3. • Based on incentive for investor
• Based on deployment level of geothermal
4.
5. Hasan (2018)
• The price of geothermal electricity could have been reduced, and yet still
provide attractive economic value to investors, if GOI is
• willing to give incentives to cut the high front end cost of geothermal
energy development by among other things, but not limited to: a).
• Share exploration risks; b). Give tax holiday for the eight to first ten years
instead of loss carry forward; c). Accelerate depreciation to 5
• – 8 years instead of 20 years; d). Extend geothermal license validity beyond
30 years instead of transfer after contract expiration in 30
• years; e). Develop insurance mechanism to mitigate exploration risk and
political risk; f). Introduce policy for local banks to give low
• interest rate for renewable energy development; and g). GOI or local
government participate in reducing cost of land indemnification.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17. Ebtke.esdm The Castlerock report estimated the levelized production
cost of coal generation in the Java–Bali grid at 6.3
US¢/kWh; the
local damage cost at 0.1 US¢/kWh, and the greenhouse
gas (GHG) emission damage cost, based on $20/ton, at
1.4 US¢, i.e., 14 times greater than the local damage cost
. ADB
18. BPP represents the cost to PLN of procuring power from different
systems listed in a BPP decree, which is reviewed annually. The BPP
must include considerations of fuel price, operation and maintenance
depreciation, incurred costs for generating power and an annual
adjustment. Present year BPPs are based on the BPP realised in the
previous year and should take into account the principles of effective,
efficient and accountable processes. (OECD)
22. • In fact, a study by the Global Subsidies Initiative found that if coal subsidies
(e.g. through credit support and domestic market obligations) were removed,
the price of electricity from coal-fired power generation would rise by as much
as USD 0.05 per kilowatt-hour (kWh), making renewable electricity projects
more attractive under the current BPP scheme (Attwood et al., 2017[37]).
• Thus, while the government’s goal understandably is to reduce BPPs across
the country in order to ensure affordable electricity, the continued use of fossil
fuel subsidies does not create a level playing field to achieve those ambitions
in a cost-effective and competitive manner. OECD
23. • The current system to determine feed-in tariffs for net metering likewise does
not provide transparency in the calculation of cost and can put renewables at
a disadvantage, compared to other generation assets. OECD
24. • Although feed-in tariff policies have gained worldwide popularity, their cost effects
have become a primary concern for policy makers in many countries. Whether the
rising costs are recovered from ratepayers or taxpayers, they can create both
political and economic pressures. Households in developing countries are
particularly vulnerable to rising tariffs, as spending on energy accounts for a larger
share of their incomes than for households in developed countries.
• https://blogs.worldbank.org/energy/how-fit-are-feed-tariff-policies
• Our study found that higher subsidies have not necessarily yielded greater
levels of renewable installation.[1]
25. https://blogs.worldbank.org/energy/how-fit-
are-feed-tariff-policies
• Three factors could explain this weak correlation. First, countries providing high subsidies may lack
the necessary institutional and regulatory environment to attract investment and may have failed to
scale up investment because of this noneconomic barrier.
Second, overly generous subsidies may have provided rent-seeking opportunities as suppliers
along the value chain push up system costs in order to take a share of excess remuneration. In this
case, higher feed-in tariffs are correlated with higher system costs, which in turn inhibit the ability of
the industry to expand renewable capacity.
Third, our study shows that higher feed-in tariffs are negatively correlated with the wind capacity
factor, indicating that high remuneration may have allowed investment in high-cost sites such as
those with low wind speed. Since wind investment is negatively correlated with investment cost (in
euros per megawatt-hour), high subsidies again result in a weaker investment response.
26. https://blogs.worldbank.org/energy/how-fit-
are-feed-tariff-policies
• Finally, our analysis shows that the design of the overall electricity market
matters. A competitive market tends to be more conducive to renewable
conducive to renewable deployment. One possible explanation is that
wholesale competition raises the upside potential of renewable investments
because many countries allow renewable energy generators to sell their
power directly in the open exchange. This enables renewable developers to
benefit from higher market prices, especially during the peak demand periods.
27. • In particular, the 2017 changes introduced the controversial tariff scheme
using the average cost of electricity production (Biaya Pokok Penyediaan, or
BPP) which has proven to deter certain renewable energy investments. While
the BPP calculation was designed in principle to enable renewable energy to
enter into the electricity system and contribute to lower average prices of
electricity generation, in most parts of the country the regulation effectively
establishes price ceilings that can be too low for renewable electricity projects
to compete with fossil fuels (Figure 5.2).
28. • The lack of transparency in the value of exported renewable electricity in Indonesia
is also seen by renewable electricity proponents as a barrier to investment,
effectively creating a shadow price regulatory framework that can deter project
developers. Other electricity market regulations, such as the current room for
negotiation between independent power producers (IPPs) and PLN, similarly do not
give strong incentive to invest in renewable energy projects. Lack of a standard PPA
allows an unfair playing field across investors, and current, complex PPA
negotiations can act as a barrier for new developers establishing themselves in the
country. These barriers may limit Indonesia’s ability to mobilise competitive
investment in renewable energy, unlike best practice in other countries that has
supported investor engagement (Box 5.4).
Most renewable energy sources receive public support in several different forms. Countries with strong renewable energy development agendas have introduced either FITs or quota obligations, such as RPS as their core policy, with other forms of support as supplements. RPS is sometimes combined with a system of tradable green certificates (TGC) by which the party obligated to meet the renewable energy quota can prove compliance. Both FIT and RPS policies require a strong, longterm commitment from the government and an elaborate legislative framework. Mandatory off-take of renewable energy by the power utility is a key element of both FIT and RPS regimes. The incremental cost for the utility that is due to the cost difference between renewable and conventional energy has
to be absorbed either by the rate-payers or the government/tax-payers. The payoff comes in the form of increased capital inflow to the country’s renewable energy sector. For renewable energy projects in which the main barrier is one of incremental cost, investors tend to find FIT-supported projects particularly attractive, since the tariff levels are usually set with the objective of guaranteeing attractive returns on investor’s equity. Theoretical advantages of RPS and TGC schemes include the introduction of fewer pricing distortions than with FIT schemes
ADB:
In 2012, the MEMR issued a feed-in tariff (FIT) policy for geothermal electricity, based on the analytic work supported by the World Bank and/or Global Environment Facility Geothermal Power Generation Development Project. • In 2012, the Ministry of Finance (MoF) established a geothermal fund with more than $200 million of initial capitalization to mitigate resource risks related to geothermal development. The Asian Development Bank (ADB) provided early technical inputs on the fund’s scope and design.
Zhang, Fan. 2013. How fit are feed-in tariff policies? Evidence from the European Wind Market. World Bank Policy Research Working Paper. WPS 6376.
The position of the Indonesian archipelago, located at the intersection of three major tectonic plates (India-Australia/Eurasia/ Pacific) creates a complex tectonic setting. It is between the subduction of continents and oceans that magma migrates upward into the shallow crust. Figure 1.3 is a conceptual model of a typical andesitic volcanic geothermal system that can be used to illustrate those found in Indonesia geothermal system.
Source: Geothermal Handbook of Indoenesia
