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Interview

with Bill Meade, Chief of Party, Indonesia Clean Energy Development Program (ICED)

01.08.2012 / Energyboardroom

Can you tell our readers about the origins of ICED?

ICED is a United States Agency for International Development funded project addressing Global Climate Change. It was designed in 2009 and the prime contractor, TetraTech, was awarded the contract in September 2010 and started in March 2011. The funding includes $16.5 million over three and a half years. There is a consortium of companies who also play a role within the project including Deloitte Consulting, H&M Engineering, and an Indonesian consulting company Castle Rock Consulting.

What are some of the specific projects you’re involved with?

Our target activities are small renewable energy projects less than 10 MW that sell power to PLN under PPA, which we call the small power program. It creates an incentive for these small renewable energy resource-based projects by using technology-specific feed-in tariff. These projects are privately developed, financed, and operated by entrepreneurs, many of whom are new entrants to the power sector. Some of the larger companies are involved as well but the sponsors of projects are first-timers. We support the small power market through a variety of advisory services open to anyone operating in the sector.

With which stages of projects are you generally involved?

Some of the projects we support are in early identification stages, particularly hydro and biomass. Others already have a project assessed complete with a feasibility study; others might be in the financing stage, or even under construction. We try to stay with the projects as they move through the development cycle. In terms of hydropower we have a GIS and topographic maps so we can actually help developers look at potential sites, how far they are from the transmission lines for interconnection and we can even evaluate the topography of the site. We can help developers identify and prioritize sites for development. In terms of biomass, we work directly with the biomass resource owners, such as palm oil mills. We assess the amount of biomass waste being produced, how much is excess to their captive energy needs, that can be used for generating electricity and then sell it to the grid. We do either pre-feasibility assessments for biomass/biogas, or review existing feasibility studies for hydro projects. In doing this, we can accurately help developers and banks determine the potential income generated by a project by assessing the resource, conversion efficiencies, technologies, availability, etc. and subsequently validate or correct the assessments done by their consultants Due to our limited timeframe, we look mainly for projects that are already in advanced stages of development at this point since we only have two years to go (hydro projects, for example, take at least two years from study to commissioning). Many people we work with usually have several projects in their pipeline so in assisting one project we help them improve their efforts with all. For projects in the construction stage, we may have to do some redesigning (value engineering because the topology and geology is different from what a project’s designer prepared. We evaluate the existing design and go to the site and critique and help them improve. Most of our projects are between the assessment and financing stage, especially since most of these projects were initiated after 2009 when Law 30 (Electricity Law) was enacted allowing private development of projects with ten megawatts (MW) or less capacity to sell their electricity to PLN at a fixed “feed-in tariff”.

We also work with a network of banks and financial institutions who review project feasibility studies. We evaluate projects that are presented to them by their existing customers, in the case of banks, and independent developers in the case of financial institutions. We also put financing together, where we introduce sources of equity and debt together, or companies looking for equity financing or refinancing of projects using early risk capitals like mezzanine financing available for early developing costs. Before financing they have to secure permits for a variety of different ministries as well as a power purchasing agreement (PPA) from PLN. We coach developers through this convoluted process. It is also worth noting that we have worked with the Central Bank of Indonesia (Bank Indonesia) who is preparing “green bank” regulations. They haven’t issued them yet, but the banking community is aware that there’s going to be incentives and regulations imposed on them relative to the share of their portfolio that goes into environmental projects so we’ve been active in bringing the banking community together so they can understand what these projects are about. We do training for banks, for their credit risk officers, for developers, and with PLN on interconnection for renewables.

What are your main goals of the ICED program?

We have a target of 120 MW of installed capacity, a reduction of four million tons of CO2 emissions, as well as contributing to reducing $250 million in electricity subsidies. We are evaluated based on the success of the projects we assist. We have a monitoring and evaluation program where we report our results each quarter to our client, the U.S. Agency for International Development (USAID). ICED maintains a pipeline of assisted projects that will help us achieve our targets. We’re doing a study tour where we take palm oil mills and developers to Thailand so they can see operating biogas plants. We have a suite of activities all of which are accelerating the development of these projects including even working on government energy and agriculture incentives. That’s why I say we view our beneficiaries as the sector as a whole, measured by the success of individual projects but in theory the projects that come after us will have benefited from our work.

How did you initially start building your profile in Indonesia?

