18 New 17 Bandar Lampung Timika Enggano Guinea 8 Jakarta 11 Buton Ujungpandang BALI SEA Kepulauan Selajar Semarang BANDA SEA 4 Madura Kangean Aru Selat Madura Wetar 10 Kepulauan Java 12 2 Sumbawa Babar Dolak Flores Dili Tanimbar National capital 30 Merauke 20 21 SAVU SEA TIMOR-LESTE Provincial capital Lesser Sunda Islands Timor ARAFURA SEA 10 Christmas I. Sumba 10 Town, village (AUSTRALIA) Sawu Kupang Roti International boundary TIMOR SEA Provincial boundary Ashmore Is. (AUSTRALIA) INDIAN OCEAN Cartier I. Darwin Main road (AUSTRALIA) Gulf of Secondary road INDONESIACarpentaria Railroad 0 250 500 750 km The boundaries and names shown and the designations Major airport used on this map do not imply official endorsement or 0 250 500 mi acceptance by the United Nations. AUSTRALIA 100 110 120 130 140 ( ( Strait Sipura Pagai Utara Pagai Selatan of Malacca ( Bengkulu ( Selat Sunda Seran g ( Banddung ( Yogyakarta Banjarmasin JAV Surabaya ( A SE ( Bali Denpasar Lombok A Mataram ( Strait Makassar ( Teluk Bone Muna Gorontalo Alor ( ( M MOLUCCA u SEA c c Bacan CERAM a s Salawati SEA ( ( PAPUA NEW GUINEA Map No. 4110 Rev. 4 UNITED NATIONS January 2004 Map of Indonesia (source: United Nations) Department of Peacekeeping Operations Cartographic Section

Table of Contents Executive Summary CHAPTER 1 INTRODUCTION... 1 1.1 OUTLINE OF STUDY... 1 1.2 BACKGROUND... 2 1.3 OBJECTIVES... 4 1.4 SCOPE OF WORK... 4 1.5 STUDY AREA... 4 1.6 FUTURE INITIATIVE... 4 1.7 STUDY TEAM... 5 1.8 STUDY SCHEDULE... 5 CHAPTER 2 NECESSITY OF GEOTHERMAL DEVELOPMENT IN THE EASTERN PROVINCES... 7 2.1 BACKGROUND OF GEOTHERMAL POWER DEVELOPMENT IN INDONESIA... 7 2.2 SIGNIFICANCE OF GEOTHERMAL ENERGY DEVELOPMENT... 7 2.3 CURRENT STATE OF GEOTHERMAL ENERGY DEVELOPMENT IN INDONESIA... 8 2.4 METHODOLOGY TO PROMOTE GEOTHERMAL ENERGY DEVELOPMENT IN THE EASTERN PROVINCES...8 2.5 SOCIAL SITUATION OF THE EASTERN PROVINCES... 9 2.6 ELECTRICITY SUPPLY AND DEMAND SITUATION IN THE EASTERN PROVINCES... 11 2.7 NECESSITY OF GEOTHERMAL ENERGY DEVELOPMENT IN THE EASTERN PROVINCES... 12 2.8 SMALL SCALE POWER GENERATION DEVELOPMENT OF OTHER ENERGY SOURCES... 13 CHAPTER 3 GEOTHERMAL RESOURCES IN EASTERN INDONESIA... 54 3.1 OVERVIEW OF GEOTHERMAL RESOURCES IN EASTERN INDONESIA... 54 3.2 PRESENT EXPLORATION STATUS IN EASTERN INDONESIA... 54 3.3 NECESSARY STUDY FOR FUTURE GEOTHERMAL RESOURCE DEVELOPMENT... 56 3.4 GEOTHERMAL RESOURCES IN EACH FIELDS... 62 CHAPTER 4 ENVIRONMENTAL AND SOCIAL ASPECT... 84 4.1 ENVIRONMENTAL ASSESSMENT SYSTEM... 84 4.2 LEGISLATION, STANDARDS AND REGULATIONS RELATING TO THE ENVIRONMENT (GEOTHERMAL DEVELOPMENT RELATED)... 85 CHAPTER 5 IMPLEMENTATION PLAN... 95 5.1 PROJECT COMPOSITION... 95 5.2 CONSULTANT SERVICE... 106 5.3 PROJECT IMPLEMENTATION ORGANIZATION... 106 5.4 DEVELOPMENT SCHEDULE... 109 5.5 OPERATION AND MAINTENANCE... 110 5.6 PROJECT COST ESTIMATE... 110

5.7 FINANCIAL ARRANGEMENT PLAN...111 CHAPTER 6 ECONOMIC ASSESSMENT... 112 6.1 ECONOMIC EVALUATION... 112 6.2 FINANCIAL EVALUATION... 117 CHAPTER 7 PREPARATION OF GEOTHERMAL POWER DEVELOPMENT PROJECT... 123 7.1 NECESSITY OF PREPARATION STUDY... 123 7.2 SUPPLEMENTARY STUDY AND PROJECT PLANNING... 124 CHAPTER 8 PROJECT POTENTIAL FOR CDM... 126 8.1 CO 2 EMISSION BY POWER SOURCE... 126 8.2 CDM INSTITUTION IN INDONESIA... 126 8.3 GEOTHERMAL PROJECT... 127 8.4 EFFECTS OF ENVIRONMENTAL IMPROVEMENT... 128 8.5 SMALL SCALE GEOTHERMAL POWER DEVELOPMENT AS SMALL SCALE CDM... 130 8.6 CDM PROJECT IN A ODA PROJECT... 131

