APPENDIX V

CONCEPT FOR ADB SUPPORT

Concept Paper for Implementation of Renewable Energy Projects in Indonesia

Implementation of renewable energy projects in the Indonesian Oil Palm Indrusty will
require short term support as seed financing for initial full scale demonstration
projects through PLN and PPTN, followed by medium term financing support for
both public and private stakeholders.
The short term support proposal is to provide the necessary technical assistance for
the implementation of the identified template projects where both the partnership
models and the technical and commercial viability of the projects are proven. In most
of the cases in the OPI, effective demonstration of the technologies is an important
decision making factor for the investment to be further considered and carried through.
The demonstration of the template project will encourage the POM and other
stakeholders such as the provincial governments and PLN to enhance and improve the
schemes to address the over 300 potential POM throughout the country. The analysis
of the programme implementation strategies indicating the current assessment on the
associated risks are tabulated in the attachment.
The proposal for the short term ADB support concentrates at the implementation of
the cluster projects where the partners in the partnership models are already in place
and identified. ADB support identified here is to maintain the sustainability aspect of
the WTE in the POM industry. The underlying concept is to translate the identified
project ideas and technology interventions into real projects that can be emulated in
the POM. This concept is further segregated into support mechanisms in the short
term and medium term.
The medium term support is to reinforce the implementation mechanisms by
addressing multi stakeholder issues to effectively integrate the POM energy potential
into the local grid network. The main objective is to encourage the rapid
implementation of rural electrification projects via the project concepts identified and
the technology intervention that has been evaluated in this report. The support is
mainly to develop guidelines for the multi stakeholder implementation activities and
perhaps set up provincial level one stop centre that would be able to sustain the
continuous implementation of the template projects.
Short term
Implementation support for identified waste to energy projects
The range of technology interventions will be demonstrated in the cluster projects of
the Siak Hulu Cluster and Gunung Meliau Cluster. The projects concepts and initial
technical and commercial assessments are prepared in the project definition reports.
It is proposed that ADB provide the follow up implementation support to realize the
projects.
Project Preparatory Technical Assistance (PPTA) for identified cluster projects in
Riau and West Kalimantan
This additional support is to follow through with project implementation activities for
the cluster projects that have been identified. The potential projects are the Siak Hulu
Cluster and the Gunung Meliau Cluster in Riau and West Kalimantan respectively.
The support for these two projects, besides demonstrating the technological

intervention in a commercially viable manner, will also provide geographical

advantages for the two main palm plantation areas in Indonesia, namely Sumatera and
West Kalimantan. The keen interest shown by the project promoters in both areas
adds to the viability of the projects.
Assuming that PLN/PPTN would require seed financing of e.g. $US 50 million as a
rolling fund for power plant construction, which would become self financing from
revenue generation and diesel subsidy savings, the PPTA would involve the
following:Technical design
The technical design will involve the detail engineering design of the respective
projects culminating to the implementation of the project right up to the
commissioning and prior to commercial operations. The support would include the
following:Design and detail engineering
The detail design and engineering of the projects will be developed in this
phase. Interfaces between the subsystems and specification of the relevant
functional and operating parameters into a tender document or quotations of
sub components will enable actual prices be secured. The technical design
shall review the primary data undertaken in the survey and project definition
report to establish the functional layout of the equipment. The sizing of each
sub components will be reviewed to finalise the design suitable for the each
site. The detail design should also comply with all prevailing regulations
effective in each areas such as spatial planning guides, environmental
requirements and other permits and approvals.
The final design parameters shall also take into considerations the interface
requirements such as interconnection to PLN grid via synchronous connection,
interface with POM for steam and power delivery as well as mechanical
handling systems for the fuel preparation systems. Where biogas capture is a
component, the design should integrate appropriate technology to convert the
biogas into energy such as biogas burner to supplement the biomass power
plant boiler or gas engines that can combust the biogas to generate electricity.
The detail design shall also consider the financial aspects of the projects to
maintain viability. Value added engineering to ensure superior technical and
commercial performance is expected. The design shall also cater for the
monitoring needs for the CDM aspects of the projects.
The design should also consider the availability of locally procured
technologies that are cost effective. Elements such as low and medium
voltage electrical installations, boiler fabrications and mechanical handling
systems are typical examples of potential sources of local technology for the
projects. The designing engineer shall look into Indonesian facilities to
address the maximization of cost effective local content.
Procurement strategy
The procurement strategy will be identified in this phase. Options such as
turnkey construction design and built or implementation by packages will be

