As Indonesia becomes reliant on foreign imports for its petroleum needs, with annual government energy subsidies of Rp200trn ($20bn), the need to commercialise cheaper domestic power sources is becoming key for the country’s economic development. By far the most inexpensive solution in terms of cost per KWh of electricity delivered is hydropower, which currently supplies 10% of the country’s electricity each year. In harnessing the water flow of Indonesia’s abundant rivers, public and private power generation units are already producing electricity at a fraction of the cost of other power sources with the added benefit of being immune from the politically and economically driven volatility inherent in the global oil and gas trade.
The average generation cost KWh for the county’s primary hydropower producer, state power operator Perusahaan Listrik Negara (PLN), amounted to Rp155.87 ($0.02) per KWh in 2012, considerably less than the average generation costs of Rp1217.28 ($0.12), as per PLN figures. Of the cost of hydro, the largest component was depreciation of equipment, accounting for Rp81.62 ($0.01) per KWh of total costs, followed by maintenance at Rp30.80 ($0.003), personnel at Rp18.09 ($0.002), fuel and lubrication at Rp21.29 ($0.002), and Rp4.08 ($0.0004) in other costs. By contrast, the next cheapest competitor, steam generation, was more than five times as costly, with an average generation cost of Rp810 ($0.08) per KWh. The costs of other power production technologies include Rp1001.8 ($.010) per KWh for combined-cycle power, Rp1121.5 ($0.11) per KWh for geothermal, Rp2362.99 ($0.24) for gas turbine and Rp3168.58 ($0.32) per KWh for diesel power generation. As a result, the total generation cost for PLN of its hydro-electricity output in 2012 was 1%, or Rp1.64bn ($164,000), of total generation costs of Rp160.30bn ($16.03m), even though hydro accounting for 5.25% of electricity produced.
Several factors have challenged the development of hydropower, however, which the Directorate General of New Renewable Energy and Energy Conservation (EBTKE) estimates potential of 75 GW. As of 2013, only 4078.24 MW of hydropower had been installed in the country, along with 61.46 MW of mini-hydro capacity and 6.71 MW of micro-hydro, as per EBTKE numbers. Of the active large-scale power plants, PLN operates the bulk, with a portfolio of 216 generation units and a combined installed capacity of 3491.1 MW, in addition to 27 MW and 3.3 MW of mini-and micro-hydro capacity. Over half of this capacity is set up along the Cirata River in West Java, in the 701-MW Saguling hydropower plant and the 1008-MW Cirata Hydroelectric Power Project, respectively.
Other important hydropower plants include the 306.82-MW plant located in Java Tengah, Central Java; a 283.03-MW plant in East Java; a 254.16-MW facility in West Sumatra; a 236.04-MW plant in Bengkulu; a 148.5-MW plant in South Sulawesi; a 132.40-MW plant in North Sumatra; a 118-MW plant in Lampung, and a 114-MW plant in Riau. A number of major hydropower plants are also operated privately by independent power producers (IPP): a 187.5-MW facility in North Sumatra, a 186.5-MW plant in West Java and a 195-MW plant in Central Sulawesi, along with smaller power plants located in East Java and South Sulawesi, as well as other hydropower stations built on-site to supply energy to remote mining and industrial operations. The largest private hydropower companies operating in the country are Inalum, which run facilities in Sumatra and Bali, and INCO in Sulawesi.
While hydropower is the largest renewable energy contributor in Indonesia’s power portfolio, development of this subsector has been slowed by a host of challenges both economic and technical. The most significant of these is the remote location of many of the high-potential sites and the associated difficulties of connecting these sites to the national transmission grid, as well as the issue of obtaining financing for the capital-intensive projects. Unlike the geothermal industry, in which the large-scale, expensive projects are made more attractive to investors through sovereign guarantees, large hydropower projects are given no such assurance. This has led to a financing gap between banks, which prefer shorter payback terms on their loans of three or four years similar to what a conventional thermal power plant would require, and hydro developers, which require lengthy permitting and construction periods that often exceed eight to 10 years. Some of the financing issues for smaller-scale hydro projects are beginning to be addressed following the addition of a feed-in tariff (FIT) in 2012 for payable small-scale (under 10 MW) hydro projects. Under revision since it was first implemented in 2012, as of March 2014, the FIT for a hydropower plant with a capacity of less than 10 MW was between Rp975 ($0.10) and Rp1378 ($0.14) per KWh depending on the voltage of connection and geographic region of the project. While this framework does provide additional incentives for smaller developers, progress has been stalled as a result of an ongoing disconnect between potential developers and financiers. According to the director of energy, telecommunications and informatics at the National Planning Agency, micro- and mini-hydropower projects are in many cases not bankable. This is due to a lack of capacity both on the part of project developers and on the part of lending institutions: the former often do not know how to prepare project proposals that will be acceptable to institutional lenders, while the latter may also be short of the knowledge and experienced needed to assess the acceptability of projects, according to a study on Indonesia’s renewable energy incentive scheme by the International Institute for Sustainable Development. Finally, administrative hurdles can also be significant, with dozens of permits and approvals required for the construction of a hydropower plant, which is complicated by challenges in coordinating federal, regional, provincial and local authorities.
The Next Step
In spite of these roadblocks, progress is continuing, with mandates laid out in the government’s National Energy Policy as well as its Energy Vision 25/25, introduced in 2010. Application of these policies includes the second phase of the governments fast-track programmes (FTP), which were established in 2006 to add electricity capacity in the form of two, 10,000-MW tranches. FTP1 includes mostly conventional fossil fuel-powered capacity, whereas FTP2 has a greener focus. This is good news for renewable energy developers as hydropower is slated to account for 17% of new capacity, totalling 1753 MW, as well as 49% for geothermal. Most projects will be carried out by the private sector through IPP contracts rather than by PLN. As drawn up under the FTP2 plan, most of the new hydro capacity will be in Java, where 1087 MW of power plant capacity is set to be built, along with 476 MW slated for Sumatra and 190 MW for Sulawesi. Smaller-scale mini-and micro-hydro is also likely to expand in the coming decades, particularly in rural areas where remote locations create difficulties in connecting to the national grid. Hundreds of individual generation units are set to be installed, with a national combined capacity of 740 MW planned by 2015 and increasing to 950 MW by 2020, according to the government’s “Blueprint of National Energy Management 2005-25”.
One large-scale endeavour being pursued by PLN is the $800m, 1040-MW Upper Cisokan Pumped Storage Hydro-Electrical Power Project situated on a tributary of the Citarum River in West Java. Funding for the project, which will house four 260-MW reversible Francis pump-turbines in an underground powerhouse, is being provided in part via a $640m loan agreement with the World Bank sourced from the International Bank for Reconstruction and Development. The power company invited applications for pre-qualification to construct upper and lower dams, waterways, a powerhouse and a switchyard in December 2013. The state power producer also announced plans in 2012 to construct three additional greenfield hydropower plants totalling 1300 MW outside Java under a public-private partnership, and broke ground on a new 50-MW hydropower plant in Papua in August 2012.
Complementing these plans is increasing demand from the private sector, in particular from within the mining industry, which is in the midst of a value-added push by the government to mandate onshore processing of minerals. One of the country’s leading operators, Vale, already operates three hydropower plants with installed capacities of 165 MW, 110 MW and 90 MW. If fully implemented, this could create new opportunities for hydro developers as mining companies, which often operate in remote areas, seek new power supplies for energy-intensive industrial refining applications.
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