List of Figure Fig. 2-1 Geothermal Development Road Map... 19 Fig. 2-2 Electricity Demand and Supply Situation in Eastern Provinces (2006)... 44 Fig. 2-3 Electricity Sales in Eastern Provinces (2006)... 44 Fig. 2-4 Electrification Ratio in Eastern Provinces (2006)... 45 Fig. 2-5 Electricity Demand Outlook in Eastern Provinces... 47 Fig. 2-6 Installed Capacity of PLN (2006)... 48 Fig. 2-7 Comparison of Power Plant Mix between Whole Nation and Eastern Provinces (2006)... 49 Fig. 2-8 Increase of Diesel Generation Cost and Diesel Fuel Price... 50 Fig. 2-9 Generation Cost by Energy Type (2006)... 50 Fig. 2-10 International Oil Price... 51 Fig. 2-11 Concept of Best Energy Mix in Eastern Provinces... 53 Fig. 3-1 Map of Geothermal Area in West Nusa Tenggara (DGMCG, 2005)... 57 Fig. 3-2 Map of Geothermal Area in West East Nusa Tenggara (DGMCG, 2005)... 57 Fig. 3-3 Map of Geothermal Area in North Maluku (DGMCG, 2005)... 58 Fig. 3-4 Map of Geothermal Area in Maluku (DGMCG, 2005)... 58 Fig. 3-5 Map Showing the Resource Potential in Promising Geothermal Fields (JICA, 2007)... 59 Fig. 3-6 Geothermal area of Hu u Daha (after J. Brotheridge et al., 2000)... 64 Fig. 3-7 Geological map in Wai Sano (after JICA, 2007)... 66 Fig. 3-8 Resistivity survey result in Wai Sano (after JICA, 2007)... 67 Fig. 3-9 Hydrothermal mineral zonation in Ulumbu (revised Kasbani, et al., 1997)... 70 Fig. 3-10 Compiled map of geothermal activity in the Nage and Wolo Bobo areas (JICA, 2007)... 73 Fig. 3-12 Location of exploratory wells in Mataloko (Muraoka et al., 2005)... 74 Fig. 3-13 Photograph of the flow twist of NEDO MT-2 well (Muraoka et al., 2005)... 74 Fig. 3-14 Prospect Area in Sokoria Mutubusa (J. Brotheridge et al., 2000)... 76 Fig. 3-15 Geological map in Tulehu (JICA, 2007)... 80 Fig. 3-16 Prospect Area in Tulehu (JICA, 2007)... 81 Fig. 3-17 Geothermal model in Jailolo (after VSI)... 83 Fig. 4-1 Geographical relation between prospects and the conservation forest in Huu Daha and Wai Sano... 92 Fig. 4-2 Geographical relation between prospects and the conservation forest in Ulumbu and Bena-Mataloko... 92 Fig. 4-3 Geographical relation between prospects and the conservation forest in Sokoria-Mutubusa and Oka-Larantuka... 93 Fig. 4-4 Geographical relation between prospects and the conservation forest in Ili Labaleken and Atadei... 93 Fig. 4-5 Geographical relation between prospects and the conservation forest in Tonga Wayana and Tulehu... 94 Fig. 4-6 Geographical relation between prospects and the conservation forest in Jailolo... 94 Fig. 5-1 Development Flowchart... 96 Fig. 5-2 Photographs of Suginoi Hotel flash steam unit... 102 Fig. 5-3 Layout of Back Pressure Turbine Generator Set (5.5 MW)... 105

Fig. 5-4 Typical Schemes of Geothermal Power Development in Indonesia... 107 Fig. 5-5 Project Organization... 108 Fig. 5-6 Project Schedule (Tentative)... 109 Fig. 6-1 EIRR Sensitivity to Capacity Factor... 115 Fig. 6-2 EIRR Sensitivity to Project Cost... 115 Fig. 6-3 EIRR Sensitivity to Fuel Cost... 116 Fig. 6-4 FIRR Sensitivity to Capacity Factor... 119 Fig. 6-5 FIRR Sensitivity to Project Cost... 119 Fig. 6-6 FIRR Sensitivity to Tariff Rate... 120 Fig. 6-7 Accumulate Balance of cash flow... 122 Fig. 8-1 CO 2 Emission by Power Source... 126 Fig. 8-2 Project Screening Process by DNA... 127 Fig. 8-3 CER s Price... 129 Fig. 8-4 CO 2 Emission by Steam Production... 131

List of Table Table 1-1 Study Team Members... 5 Table 1-2 Schedule of First Trip in Indonesia... 6 Table 1-3 Schedule of Second Trip in Indonesia... 6 Table 2-1 Geothermal Power Plant in Indonesia and its Development Scheme... 15 Table 2-2 National Energy Policy... 16 Table 2-3 Presidential Decree on National Energy Policy... 17 Table 2-4 Geothermal Energy Law... 18 Table 2-5 Outline of Eastern Provinces... 20 Table 2-6 Electricity Demand and Supply Situation in Eastern Provinces (2006)... 21 Table 2-7 Diesel Power Plants in Maluku and North Maluku... 22 Table 2-8 Diesel Power Plants in Nusa Tenggara... 34 Table 2-9 Diesel Power Plants in Flores Island... 39 Table 2-10 Electricity Demand Outlook in Eastern Provinces... 46 Table 2-11 Estimation of Geothermal Development Effect in Eastern Provinces... 52 Table 3-1 Geothermal Resource Potential (MW) in Eastern Indonesia... 60 Table 3-2 Present Status of geothermal resource development in Eastern Indonesia... 61 Table 4-1 Environment Quality Standards for Air Pollution... 86 Table 4-2 Gas Exhaust Standard (Stationary Source)... 86 Table 4-3 Environmental Quality Standard for Water (Drinking Water Usage)... 86 Table 4-4 Quality Standards of Liquid Waste... 87 Table 4-5 Standards of Noise Level... 87 Table 4-6 Standards of Noise Level at Source... 88 Table 4-7 Classification of Forest Area... 91 Table 5-1 Contents of Project Cost... 110 Table 5-2 Terms and Conditions of Loans...111 Table 6-1 Economic Internal Rate of Return... 116 Table 6-2 Financial Internal Rate of Return... 120 Table 6-3 Repayment Schedule for Power Plant Project... 121 Table 6-4 Cash Flow Statement... 121