evaluated and considered for implementation. A procurement process that is

cost effective and time sensitive will be the main guides in the development of
the procurement strategies. The cost effectiveness of the procurement
strategies will ensure that the projects commercial attractiveness will improve
and will be the template for implementation in other initiatives that would be
repeated later. The procurement strategy shall maximize the cost effective
local content from local suppliers.
Financing
Alongside the engineering design and procurement, the financing activities
will iterate between the design and the financing plan. This is the most
important aspect of the PPTA since the financing of concept projects in third
world countries is difficult within the context and background of high interest
rates. The development of the financing plan will require the securitization of
the cash flows as the main means to repay the debt. The development of the
financing plan will require development of financing strategies that would be
easily replicated in Indonesia. Establishing the financial closure scenarios for
the project would be a major milestone for project implementation, as
financial closure and drawdown would mark the initiation of the construction
phase. Timely conclusion of the financial closure activities will be essential to
avoid construction delays. Elaboration on the scope of support is provided in
the debt support component.
Construction
A team of construction supervisors consisting of civil, mechanical and
electrical engineering background is required to oversee the project
construction activities. The initial construction period for the full scale
demonstration projects is expected to last between 14-18 months. The
construction supervision will also double as a training ground for the domestic
engineers to assimilate and understand the biomass power plant design and
construction.
Commissioning
The supervisors will also oversee the commissioning activities to ensure that
the design performances are achieved.
Pre-commercial operations support
Training of the operation and maintenance team will be a major aspect of the
pre-commercial operations support. The O&M discipline that is required for
the plant will be established and core standard operations procedures crafted
and demonstrated. Since the BPP will be integrated in synchronous mode
with the local grid, it is important that communications links and
interconnection processes are understood by all key operators to attain
environmental health and safety and operational performance standards.
Debt financing
The key to project implementation is financing, and debt financing packages will
either make or break the project. The debt component requirement is more
pronounced in Indonesia particularly at the onset of high inflation and high interest

rates. The debt financing model, once proven successful, will open up the
commercial loans to the viable projects in the RE sector.
Financing plan
This aspect of the support will establish a financing plan that is suitable for the
Indonesian market as well as the partnership models that is being considered
in the respective sites. The primary model will include elements of long term
repayment and perhaps extended grace period to facilitate the initial years of
the project. The TA will support the development of the financing plan and the
expert should have reasonable understanding of the local financing
instruments and rates to craft a suitable plan. The financing plan should also
include the potential of FDI via the carbon funds that are currently active is
seeking projects in Indonesia.
Structuring the project and loans
The project structure shall be considered and modified in accordance with the
requirement to access the best financing for the project. In this case,
investment by international investors particularly from the carbon funds
should be looked into and facilitated in order to create a template that can be
reasonably easy to replicate. The project structure may differ from site to site.
However, a common template with major stakeholders can be used prior to
customization. Financing instruments such as construction Letter of Credits,
assignment of payments to lenders and other instruments to mitigate
repayment risks customized to the Indonesian prevailing practices will be
considered by the expert.
Facilitation of financing and banking documentation
The main implementation hurdle expected after the loan approval is the
facilitation of the drawdown and other banking documentation. This will
effectively delay the project is the project proponents are not supported to
address the conditions precedents and the other sets of documentation
normally expected by the lending institutions.
Duration of support
The duration of support is expected to be about 30 months from the approval of the
PPTA up to the pre-commercial operations activities.
Table 1 : Proposed Consultants List, Duration and Scope of Activities

Item Scope
Design engineering consultants that have
1
experience in developing POM based energy
projects, particularly grid connected biomass
power plant.
2

Financial consultant that have project financing

experience and able to structure third world debt
component for renewable energy projects

Technical Support
International
consultant 1 x 8 months
Domestic
consultants 3 x 6 months
International
consultant 1 x 6 months
Domestic
consultant 2 x 10 months

A team of supervising consultants, civil,

mechanical and electrical, to supervise the
installation and commissioning of the biomass
power plant.

