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GOVERNMENT POLICIES TO BOOST GEOTHERMAL DEVELOPMENT IN INDONESIA

MINISTRY OF ENERGY AND MINERAL RESOURCES OF REPUBLIC OF INDONESIA DIRECTORATE GENERAL OF NEW. RENEWABLE ENERGY. AND CONSERVATION ENERGY. GOVERNMENT POLICIES TO BOOST GEOTHERMAL DEVELOPMENT IN INDONESIA. By : Rida Mulyana Director General of New. Renewable Energy and Energy Conservation.

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GOVERNMENT POLICIES TO BOOST GEOTHERMAL DEVELOPMENT IN INDONESIA

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  1. MINISTRY OF ENERGY AND MINERAL RESOURCES OF REPUBLIC OF INDONESIA DIRECTORATE GENERAL OF NEW. RENEWABLE ENERGY. AND CONSERVATION ENERGY GOVERNMENT POLICIES TO BOOST GEOTHERMAL DEVELOPMENT IN INDONESIA By : Rida Mulyana Director General of New. Renewable Energy and Energy Conservation Presented on: Indonesia International Geothermal Conference and Exhibition (IIGCE) Jakarta. June 5th 2014

  2. CONTENTS BACKGROUND 3 GEOTHERMAL POTENTIAL 5 REGULATION AND POLICY 7 MAIN CONSTRAINT ON GEOTHERMALDEVELOPMENT AND THEIR MEASURES10

  3. I. BACKGROUND

  4. GEOTHERMAL ROLES TO MEET NATIONAL ELECTRICITY DEMAND Indonesia’s primary energy supply is mainly based on fossil fuels,but the reserves decreased significantly. Located in the Ring of Fire,Indonesia is blessed with an enormous geothermal potential, more than 28 GWe and the locations are spread in almost all regions. Up to 2014, total installed capacity of geothermal energy is only 1,341MW (< 5%). The Government intends to accelerate and speed up the development of geothermal energy and achieve the targets of 9,500 MW in 2025 as stated in Presidential Decree No. 5/2006 on National Energy Policy; Up to 2014, The Government has determined 58 GWAs. Nineteen of the GWAs were established before the issuance of Law No. 27/2003 while 39of them were established afterwards. Geothermal Energy cannot be exported which make it suitable to meet domestic energy needs, reducing the dependence of foreign fuel and provide added value in energy diversification; Geothermal energy is clean,environmentally friendly and sustainable; The Government have been issued crash program to accelerate electricity generation. Geothermal power plant is expected to contribute4,965 MW; To boost geothermal development and provide certainty of geothermal energy price, goverment re-structure the regulation related to the purchase of electricity from geothermal power plant.

  5. II. GEOTHERMAL POTENTIAL

  6. GEOTHERMAL DISTRIBUTION MAP PLTP LAHENDONG: 80 MW PLTP SIBAYAK: 12 MW PLTP WAYANG WINDU: 227 MW PLTP GUNUNG SALAK: 377 MW PLTP ULUBELU: 110MW PLTP KAMOJANG: 200 MW PLTP MATALOKO: 2.5 MW PLTP DARAJAT: 270 MW PLTP DIENG: 60 MW PLTP ULUMBU: 5 MW • Sources : Geological Agency. MEMR (2013) • Note: • Preliminary Survey • Ready to Developed • Detailed Survey • Production Phase