Abbreviations AMDAL BAPPENAS BPPT CDM CER CGR CO 2 DGEEU DGMCG EIA EIRR ESC FIRR FS GA GDP IEE IRR IUP JBIC JICA K-Ar LA MEMR MT NCG NEDO O&M ODA OJT PDD : Analysis Mengenai Dampak Lingkungan : National Development Planning Agency : Baden Pengkajian dan Penerapan Teknologi : Clean Development Mechanism : Certified Emission Reduction : Center for Geological Resources : Carbon dioxide : Directorate General of Electricity & Energy Utilization : Directorate General of Mineral, Coal and Geothermal : Environmental Impact Assessment : Economic Internal Rate of Return : Energy Sales Contract : Financial Internal Rate of Return : Feasibility Study : Geological Agency : Gross Domestic Product : Initial Environmental Evaluation : Internal Rate of Return : Geothermal Energy Business Permit : Japan Bank International Cooperation : Japan International Cooperation Agency : Potassium-Argon : Loan Agreement : Ministry of Energy and Mineral Resources : Magneto-Telluric : Non Condensable Gas : New Energy and Industrial technology Development Organization : Operation & Maintenance : Official Development Assistance : On-the Job-Training : Project Design Document

PERTAMINA PIN PGE PLN RUKN RUPTL TDEM TOE VAT WACC : PT. PERTAMINA (Persero) : Project Information Note : PT. PETRAMINA Geothermal Energy : PT. Perusahaan Listrik Negara (Persero) : Rencana Umum Ketenagalistrikan Nasional : Rencana Usaha Penyediaan Tenaga Listrik : Time Domain Electro Magnetic : Ton of Oil Equivalent : Value Added Tax : Weighted Average Cost of Capital

Executive Summary 1. Objectives The purpose of the study is to survey geothermal resources and formulate a practical development plan making best use of the resource for substitution of geothermal power generation with existing and planned diesel powers in West Nusa Tengara, East Nusa Tengara, Maluku and North Maluku Provinces. The study and planning were carried out in consideration of application for Japanese Yen Loan in the next Japanese fiscal year. 2. Necessity of Geothermal Power Development in Eastern Provinces Background of Geothermal Power Development in Indonesia Indonesia suffered the largest impact among ASEAN countries in the Asian economic crisis in 1997. However, the Indonesian economy has shown a great improvement after the crisis due to the results of various policy reforms and supported by the inflow of investment from foreign and domestic sources. Thus, the Indonesian economy is expanding steadily, and the electric power demand is also increasing rapidly. The peak power demand of the whole country reached 20,354 MW in 2006 and showed the 5.1% increase from the previous year. The amount of energy demand in 2006 also records 113,222GWh, the 5.1% increase from the pervious year. The National Electricity Development Plan 2005 (RUKN 2005) estimates that the peak power demand of the country will increase at the average annual rate of 7.5% and will reach 79,900 MW in 2025. It also estimates that the energy demand will increase at almost same rate and will reach 450,000 GWh in 2025. In order to secure stable energy supply, the development of power plants which meets these demand is one of the urgent issues of the Indonesian power sector. Since the demand in the Java-Bali system accounts for 77.2%of the total country, the power plant development in this system is most important. But the power development in other system is also very crucial because the power demand will increase rapidly due to the expansion of the rural electrification and rural economy. Another urgent issue that the Indonesian power sector faces is the diversification of energy sources. In the light of high oil price, it is necessary to reduce oil dependency in energy source in order to reduce generation cost and to secure stable energy supply. For this purpose, Indonesian government worked out "National Energy Policy (NEP)" in 2002, and set the target of supplying 5% or more of the primary energy by renewable energy by 2020. To achieve this target, the government put the important role on geothermal energy which exists affluently in the country. Indonesian Government s Intention on Geothermal Power Development The utilization of geothermal energy has already a long history and more than 8,000 MW capacity of geothermal energy has been exploited in the world. Notwithstanding one form of natural energy, geothermal energy production is extremely steady with less fluctuation caused by weather or by seasonal condition. The geothermal energy can be used for social development i