International
consultant 1 x 12 months
Domestic
consultant 3 x 15 months

An operations and maintenance specialists to

establish the core standard operating procedures
for the biomass power plant.

International
Consultant 1 x 3 months
Domestic
consultants 3 x 5 months

Medium term support

Development of Rural Electrification Support Mechanisms
One of the main findings in this TA is the availability of immediately accessible
power in the POM that can be connected to the grid. The power plant in the POM has
excess installed capacities and this can be connected to the distribution grid to
electrify the surrounding areas. The synergy also exists in the reduction of diesel fuel
that can be replaced by sharing the renewable energy power from the POM. Most of
the interconnection to PLN projects identified has a good financial return particularly
based on the sale of electricity to PLN as well as savings from using diesel during
black start operations. The long term potential is for the POM to efficiently use the
biomass as well as use the excess biomass and increase the export of power to the
PLN grid.
These concepts initiate the potential of spreading the rural electrification on a
sustainable manner by converting the excess power into energy that can be distributed
in the PLN grid. The initial investment remains similar to those described in the
project definitions, however, it is expected that the POM can improve the efficiency
of the existing systems and use the excess biomass that is currently incinerated for
additional generation of energy.
The additional systems such as using the back pressure steam to generate the
remaining energy when the POM is not operating, adding economizer to the existing
boiler to improve fuel economies and using dewatered EFB as additional fuel to run
the redundant boiler and turbine system will need to be further investigated and
defined.
The potential of rural electrification using the POM as a backbone is real and can be
harnessed. There are already some basic regulations on the sale of power to the grid
and this aspect need to be further tested using a project. The potential of PLN taking
up the excess power by investing in the necessary infrastructure to connect the POM
to the PLN grid should also be evaluated. Implementation activities involved a
number of main stakeholders that need to coordinate their efforts to realize the
potential.
This proposal for additional support form ADB outlines the work that is necessary to
bring the concept ideas into template implementation that can be replicated
throughout the nation where POM exist.

Rural electrification via POM waste to energy projects

The potential of achieving the rural electrification penetration rate is dependent on
two major elements, i.e. the partnership of the stakeholders and the availability of
fund to implement the projects. This proposal concentrates on this two main item as a
support for ADB to consider in the light of the findings of the Technical Assistance.
Rural electrification partnership model replication scheme
The objective of the support is to establish a partnership model for rural electrification
that can be replicated throughout Indonesia to achieve the desired penetration rate of
rural electrification. Rural electrification is an important initiative in Indonesia as the
electrification rate is still less than 60%. The TA found that the various districts are
looking forward for electrification as a means to develop the areas. Electrification
using diesel is very expensive and generally a gross loss activity for PLN. This is
motivation enough to be cautious in electrifying areas that the only source of power
would be diesel generators. The economic sense is to reduce losses, and this has
thwarted the penetration rate of rural electrification.
The POM which are generally sited in rural areas can be regarded as an sunk in
investment for the power generation. The power plant that is in operation in the POM
can provide some immediate power export to the grid. This element however has not
been tested despite the availability of regulations for the sale of power to PLN by
small renewable energy plant. This leads to the first partner, the POM. The other
crucial partner is PT PLN where the planning of the distribution grid and the control
for the demand is done. PT PLN can benefit from this arrangement by reducing the
current utilization of the diesel generation system and capitalizing the availability of
generation assets that can produce cheaper electricity than the diesel generator sets.
Several discussion with PT PLN has indicated their interest in pursuing biomass RE
as part of their RE generation assets. The third partner is the provincial government
that has the interest in electrification. The provincial governments can also play a role
to facilitate the implementation of rural electrification by establishing guidelines for
POM in their waste management and disposal system to support the penetration rate
of rural electrification. The activity to create a partnership model that can be
replicated throughout the country is an important aspect to ascertain the sustainability
of the initiatives. The role of the DGEEU is to facilitate the regulatory aspects
required and necessary to achieve the objectives.
Implementation schemes
The support for development of implementation schemes to activate the partnership
programme is anticipated to include financing schemes and plans. The project
implementation using the developed partnership model will need the following
support from ADB
Financing scheme and plans
An effective financing scheme is to be developed and customized to each area in
accordance with the local requirements in the respective areas. It is anticipated that
the financing scheme is tied to the rural electrification strategy of the country and may
be able to be structured for international foreign direct investment via the CDM
mechanism. A pragmatic approach towards the rural electrification financing scheme
is necessary to mitigate the risks as well as to capitalize the interest of foreign