  7. III. REGULATION AND POLICY

  8. GEOTHERMAL REGULATIONS • Law No. 27/2003 on Geothermal • Law No. 30/2007 on Energy • Artc. 20 (4) : Government and regionalgovernment in accordance with their authority obliged to increase the supply of new and renewable energy. • Law No. 30/2009 on Electricity • Artc. 6 : The utilization of primary energysourcesfor national electricity need should prioritize the sources of new and renewable energy. • Government Regulation No. 59/2007 on Geothermal Business Activities,as amanded in GR No. 70/2010 • PresidentialRegulationNo. 04/2010 on Assignment to PT. PLN (Persero) to Accelerate The Development of Power Plant from Renewable Energy,Coal and Gas • MEMR Regulation No. 11/2008 onThe Procedure for Determination GWA • MEMRRegulation No. 02/2009 onTheGuidelines for Geothermal Preliminary Survey Assignment • MEMR Regulation No. 11/2009 onTheGuidelines for Implementation of Geothermal Business • MEMR Regulation No. 22/2012 on Assignment to PT PLN (Persero) to Purchase Electricity from Geothermal Power Plant and Geothermal Power Purchase Benchmark Price by PT PLN (Persero) • Regulation related to Financial Support and Guarantee: • Government Regulation No. 62/2008 jo No. 1/2007provides Income Tax Facilities For Investment • MoF Regulation No. 139/PMK.011/2011 which Guarantee The Feasibility Of PT PLN (Persero) To Develop Power Plant Through Public Private Partnership Mechanism • MoF Regulation No.03/PMK.011/2012 provides Geothermal Fund For Exploration Activities In Order To Mitigate Upstream Risk • MoF Regulation No. 177/PMK.011/2007 regulates The Exemption Duties On Imported Goods • PMK No. 22/PMK.011/2011 states that Government Borne Value Added Tax On The Imported Goods For The Upstream Activities

  9. GOVERNMENT POLICIES FOR GEOTHERMAL DEVELOPMENT Revise Law No. 27/2003 on Geothermal Improving and Harmonizing Regulations and Policies Preparing The Second Amendment of PP No. 59/2007 on Geothermal Business Activities Drafting The Revision of MEMR Regulation No.11/2009 on Guidelines of Geothermal Activities and MEMR Regulation No.22/2012 on Electricity Price from Geothermal Energy CrashProgramII on Electricity Generation Geothermal is expected to contribute 4,965 MW Provide Fiscal Incentive,Financing Support,and Guarantee POLICIES Preliminary Survey Assignment to Third Party which Provide “first right refusal“ Control-Mechanism by UKP4 Memorandum Understanding between Energy and Mineral Resources Minister and Forestry Minister For the projects that enrolled in Crash Program II

  10. III.MAIN CONSTRAINT ON GEOTHERMALDEVELOPMENTAND THEIR MEASURES

  11. MAIN CONSTRAINT AND SOLUTIONS • Overlapping Area • - Most of geothermal potential are located in the forestry. Among 299 existing locations,around 6,157MW (21.5%) are located in the conservation forest and around 6,391MW (22.33%) are located in protected forests. • - Solution: Revise The Law 27/2003 on Geothermal • It is expected at the PlenarySessionof Parliament, 24 June 2014. The Revision of Geothermal Law could be approved. • - In addition, Ministry Of Energy And Mineral Resources is currently coordinating with the Ministry Of Forestry on issues related to forestryfor geothermal activities. • Energy Price • - Pricing policies which previously set by the government does not provide a significant impact on geothermal development. The inability of the policies to encourage the use of geothermal is considered because they are not taking into account some crucial aspects. • - Solution: Government is preparing a new tariff model to boost geothermal development • Ministerial regulations which regulates new geothermal prices has been signed by the Minister of Energy and Mineral Resources,and is currently waiting to be promulgated by the Ministry of Justice and Human Rights.

  12. PRINCIPAL SUBSTANCES OF THE REVISION ON GEOTHERMAL LAW • The terms of "Mining" in geothermal business will be removed in order not to have conflict with the Law of Forestry; • Geothermal activities can be conducted in protected, production,and conservation forestareas; • Regulate the utilization of geothermal energy for direct use and indirect use(electricity); • IUP’s holders are obligated to offer 10% of Participating Interest to State-owned enterprises (BUMN) or local government-owned enterprises (BUMD) before exploitation stage taken place.

  13. NEW TARIFF FOR GEOTHERMAL ENERGY • The government is currently developing a comprehensive pricing structure in order to provide legal certainty and overcome constraints which have caused many geothermal projects been delayed. • The government set the ceiling price for electricity purchase by PT PLN (Persero) based on Commercial Operation Date (COD) and divide into 3 regions. • The ceiling price is the basic price at the time of CommercialOperationDate (COD), exclude escalation and construction of transmission lines. • The Escalationin the PPA will take into effect on the Commercial Operation Date (COD) of First Unit. • Transmissionslines areundertaken by PT PLN (Persero). • The selling price of electricity as the result of GWA tender which refered to ceiling price and written in the PPA is non-negotiableprice, valid for 30 (thirty) years from the Commercial Operation Date (COD) of unit I.