in rural areas by introducing multipurpose utilization. The development of geothermal energy has a great significance for the national economy and the people s life in Indonesia. Moreover, since geothermal energy is global-environmentally friendly, the geothermal development can contribute to world community for preventing global warming by reduction of carbon dioxide gas emission. It is said that Indonesia has the world-biggest geothermal energy potential, which was estimated as more than 27,000 MW and is though to account for more than 40% of world total potential. Therefore, the development of geothermal power has been strongly expected in order to supply energy to the increasing power demand and to diversify energy sources. Today, geothermal power plants exist in seven fields in Indonesia, and the total capacity reaches 857 MW. However, although this capacity is the forth largest in the country-ranking in the world, Indonesia has not fully utilized this huge geothermal potential yet. Having been urged by such situation, the Indonesian Government decided to promote geothermal energy development. The Government worked out "National Energy Policy (NEP) in 2002, and set a target of supplying 5% or more of the primary energy by renewable energy by 2020. In addition, the Government enacted "Geothermal Energy Law" in 2003 to promote the participation of private sector in geothermal power business. Moreover, Ministry of Energy and Mineral Resources (MEMR) worked out "Road Map Development Planning of Geothermal Energy" (Road Map) to materialize the National Energy Policy in 2004. In this Road Map, a high development target of 6,000 MW by 2020 and 9,500 MW by 2025 is set. Thus, a basic framework for geothermal energy development has been formulated and the Government has started its efforts to attain these development targets. In September 2007, Japan International Cooperation Agency (JICA) has submitted the final report on "Mater Plan Study for Geothermal Power Development in the Republic of Indonesia, which aimed to study the concrete strategy to attain Road Map of Geothermal Development. This study has evaluated 73 of promising geothermal fields in Indonesia and makes the following proposals; (i) the economic incentives such as the ODA finance for Pertamina and the increase of purchase price for private investors are necessary to promote the Rank A fields (the most promising fields), (ii) the preliminary survey by the geothermal promotion survey which includes test drilling by the government is necessary to promote private investors participation in the Rank B and the Rank C fields (the promising fields without test drilling holes), and (iii) The governmental development activities are indispensable to promote small geothermal energy resources in remote islands in the eastern regions since private investors are unlikely to promote these small geothermal resources in these regions. As for how to promote geothermal fields in remote eastern islands, the report proposed the following way; Basic Strategy for Geothermal Field Development in Remote Islands; In remote islands geothermal power plant is the most economic advantageous power source, because other power plants can not utilize the scale-merit in construction cost. ii

Therefore, geothermal development in such small systems should be positively promoted in order to decrease the fuel cost of diesel power plants. However, in such remote islands, the development by private developers cannot be expected because the project scale is too small for business scale. Therefore, the Government should play the central role of developing geothermal energy fields in remote islands. In such fields, as the development scale is small, there is a possibility of converting succeeded exploration wells into production wells. Therefore, the construction of a small power plant by PT. PLN or by local government company may be easy if the government succeeds to drilling steam wells in the survey and transfers the wells to the power plant operator. The governmental survey and development are highly expected in remote islands. The main purpose of this study is, based on the above-mentioned proposal, to formulate a project, which promotes geothermal energy development in the eastern provinces in Indonesia by the Indonesian Government. The possibility to utilize Yen Loan for the project finance was investigated in this study. In Geothermal Master Plan, development of power plants of 186 MW in total in the eastern provinces was planned based on the existing resource data. In a general way, power output and development program in each geothermal field should be decided after resource data collection by preliminary resource studies described later. However, since urgent commencement of geothermal power development in the eastern provinces is considered to be necessary and pilot project of geothermal power development should be started as soon as possible, because of inflationary cost rise of fossil fuel for the diesel power generation and long term development of geothermal power plants of 186 MW until 2025, several fields developments, which include geothermal fields where geothermal resources were confirmed by the studies or an urgent need of substitution by geothermal power exists, were decided to be developed using ODA Yen Loan. Considering commencement of operation of geothermal power plants by 2016, the support by ODA Yen Loan is considered to be sufficient for construction of 35 MW geothermal power plants as pilot projects. General Status of Eastern Indonesia The surveyed area in this study is the eastern part of Indonesia, which consists of small islands. Particularly, the Maluku province, the North Maluku province, the West Nusa Tenggara province, and the East Nusa Tenggara province are target islands for this project. The total area of these four provinces is 153,157 km 2, and accounts for 8.2% of the whole Indonesian land. The total population of these four provinces was 10,639,000 according to the national population estimation for 2005, and it accounts for 4.9% of the entire Indonesian population. The regional Gross Domestic Production (GDP) of these four provinces totals 41,949 billion Rupiah (Rp) in 2004, and accounts for 1.8% of the whole Indonesia. Present Status of Power Sector and Economy of Power Generation in Eastern Indonesia The total maximum electric power demand in these four eastern provinces in 2006 was 270 MW, and it accounts for 1.3% of total Indonesia. To supply electric power to this demand, there is 469 MW installed generation capacity in the area. The generated energy in this area in 2006 was iii