investors in the renewable energy market and CDM. Multi lateral funding and bi
lateral funding opportunities should also be considered in the financing plan where
grants for technology development and the poverty eradication can be utilized in the
initiatives.
Ownership schemes
The partnership programme that has been developed will influence the ownership
schemes. The ownership scheme has a bearing on the financing as well as bankability
of the project. It is necessary for the ADB support to assess the long term impact of
ownership schemes especially when it involves foreign direct investment in the
projects. The partnership scheme of PLN. POM and the provincial governments need
to be adapted to consider the most feasible and bankable arrangement to raise the
financing of the projects.
Sustainability Support
Development of guidelines and policies for multi stakeholders to integrate the POM to
the electricity grid
The sustainability of the project requires an accommodative framework that can
continuously support the implementation of the rural electrification programme.
Since there are multi stakeholders in the project, particularly the POM (mostly
privately owned), PT PLN (the electric utility) and the provincial authorities
(agricultural department, energy and mining department and the state planning
authorities) will need to develop a reasonable guideline to facilitate the
implementation.
The agricultural department for instance, needs to provide the waste management
guidelines for existing POM to establish the new baseline operations. The guide can
also include disposal instruction where the biomasses are sent to the biomass power
plant at a fee (dumping fee) as part of the environmental performance improvement.
The biomass power plant that produces the energy can then be implemented by PLN
and generate cost effective electricity for the nearby areas concerned. The energy
department (Dinas Pertambangan Energi) would need to facilitate the permits and
approval of the power plant and to include as part of the overall energy planning the
effective use of waste from the POM. In this manner a symbiotic arrangement
between the multi stakeholders will enable the projects to be supported and
implemented.
Support the development of POM implementation and retrofit guidelines and policies
in conjunction with the proposed waste management framework for the local
authorities (pembda)
The POM with its current energy assets are can be retrofitted to address the excess
wastes that are generated. POM can be retrofitted and rehab to maximize the
potential of energy extraction from the POM. It is envisaged that the POM will stop
its EFB incinerating activities and use the EFB for power generation. The POM
steam turbines and boilers can be modified to extract more energy from the biomass
by means of efficiency improvements in the existing biomass power plant in the POM.
The proposed waste management framework that is formulated in the current TA can
be used as the basis to draw up a guideline for the local authorities.
The guidelines will also look at the possible collaboration in the future where the
POM and the power plant are optimized in its designed and the initial investment can

be undertaken by the identified partners in the partnership scheme. New POM may
be suggested to have a separate power plant (owned by the POM or other partners)
that will receive all the waste and converts as much into useful energy to assist in the
development of the rural areas.
Support the establishment of One Stop Centre for the implementation of RE projects
via POM integration to the distribution grid for the provincial authorities in support
of WTE projects. Among others, to include local guidelines on spatial planning, local
permits and approvals and facilitation of foreign direct investment
The ADB support is also suggested to look into the establishment of a one stop centre
where waste to energy project is facilitated. The establishment of a one stop centre
will attract interested foreign parties to seek investment opportunities particularly in
the light of CDM potential in Indonesia. The establishment of the one stop centre is
expected to follow through the template project implementation and provide a forum
for other project implementers to replicate the projects.
The ADB supports will translate the template projects into mass implementation
schemes for rural electrification.