Originally our focus was solely in the provinces of Aceh, North Sumatera and Riau. We went to PLN and obtained a list of all the projects with signed PPAs and invited these companies to workshops and outreach activities to introduce them to ICED and how we could support them. Then we did more sector based training in hydro and biogas working thorough established organizations. Through that we ended up with new partners who came up to us afterwards requesting specific assistance and followed up. When we had zero visibility we had to be much more promotional. We participated in a renewable energy conference in Bali in October 2011, which raised our flag publicly for the first time, and then we moved on to ICED conferences in North Sumatera and Riau. Aceh is planned for October of this year. Since then we are more reactive outside these three provinces, and people who hear about our services tend to start by contacting their local PLN office. We have about 103 projects in our inventory, the majority of which are in North Sumatra and Riau. We have agreements and are at some stage of consultation with about 25 of them. We put the projects into three categories: inventory, pipeline (providing assistance, advice and consultation), and portfolio (where assisted projects have reached financial closure and/or commissioning). Our overall target is to have at least twenty different projects over 120 MW operating by September 2014.

Given Indonesia’s abundance of natural resources, are you looking at other potential methods for consulting companies in the country?

We are still looking for new projects, particularly municipal solid waste and landfill gas. They have a new feed in tariff for those types of projects, and a new regulation that says all cities have to discontinue open dump sites by 2013, which is driving a market looking for alternatives. When we started, the majority of the work was centered on hydro, and now the attention has expanded to biogas and biomass. Photovoltaics are most likely to be the next big thing, and there are more and more PV companies coming into Indonesia because the global market is soft and an excess in production manufacturing companies, they’re looking beyond their traditional markets. Over the next six months PV projects will start to take off, but these will be more opportunistic applications on islands where diesel-fueled generation is the status quo. PLN has a program called 1000 Islands with expected funding by the World Bank, and a big part of that will be PV/diesel hybrids. The small scale renewable energy independent power producer (IPP) business is quite different from the traditional large scale power plant/transmission line/distribution line model. And there are many new players, new developers, new banks and technologies, even though they are small scale, by number it’s the most active of the power sector in Indonesia. There probably will be a consolidation over time as some of these projects will be sold several times over. It’s more of an investment opportunity and you have to give these guys credit for trying even though they might not get the return on the investment they are expecting.

What would you like to have seen accomplished by the end of September 2014?

I would like to see that some of the developers with whom we are working are already on their 2nd or 3rd projects, they have learned through experience to mitigate risks, and they have confident relationships with the banks. They may have moved from corporate balance sheet financing to project financing where they evaluate the project based on the returns of their other projects rather than the assets of the developer which is the current case. My hope is that every company with whom we work learns to follow this trend.

What are the biggest challenges that you see to the ICED project?

I would also note that one of the biggest setbacks in Indonesia is that the government sets targets without really a plan on how to achieve them, i.e. greenhouse gas targets, diversification of energy supply, and increasing the contributions from different renewable resources. Given the various government agencies involved, there are frequently issues of coordination restricting full implementation of the policies. To design an effective government program, you need to ensure all of the technical and administrative guidance to achieve results, and then see how effective they are relative to different incentives. For example, if the feed-in tariff is raised you should be able to see some spike in development within a relatively short period time. It would be nice to see that there is a viable small power program operating in Indonesia, with all of its pieces in place. This could easily be a $2-3 billion industry in ten to fifteen years, with thousands of megawatts coming from these small projects. You have markets outside of Indonesia that have matured, and incentives are being taken away because they reach a certain penetration level, like Thailand, Philippines, India, China, even Malaysia. You’re starting to see regional players coming into Indonesia. Then there are the equipment suppliers, who are also starting to see new opportunities in this market.

What are your plans after 2014?

At this point in time I am not entirely sure. I have done this type of work before in a couple of other countries. By the time it finishes you are so embedded that you are looking for ways to continue the work you started and fully realize the potential. There’s another program sponsored by the US government called the Millennium Challenge Corporation that’s going to have 300 million USD in funding for clean energy projects, so there may be an opportunity there. We also have a grants program that finances small off-grid use of renewables. Only two thirds of Indonesians have access to electricity so there’s another market there that’s outside the traditional power market, but is in many respects more applicable to renewables (solar, biomass, micro hydro) because they tend to be communities that are remotely located, and extending the grid is very expensive as they are poor rural areas. Some entrepreneurial utility models as well, with people using PV with non-traditional payment schemes. It’s a social investment as well. Some companies spend their Corporate Social Responsibility (CSR) money on these community energy projects. So we have a grant facility where we can cost-share programs with NGO’s or companies who have a project under their CSR funding. Everything we do we are looking for scale. If something is being proposed, the first thing we ask is how many other projects like this could be possible? While R&D is evolving all the time, we’re looking for solutions that are already commercial and where there are already technology or equipment/service providers in the market.

Do you have a final message for the readers of Power Engineering International?

There is real opportunity in the small power market in Indonesia that can easily be overlooked, but I think at the end of the day, it is going to exceed expectations in terms of capital, going into the sector, investment in critical infrastructure, and energy to support economic development in areas currently with shortage of capacity, and so on. It would be nice to see Indonesia move up in the ranking of installed capacity and hydro, solar, and geothermal because Indonesia has an enormous resource potential, so the main concern is maximizing the use of these resources.

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