1,273 GWh, and it accounts for 1.2% of the whole country. The electrification ratio of each province is; 51.6% in Maluku and North Maluku provinces, 28.8% in the West Nusa Tenggara province, and 21.8% in the East Nusa Tenggara province. The electrification ratio in this area is considerably low compared with the national average. It is estimated that the electricity demand in these provinces will increase at an annual average of 7.4% and maximum electric power will reach 1,065 MW in 2025. Given that a reserve margin is expected to be 30-40%, it is expected that the necessary capacity of electric power facilities will reach 1,491 MW in 2025. The energy source mix of entire nation is well diversified. However, the eastern provinces completely rely on diesel power generation only. This is because the electric system in this area is small-scale due to isolated islands. However, the diesel power generation becomes extremely expensive under the current international oil price hike. The price of diesel fuel (HSD) was predicted to become 0.62 US$/litter in 2006 from 0.07 US$/litter in 2000, showing the expansion of as much as some 9 times more. As a result, the generation cost of diesel power plant of PT. PLN was predicted to become approximately 17.6 cents US$/kWh in 2006, making diesel power generation the most expensive one as well as gas turbine generation. In contrast, the generation cost of geothermal power plant in 2006 was 6.3 cents US$/kWh. The diesel generation cost was 2.8 times higher than that of geothermal power generation and there was the cost deference of 11.5 cents US$/kWh between both the costs. The international oil price was 66 US$/barrel in 2006, and it has been continuously increasing afterwards and has exceeded 110 US$/barrel in 2008. Due to this oil price increase, the price of diesel oil is also rising continuously. The price of diesel oil for industrial use in the eastern provinces which PT. PERTAMINA announced on March 1, 2008 becomes 0.936 US$/litter. Based on this new diesel oil price, the fuel cost of diesel generation in the eastern provinces is estimated as high as approximately 26 cents US$//kWh. This high fuel cost is a great heavy burden on the financial foundation of PT. PLN. The volume of diesel oil used in the eastern provinces was about 347,000 kilo litter in 2006. The cost of this diesel fuel is estimated as much as 325 million US$ based on the current diesel oil price (0.936 US$/litter). Therefore, if the base-load demand is supplied by geothermal power plant instead of diesel power plant, about 214,000 kilo litter of diesel fuel, which accounts for about 62% of total fuel consumption, can be saved in one year. The value of this fuel saving is about 200 million US$ based on the current diesel oil price. There is a great justification to promote geothermal energy development to substitute diesel power plant in the eastern provinces. There is no doubt that the geothermal power development in the eastern provinces as substitutes of diesel power contributes to inhabitation of financial deterioration of the Government and PT. PLN. Prevention of Global Warming Geothermal power development is generally expected as effective countermeasure against the global warming for conservation of global scale environment due to carbon dioxide gas emission of very low content from the power plants. Indonesia has a plenty of untapped geothermal-resources and remarkable reduction effect of the CO 2 emission even in the eastern provinces can be expected, if the geothermal power is used as alterative energy of fossil fuel. iv

Most of all geothermal power developments in the eastern provinces must be regarded as the excellent CDM project. Carbon credits produced from these geothermal projects are necessary for not only developed country and Indonesia but also countries of the world for preventing the global warming. 3. Geothermal Resources in Eastern Indonesia Indonesia is blessed with abundant geothermal resources. The 253 geothermal areas were identified in Indonesia. The total potential was estimated as approximately 27,791 MW (DGMCG, 2005). In the eastern provinces (Nusa Tenggara and Maluku provinces), 37 geothermal fields were identified by DGMCG (2005), which total potential was estimated as 1,914 MW. Only two fields in the eastern province, Ulumbu and Mataloko have been studied by well-drilling to confirm reservoir conditions. Promising geothermal resources were confirmed by well discharges from high temperature reservoir. The other fields have been investigated at various levels commensurate with the development perspectives of each field. In 9 fields, Huu Daha, Wai Sano, Ulumbu, Bena-Mataloko, Sokoria-Mutubusa, Oka-Larantuka, Atadei, Tulehu and Jailolo, geothermal resource potentials had been evaluated by JICA (2007) based on some geoscientific data of reconnaissance studies or detail study data, and the data and the study results in these fields were reviewed in this study. Electricity of 110MW was planned to be generated by geothermal development of these 9 fields in the Master Plan study and 20 MW geothermal power development was recommended in the feasibility study of geothermal development in Flores. Except of 9 fields as listed above, exploration statuses are not clarified because available geoscientific data in these fields could not be obtained in this study. Except for Ulumbu and Mataloko, the present status of geothermal resources development is reconnaissance study level. These data allow estimating probable prospect area and probable heat source, and also allow establishing the sequence and geoscientific methods to use in the next stages of development. However, the data and information of geology, geochemistry and geophysics in the fields are not enough to make geothermal reservoir model and to evaluate generation power capacity of their fields. Therefore, geoscientific studies for clarification of characteristics and structure of the geothermal resources should be conducted as resource feasibility study in the fields in the eastern provinces except for Ulumbu and Mataloko. After the geoscientific surface study, exploratory well drilling and well test should be conducted to confirm geothermal resource existence and to evaluate its capacity. The current practical plans for geothermal development/expansion projects were confirmed through interviews during a mission trip to Indonesia. In the two fields of Ulumbu and Mataloko, small-scale power developments have been planned by PT. PLN. In addition, PT. PLN has actual plan of resource development in Hu u Daha, Jailolo, Tolehu and Sembaiun. Development priority of these fields is regarded to be high, because resource existence in some of fields were confirmed and development risk at initial stage must be relatively low. v

4. Necessary Assessment and Current Information of Environmental Aspect Necessary environmental study for construction of power plants and present status in and around the promising fields in the eastern provinces were checked in this study, for considering the feasibility of the geothermal power development projects. Regarding environmental regulations on geothermal power projects, environmental condition and impact in the objected area of the geothermal power project, whose capacity is more than 55MW, should be checked by application of Environmental Impact Assessment (AMDAL). The AMDAL in specific geothermal power projects in and around legally protected areas should be prepared, even if their development capacity is less than 55MW. In case that AMDAL is not nessesary, Environmental Management Effort (UKL) and Environmental Monitoring Effort (UPL) should be submitted according to the requirement of the ministry decree No. 86/2002. Geothermal power development activity can be conducted in the forest restricts in special circumstances. Government Regulation No.2/2008 approves geothermal power development activity in protection forest and production forest in exchange for tariff or government income on using forest area. Geothermal power development activity in kinds of the conservation forest is not allowed according to government regulation No.41/1999. The project implementation body should pay attention about the location of prospect which may be included in conservation forest. There are 37 geothermal prospects in the eastern province according to the data of Geological Agency of MEMR. 11 of 37 prospects were checked the geographical relation between prospects and the conservation forest. There are no serious environmental problems to precede the projects in the objected areas at present. However more detailed information on environment should be collected before starting the project. The forest condition of the other 26 prospects should be confirmed when the project areas are selected. 5. Implementation Plan Since urgent commencement of geothermal power development in the eastern Indonesia is considered to be necessary and pilot project of geothermal power development should be started as soon as possible, because of inflationary cost rise of fossil fuel for the diesel power generation, small scale geothermal power plant of 35MW in total is proposed to MEMR as appropriate project scale and period. Considering commencement of operation of geothermal power plants as soon as possible, the support by ODA Yen Loan is considered to be sufficient for construction of 35 MW geothermal power plants as pilot projects. Based on the discussion among the MEMR, Ministry of Finance(MOF) and National Development Planning Agency(BAPPENAS), the procedure for registration of Blue Book will be started by MEMR as a project of PT. PLN. Project Preparation Based on information such as location of diesel power plant and transmission/ distribution line, vi