Table 2 : Technology Intervention Programme in POM Waste Management and Energy Capture
Programme Name

Description

Implementation Plan

Assumptions

Risks

Notes

1. Energy asset sharing

POM and PLN interconnects and share

the energy assets to reduce dependence
on fossil fuel and increase use of
renewable energy

Project implemented by POM to benefit

from reduction of diesel use during start up

PLN willingness to interconnect

high

PLN has been unwilling to enter into PPA at reasonable costs

despite government regulation

Availability of reasonably priced debt

high

Willingness of POM to sell energy

medium

POM has shown scepticism on the interconnection to PLN,

however remained interested if reasonably priced

PLN willing to invest in Interconnection facilities

medium

High cost of diesel may drive the viability of the investment

Availability of reasonably priced debt

high

POM willing to facilitate implementation of

project

low

POM has shown scepticism interest to look into a mutually

beneficial arrangement. Some POM as express interest

CER Buyers ready to invest in biogas capture

system

medium

Some CER buyers has expressed interest to participate in

projects

POM willing to undertake additional investment

and processing activities

medium

Some POM in Sumatera and Kalimantan has implemented this

technology in the POM. Reference sites in Indonesia
available.

Project implemented by third parties (e.g

biomass power plant or biodiesel plant
developer) in collaboration with POM

POM willing to give access and collaborate

high

POM normally do not entertain third party access to their

operations.

Project Implemented by POM or third

parties in collaboration with POM

POM willing to undertake additional investment

and processing activities, or POM willing to
collaborate to provide EFB Oil

medium

POM skeptical on the project viability citing the absence of

rules for onward sales of biodiesel, however BPPT has plans to
promote biodiesel plants in every province

Project implemented by PLN to extract RE

power and reduce diesel power generation

2.
Biogas capture

3.
EFB Dewatering
(Remnant oil recovery)

4.
Biodiesel from EFB oil

A controlled digestion of POME and

capture of biogas for flaring or
combustion

Mechanical dewatering of EFB to reduce

moisture content before disposal and
acquiring remnant oil

Production of biodiesel using the oil

recovered from the dewatering of EFB

Project implemented by CER buyers or

financed by Carbon Funds

Project Implemented by POM

Sustainability Features

Long term potential for increased

rural electrification penetration
rate

CDM mechanism has significant

prospect to support the GHG
reduction project.

Initial reference sites in

Indonesia makes the prospect for
this technology to be adopted to
be reasonably good

Long term strategy and continued

support by the government is
expected to push the bio diesel
programme to higher levels

5.
Biomass Power Plant

Electricity production using automated

power generation system

Implemented by PLN

PLN willing to undertake investment in biomass

power plant

Merchant plant implementation scheme

medium

high

Many developers express scepticism on the willingness of

PLN to purchase power from RE plants at reasonable rates

medium

Enforcement new regulation Ministerial Decree 002/2006 may

change the perception on RE power sales to PLN

PLN willing to purchase biomass power at

comparable rates to diesel based energy
production

6.
Organic Diesel Plant

7.
Biomass Gasification for
electricity generation

Production of organic diesel from POM

biomass wastes

Production of electricity using synthetic

gas from biomass

PLN has entered into discussions with PTPN XIII to assess

potential collaboration on a pilot plant

Implemented by POM

POM willing to undertake additional investment

and risk of the new technology

high

The organic diesel technology is expensive and still emerging.

The percieved technical risks are still significant.

Implemented by a joint venture of POM

and Technology Provider

Technology provider willing to undertake JV

positions in the project

high

Technology provider have not expressed interest in this

implementation model

Implemented by Local Government or PLN

Local government /PLN has the necessary

resources to implement the project

medium

The project is seen as rural electrification initiative using

alternative energy

Implemented by POM

POM willing to undertake additional investment

and risk of the new technology

high

Not part of core business of POM

The immense potential is

unlocked with the removal of
diesel subsidy. Further
integration of energy assets into
the distribution grid will enhance
long term potential

Higher value added use of the

biomass has a long term potential
and reliant on the first few
successful demonstration

BPPT has been discussing to

deploy renewable energy for
rural electrification in several
provinces