  14. GEOTHERMAL POWER PURCHASEMECHANISM(1/2) The PPA has not signed within 6 months due to IUP’s Holder subject to administrative penalties Tendering Process IUP G W A (Next Tender) Tendering Price Result (≤ CP) Assignment to Purchase Electricity Based on GWA Tendering Price Signing PPA * No later than 6 months from the date of Assignment The PPA has not signed within a year dueto IUP’s Holder assignment letter will declared void by the Law Ceiling Price (Consist of 3 Regions Price based on COD) • Notes: • Distribution of Regions: • Region I : Sumatera, Jawa and Bali; • Region II : Sulawesi, West Nusa Tenggara, East Nusa Tenggara, Halmahera, Maluku, Irian Jaya and Kalimantan; • Region III : Remote Areas within Region I or Region II in which most electrical power are generated from fired-fuels power plants • CP is applied at the time of COD,exclude escalation and construction of transmission lines • Transmission lines are undertaken by PT PLN (Persero)

  15. GEOTHERMAL POWER PURCHASEMECHANISM(2/2) • Capacity Development • Extension of PPA IUP’s Holder Minister Agreement Agreed • Power Plant Cap. Dvlpmt • Extension of PPA • Price Adjustment • * Based on Both Parties Agreement The Signing of PPA/SPA no later than 12 months after the proposal is received Decline Approval of IndependentParty Agreed Concession, Permit, and Contract Holders (Existing GWA) Minister Agreement • Development of steam cap. • Extension of PPA • Steam Price Adjustment • * Based on Both Parties Agreement Designation of an IndependentParty when the PPA is not signed

  16. TRANSITIONAL PROVISIONS TRANSITIONAL PROVISIONS Criteria 1 Criteria 2 Criteria 3 Criteria 4 Criteria 5 Tender winner whichhasn’t been obtained IUP GWA: SeulawahAgam & GunungCiremai IUP’s holder whichhas hasn’tbeen assignment and hasn’tbeen signed the PPA GWA: Hu’uDaha& SuohSekincau IUP’s holder whichhas been assignment and hasn’tbeen signed the PPA GWA: TelagaNgebel, BatuRaden, Guci, GunungEndut, GunungTampomas, CisolokSukarame, TangkubanPerahu. IUP’s holder which has been assignment for negotiation and hasn’tbeen signed the PPA GWA: Jaboi, Jailoloand Sokoria. IUP’s holder whichhas been assignment and has been signed the PPA GWA: Muaralaboh, RantauDedap and Rajabasa • PPA must be signed before 31 October 2014 or return IUP (re-tender) • Price adjustment after exploration and feasibility study; • If PPA not signed before on 31 October 2014, can’t submit a price adjustment. • PPA must be signed before 31 August 2014 or return IUP (re-tender) • Price adjustment after exploration and feasibility study; • If PPA not signed before on 31 August 2014, can’t submit a price adjustment. • PPA must be signed before 30 September 2014 or return IUP (re-tender) • Price adjustment after exploration and feasibility study; • If PPA not signed before on 30 September 2014, can’t submit a price adjustment • Price adjustment after exploration and feasibility study; • If exploration and feasibility study haven’t been finished and COD target’s hasn’t reached , IUP’s holder given punishment base on PPA • PPA must be signed before 31 December 2014 ; • Price adjustment after exploration and feasibility study; • If PPA not signed before on 31 December 2014, can’t submit a price adjustment. Tender Negotiation IUP Assignment PPA Exploration FS

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

  18. Thank You GEOTHERMAL. ENERGY SOLUTION FOR BETTER FUTURE • MINISTRY OF ENERGY AND MINERAL RESOURCES • DIRECTORATE GENERAL OF NEW. RENEWABLE ENERGY. AND ENERGY CONSERVATION Jalan Pegangsaan Timur No. 1A Cikini. Jakarta Pusat 10320; Telp/Faks : 021-31924540 www.ebtke.esdm.go.id

  19. ATTACHMENTS

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

  21. PERCENTAGE OF GEOTHERMAL Potential IN Forestry Geothermal Potential Location : 299 Geothermal Potential : 28.6 GW *) Geothermal Potential in Conservation Forest is estimated around 6.157 MW

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