consumer power demand, potential and characteristics, promising areas of geothermal power development will be selected for diesel power substitution and the detailed project program of each field development will be prepared. For deciding detailed description and program of the project, this work should be preferably conducted before starting the project by preliminary surface studies. These studied should be entrusted to consulting firm of geothermal development. However, if possible, these studies are desired to be conducted as preparation study by support from Japan, as described later. Resource Development for Securing Geothermal Steam Surface resource survey such as geology, geochemistry and geophysics will be carried out at selected geothermal prospects for the purpose of confirmation of resource existence, delineation of the geothermal reservoirs and decision of exploration drilling targets. Necessary resource studies should be conducted in the project for securing geothermal steam. After conducting the necessary surface resource studies, data collected from these studies will be summarized using the database software. An Integrated analysis will be carried out using the database for preparing the geothermal conceptual model. Since special technologies and experiences are necessary for these studies and the studies for securing steam are the most important in the geothermal power development, these studies should be entrusted to consulting firm of geothermal development. Based on the results of surface survey, twenty-eight exploratory wells will be drilled at 10-14 prospects in the eastern Indonesia. The wells, which will be succeeded in steam production, will be used as production wells. Moreover, seven reinjection wells will be drilled and wastewater will be injected under the ground through these wells. Well drilling will be undertaken by drilling company (or the government institute; Center for Geological resources, Geological Agency). In case of employment of private drilling company, the company will be selected through international bidding. Some material and equipment for drilling will need to be procured through international bidding. Highly capable drilling supervisors should be hired for smooth drilling works. Usually geothermal consultant firm can dispatch such supervisors. After well drilling and test, all geoscientific data will be consolidated into a conceptual model, and the evaluation of the geothermal potential will be conducted through the application of numerical modeling techniques using this conceptual model (reservoir simulation). This study should be entrusted to geothermal consulting firm, the reservoir simulation for getting reasonable results on resource output capacity requires state of the art. Geothermal Power Plant Construction Based on the results of the geothermal resource evaluation carried out before plant construction stage, the optimum development plan of available power output will be formulated. The design of geothermal power plants will be conducted on the basis of characteristics of geothermal fluid and development plan. The detailed planning and power plant design should be entrusted to experienced geothermal-consulting firm. vii

Small scale power plants of 35MW in total will be constructed after the resource survey and the well drilling. If adequate power output of each plant is estimated 5MW in the project preparation study, 7 power stations will be constructed at least. In order to shorten the construction period, the power plant will be constructed on "single package full-turnkey" basis in which a sole contractor will undertake engineering, procurements, supply, installation, test and commissioning. The contractor will be selected through international bidding. The transmission line and substation system will include transmission line from main transformer to a substation, circuit breakers, disconnecting switches, bus, CT, VT, arrestor, supporting structure, insulators, protective relay board and ancillaries. Substitution of diesel power by geothermal power is very auspicious as the CDM project. The effect of GHG (Green House Gas) emission reduction is 0.8(t-CO2/MWh) in case of the generation capacity bigger than 200kW. Based on the results of geothermal reservoir simulation and conceptual design of geothermal power plant, the GHG emission reduction by this project will be estimated and the procedure for registration of CDM project will be started. Since geothermal power development from geothermal resource development to power plant construction requires special technologies, the project executing agency, PT. PLN, will employ a consulting firm that has sufficient experience in all the stages for geothermal resource development and construction of geothermal power plant, transmission line, substation, and distribution lines, for smooth project management. PT. PLN as Implication Agency of Geothermal Power Development in Eastern Indonesia PT. PLN was nominated as the executing agency of this project by MEMR, because the following background was considered for realizing the project. This project promotes the efficiency and diversification of power supply of in the eastern provinces, which are composed of the remote and isolated islands, and this project is composed of the small scale geothermal power construction projects utilizing renewable geothermal energy. PT. PLN can undertake the once-through power development, i.e. the whole scope of the project from the geothermal resource development to the power generation, transmission and distribution. PT. PLN is responsible for power supply in Indonesia, and PT. PLN has ample experiences in implementation of the construction projects of the geothermal power plants, the transmission lines, substations and distribution lines. PT. PLN can assign their geothermal specialists as the key person for implementation of the development project from resource survey to power plant construction. PT. PLN is believed to have enough capacity to develop geothermal power plants in the eastern provinces. Project Schedule and Cost viii

