New draft geothermal tariffs in Indonesia not attractive

New draft geothermal tariffs in Indonesia not attractive Kamojang geothermal power plant, Indonesia (source: Pertamina Geothermal Energy)
Alexander Richter 2 May 2021

The draft for an updated electricity tariff scheme for geothermal in Indonesia, seems to be a step down and not attractive to developers.

The Indonesian government is designing a new geothermal electricity tariff scheme which will be regulated in a Presidential Regulation (Perpres), as reported by CNBC Indonesia.  It does though seem that the new proposal for the geothermal electricity scheme does not seem to satisfy the market or developers in the country. Developers consider consider the new scheme offered by the government to be not sufficiently attractive. There has been a lot of discussions and challenges due to the tariff scheme in Indonesia, as we have been reporting.

In the design of this new geothermal tariff scheme, the government will apply a ceiling price scheme which is divided into two phases. The first stage, during the first 10 years the price of geothermal electricity will consider the location factor and in the second stage after the first 10 years since operation, the electricity tariff will go down.

Responding to this, Chairman of the Indonesian Geothermal Association (API) Priyandaru Effendi said the main parameter of the tariff is a fair return on the value of the project, in accordance with the risks faced by the developer.

Drilling Rig on site of the Muara Laboh geothermal project, Indonesia (source: Sumitomo Corp.)

Regarding tariffs, the main parameter is a  fair project return, in accordance with the risks taken by the developer, “he told CNBC Indonesia before the weekend.

He explained that there are three geothermal tariff schemes, first escalation, then  flat (flat / unchanged), and step down as proposed by the current government.

For developers, he added, whatever scheme is taken, as long as it meets the project’s economy, it will be attractive.

“Although of course the most ideal is the escalation scheme, namely small in front and big behind. This will adjust to the purchasing power (purchasing power) from the public, “he explained.

According to him, the current scheme proposed by the government is less attractive because the initial tariff is low, which then will be lowered further in the 11th year.

“If the proposed scheme is now less attractive because the low front rate, it will continue to be lowered in the 11th year. This is far from the project economy expected by the developer,” he said.

Previously, the proposal regarding a new geothermal tariff scheme was submitted by the Director of Geothermal Energy, Directorate General of EBTKE, Ministry of Energy and Mineral Resources Harris.

“The geothermal price uses a ceiling price, the price is divided into two stages. The first 10 years consider the location factor, “he explained, adding that after the first 10 years, the electricity tariff will go down.

Based on data from the Ministry of Energy and Mineral Resources, the highest benchmark price in the first phase or the first 10 years of this PLTP applies to all capacities by considering the location factor.

The location factor means considering the difficulty level of project implementation by area. In addition, the terms of the purchase price of electricity will be evaluated for a maximum of three years.

As for the implementation of the purchase of electricity, there will be direct appointments for PLTP expansion and excess power. In addition, direct appointment in the form of an assignment is also applied to the purchase of electricity from PLTP.

The power purchase contract period can reach up to 30 years and transactions are carried out in rupiah at the JISDOR exchange rate.

Source: CNBC Indonesia via Olinesia