A tentative implementation schedule of the project is prepared. The project takes 81 months after commencement of the project (Loan Agreement Effectiveness) for resource survey for the first power plant until the commercial operation start of the last power plant. This period should be changed depending on the planning in the preparation study. If this project starts in November 2008, the project completion will be in July 2015. Total project cost is estimated to be 161miliom USD. PT. PLN is responsible for procuring the financial resources needed for the implementation of the project. It is assumed that JBIC will participate as financier under the Yen Loan scheme. 6. Economic Assessment of Planned Projects The economic viability of the planned project was evaluated by an EIRR method in this study. The project economy of the geothermal power projects in the eastern province was calculated using conditions clarified in the previous studies and assumed in this study. Since programs on the power plant construction in various fields could not be prepared due to shortage of resource potential data, the project cost of each power plant construction could not be calculated. Therefore, the construction of power plants in various fields was regarded as one project of 35 MW and general values of each components of geothermal power development were used for cost estimation of the geothermal power plant construction including steam development. An alternative power project that is capable to give the same services (salable energy) as geothermal power was assumed, and net present value of costs for the geothermal project was compared with that for the alternative project for project life, in order to obtain EIRR. As the alternative power source, a diesel power was selected. The project could dominate the alternative project as the project EIRR stands at 39.5 % while the hurdle rate is 12 %. The capacity factor was assumed to be 85 % in this evaluation. The fuel cost will be saved as much as USD 45.23 million every year, US$ 1,356.81 million in total for the period of project life. Although initial investment for geothermal power project is much higher than the alternative, the geothermal can generate electric energy without using fuel. This enables to export fossil fuel instead of domestic consumption and to acquire foreign currencies. A FIRR method was applied to this project for evaluation of the project economy. In this study, an internal rate of return to equalize the cost (investment and operating costs) and revenue by sales of energy generated for the project life were calculated. The obtained rate was compared with the opportunity cost of capital. The calculated FIRR value was 11.95 %. As this value much exceeds the WACCs at 2.35 %, the project is judged to be financially feasible under present conditions. Using the FIRR method and the results of the Mater Plan study, the possibility of introduction of private sector into geothermal power business in the eastern province was discussed in this study. Most of all private companies in Indonesia are considered to aim FIRR of 16%, which was announced as adequate value in the private project by the Government. Assuming FIRR of 16%, adequate electricity tariff was calculated and cash flow of the project was checked in this study. It was revealed that the private companies would suffer from a deficit of more than 50 ix

million USD every year, even if the tariff and the FIRR were relatively high. The debt for working funds will be heavy load for private company. Since adequate tariff rate was obtained to be 14 cent/kwh in case of FIRR of 12 % for government s or government owned corporation s project, this project can bring about the maximum reduction effect of subsidy by the Government for electricity power business in the eastern provinces. As described above, the geothermal power development projects by the private sector as substitutes of diesel power are under difficult condition of economy, because costs of construction and operation of geothermal power plants in remote islands of the eastern ss are relatively high, compared with those in main islands such as Java, Sumatra and Sulawesi. However, the Government or the government owned corporation can conduct more economical management of the geothermal power projects in the eastern provinces, because FIRR desired by them is low and they can use ODA soft loan such as Yen Loan etc. If they conduct geothermal power development in the eastern provinces, the Government s burden for electricity supply to these provinces is believed to be reduced remarkably. 7. Potential of CDM Projects The geothermal power generation is considered that the amount of the CO 2 emission at the life cycle is less than that of other power supplies. Moreover, the geothermal power plant generates an electric power that is high utilization rates, bigger than the other renewable energy. Therefore, since a big effect of the CO 2 emission reduction by the geothermal project can be expected, the project is attractive as the CDM project. The small scale geothermal power development activity of SSC is categorized as Type-I in the CDM program. Type-I is recognized as renewable energy project activities with a maximum output capacity equivalent to up to 15 MW (or an appropriate equivalent). The small scale geothermal power plant of the project is connected to a grid so that the methodology will be applied for AMS I.D. AMS I.D is used for renewable electricity generation for a grid. Since emission reduction factor of AMS I.D for small scale geothermal power generation is difficult to estimate using the installed capacity and utilization rates, the reduction factor of 0.8(t-CO 2 /MWh) is applied to the power plant of bigger than 200kW. In case of the small scale geothermal plants of 35MW, the effect of the emission reduction of 208.5 (kt-co 2 /year) is expected. 8. Project Preparation The first development target was decided to be power plants construction of 35 MW in total in the meeting among MEMR, BAPPENAS, MOF and PT. PLN on 12 March 2008, considering power demand in the eastern provinces and project support from Japan. The support by the Japanese ODA Yen Loan is strongly expected for avoiding a deficit in the project economy. Therefore, the project must meet the requirements of the ODA Yen Loan project such as x

information on project feasibility including estimation of geothermal resource potential, development program, environmental constraints etc. The Government and PT. PLN have studied geothermal power development in eastern provinces and the Japanese Government supported their activity through the research study by NEDO and the feasibility study by JETRO. However, these study projects have concentrated on the Flores Island. About geothermal areas other than the Flores Island, there is no adequate data for preparation of geothermal power development plans. For realizing the development projects by the Japanese ODA Yen Loan, project feasibility of the geothermal development in each field should be clarified on the basis of data of geothermal resource, future power demand and environmental constraints, before starting the development project. As described in this report, existence of high potential geothermal resources and necessity of geothermal power projects in the eastern provinces can understood from the existing data, but adequate and capable power output and characteristics of geothermal resources in each field have not been revealed. Therefore, detailed program of geothermal power development in each field could not be prepared in this study. Collection and analysis of the geoscientific data and programming are indispensable before starting the project. When the geothermal power development including the steam development is planned, geological data and geochemical data for revealing the resource characteristics and potentials are generally collected by the surface surveys in consideration of reduction of the project cost and risk. Since it takes a considerable amount of time and cost to conduct whole surface surveys including geophysical survey, these detailed surveys in the selected fields should be conducted in the main project. Since the project contains the entire development plans in various islands, study program and development plan of each field should be prepared based on the geothermal resource data by preliminary geological survey and geochemical study, and data and information of predicted future power demand and environmental constraints, before starting the main project. At present, since data and information on the feasibility study of geothermal fields in the eastern area have been partially collected, the resource data should be collected by the preliminary geological survey and geochemical survey and development program should be prepared. Regarding geothermal power development in the Flores Island, some parts of development plan should be modified in accordance with present development policy by PT. PLN. It is thought that a more certain project becomes possible despite of containing of securing steam in resource development study, if these preliminarily resource surveys and project planning are conducted before start of the development project supported by Yen Loan. If the project is supposed to be supported by ODA Yen Loan, it is desired that the preparation study is conducted using JBIC scheme of SAPPROF (Special Assistance for Project Formation). xi

Chapter 1 Introduction 1.1 Outline of Study Facing the soaring fossil fuel oil cost and for contribution to the global environmental preservation, the Indonesian Government tries to develop nationwide geothermal development positively. It formulated a geothermal power development plan of 9,500 MW, more than ten (10) times of the so far developed capacity, by the year 2025, and enacted the Geothermal Law to implement the plan. In November 2007, the by-laws of the Geothermal Law has been promulgated and in major geothermal fields in Java, Sumatra and Sulawesi, PT. PERTAMINA, PT. PLN and private sector launched several large scale geothermal power development project. Under the circumstances above, the Japan Government extended the technical assistance of the Geothermal Master Plan study in Indonesia by JICA. By the Master Plan Study, the geothermal power resource potential, required power demand, environmental conditions, etc. were surveyed in geothermal fields in the whole Indonesia, and then corresponding geothermal power development programs were formulated. The Master Plan Study report was highly evaluated as it may contribute to hastening the geothermal power development in the country. Based on the Master Plan Study results, the Government tries to accelerate the geothermal power development making use of Public-Private-Partnership (PPP) scheme. The electricity in archipelago in the eastern part of Indonesia heavily relies on diesel power, the generating cost of which has been doubled by soaring fuel cost and transportation cost. The Master Plan also pointed out the fact that the inflationary cost of the fuel caused the distress of the Government, and oppressed both the PLN s financial conditions and the Government electricity subsidiary budget. The Ministry of Energy and Mineral Resources (MEMR), through the Master Plan Study, fully understands features of a geothermal power and its high potential in these areas, and found out the possibility to substitute the diesel power with fuel cost-free geothermal power. Understanding that the substitution of diesel power with geothermal would greatly contribute to curtailing the consumption of fuel oil, reduction of the government subsidies, and moreover, to stable power supply and global warming gas (CO 2 ) reduction, the Government has started with the study for implementation. Owing to limited power demand in isolated islands, the geothermal power scale may probably be a total capacity of less 10 MW per site that is too small to give incentives to a private sector. So, the geothermal development in these areas would be led by the central or regional government. The MEMR headed by the Minister considers that the diesel substitute geothermal undertaking at the eastern provinces is the most significant project of the projects needing the Government assistance, and proposes assistance from Japan, the Japanese Yen Loan in particular. The intention has been forwarded to JBIC from the DGMCG of MEMR. So far, no feasibility study except for some fields in Flores has been done for this purpose. Thus, 1

the study for the program preparation needed for application of the Yen Loan, and the coordination with the relevant agencies about the prepared draft planning are indispensable to attain the Government objective. With this Assistance Services by ECFA, if the study for geothermal development in the eastern regions and coordination among the agencies in Indonesia could be attained, the economic assistance from Japan would be realized and the small scale geothermal power development to substitute diesel power could be forwarded as the Indonesian Government earnestly has been expecting. The development of geothermal power would greatly contribute to substitution of the fossil energy consumption and to prevention of global warming. 1.2 Background 1.2.1 Project Identity in Government Geothermal Development Plan Under the order of the Minister of Energy and Mineral Resources in RUKN (April 2005), the mission of power sector outside Java is outlined as follows: To prioritize power generation with renewable energy in remote and isolated local areas where small scale power is required The policy of using primary energy for power generation consists of both the measures utilizing local primary energy sources and new/renewal energy sources. The utilizing local energy measures means to utilize fossil energy and non-fossil energy. The utilization of local primary energy places priority on utilization of renewable energy in view of environmental safety, technical possibility and economic efficiency. To promote utilization of renewable energy for power generation, the national policy is clearly stated that energy utilization with geothermal, biomass and hydro shall be over 5% in 2020 in Indonesia. In remote island far from the national grid, main power sources rely on mostly diesel power, and those high operation and maintenance costs (fuel purchase cost, fuel transportation cost, latest price inflation of oil, and low availability factor of facilities) has caused severe profit losses year by year. In addition, because diesel power generation emits greenhouse gases such as carbon dioxide, the Indonesian Government has tried to convert it to other renewable energy power sources. The geothermal development master plan formulated by the MEMR based on the JICA Master Plan is consist of a) A large scale development by PT. PERTAMINA /PLN and private sectors at the geothermal fields where the transmission grids in Java, Bali, Sumatra and Sulawesi are accessible: and b) Independent, small scale geothermal power development by the Government or PT. PLN. 2