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PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: 41031
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Environment Category
Date PID Prepared
Estimated Date of
Appraisal Authorization
Estimated Date of Board
Approval
Lahendong II Geothermal Power Project
EAST ASIA AND PACIFIC
Renewable Energy (100%)
P096677
Indonesia
[ ] A [ ] B [ ] C [ ] FI [X] TBD (to be determined)
September 1, 2007
October 15, 2008
January 30, 2008
1. Key development issues and rationale for Bank involvement
The Indonesian Archipelago is one of the most volcanic areas in the world, with very rich
geothermal energy resources. These resources offer significant prospects for generating power
from a clean renewable energy source and mitigating greenhouse gas (GHG) emissions. The total
geothermal power generation potential in Indonesia is estimated to be about 27 GW1 but only
around 3 percent of the potential has been developed so far. In the next ten to fifteen years, the
electricity demand is expected to grow at 7 to 9 percent annually, resulting from robust economic
growth and increasing electricity access. The largely untapped and vast geothermal potential can
play a critical role in meeting the growing demand for electricity.
The Indonesian power generation relies heavily on fossil fuel sources, accounting for over 80
percent of the state-owned power company, PT Pelayanan Listrik Negara (PLN)’s generation in
2005, while geothermal accounted for only 2.3 percent. This heavy dependence on fossil fuel and
especially the recent push for coal-fired generation is exacerbating the poor environmental
situation in Indonesia and leading to a fast increase in GHG emission, which has grown at a more
rapid pace than in China and India. The rapid development of locally available and clean
geothermal energy can greatly reduce the dependence on non-renewable sources and contribute
to a more sustainable environment.
In 2003, the Government of Indonesia (GoI) passed the Geothermal Law (Law No. 27/2003) to
open up new opportunities for commercial as well as public engagement, and to speed up the
development of geothermal resources. A road map for geothermal energy was also developed to
meet the target of 6,000 MW of geothermal power generation by 2020. Three years after the
passage of the Law, however, Indonesia is still facing major hurdles in attracting commercial
1
Including reserves of 14 GW (2 GW are proven with exploration drilling and feasibility studies, 1.5 GW of
possible potential with exploration drilling and pre-feasibility studies, and another 10.7 GW of probable with
detailed surveys) and resources of around 13.5 GW mostly based on preliminary surveys. These potentials are
identified in 253 locations mainly in Java, Sumatra and Sulawesi.
financing and private investors to develop its geothermal resources while the scale of available
public funds are not sufficient to achieve this goal.
The development of geothermal power potential has been impeded by the relatively higher
(compared with conventional fossil fuel power generation technologies) development costs but
also due to additional institutional, technical and financial factors such as the: (a) the absence of
regulations and adequate pricing and fiscal incentives which consider the environmental costs
resulting from fossil fuel burning and the benefit of using a renewable energy such as
geothermal; (b) inadequate institutional capability to properly plan geothermal development and
sufficiently engage suitable developers; (c) weak domestic technical capacity in the areas of
resource assessment, equipment manufacturing, construction, operation and maintenance of
geothermal energy facilities; and (d) the significant risk in upstream and downstream geothermal
development, matched with high up-front costs, which hampers access to finance.
The Bank is adopting a two-pronged approach in working with the GoI to promote the
development of geothermal resources. First, the Bank is assisting GoI in strengthening its
regulatory, institutional and technical capability through technical assistance. Second, the Bank
is trying to directly promote geothermal project development through carbon financing and
possible lending operations support. The proposed project, if approved, will strengthen the
financial viability of Lahendong II Geothermal Power Plant by purchasing carbon credits
produced by the Plant.
The proposed project will fully support the CAS goal of improving infrastructure services for
economic growth and poverty elimination. The proposed plant, situated in the outer island of
Sulawesi, will enable increased electrification in the island, with benefits to the rural poor. It will
also contribute towards the government’s plan to expand renewable energy use to reduce the
country’s heavy reliance on fossil fuels. PLN, as the project sponsor has signed the Letter of
Intent to sell the carbon credits to the Bank. The Carbon Finance Document (CFD) submitted by
the sponsor has been approved by the Bank’s Carbon Finance Unit (ENVCF), based on the fact
that the geothermal power plant is not the financially preferable solution but would avoid carbon
emissions from equivalent fossil-fuel power generation.
2. Proposed objective(s)
The development objective of the proposed project is to reduce GHG emissions by using marketbased clean development mechanism (CDM) under the Kyoto Protocol through support to
geothermal power investments to meet the growing demand for power in North Sulawesi of
Indonesia. It is fully consistent with GOI’s energy sector development strategy. The key
indicator is the annual delivery of emission reductions (ERs) to be verified by a third party
according to a baseline data and annual measurements of actual reductions compared to those
planned.
3. Preliminary description
The Lahendong II Geothermal Power Project comprises the design, procurement, construction,
and commissioning of a single 20 MW geothermal steam turbine-generator plant. It will provide
20 MW of additional capacity and deliver up to 158 GWh of additional electricity generation
annually into the existing PLN Minahasa System, to meet increasing demand in the system.
Steam for the project will be supplied from an expansion of the existing Lahendong geothermal
field, under a take-or-pay agreement with the field’s owner and developer, Pertamina. Once
operational, the plant is expected to mitigate about 60,000 tCO2 annually. The power plant will
be operated by the project sponsor, PLN.
It is proposed that the carbon finance business of the Bank purchase partial or entire emission
reduction (ER) assets to be created by the geothermal power project for a period of seven to ten
years. The exact amount of ERs eligible for purchase will be subject to a Baseline Study that has
been commissioned by ENVCF and independent verification of energy output each year after
plant commissioning. The purchase amount and price will be defined in an Emission Reduction
Purchase Agreement (ERPA) to be reached through negotiation between the Bank and PLN.
4. Safeguard policies that might apply
Geothermal steam and subsequent power generation are generally considered as activities with
minimal environmentally adverse impacts. Potential impacts related to power generation consist
of gaseous emissions and waste management. The project is only an extension of the existing
geothermal production field. As such it will not entail activities associated with full blown
geothermal power development such as building of new roads, clearing of forested area for
temporary facilities, and drilling of several exploratory wells. Recent site visit by the team’s
social specialist also indicates that this project will involve neither land acquisition nor
indigenous people issues.
5. Tentative financing
Source:
BORROWER/RECIPIENT
International Bank for Reconstruction and Development
International Development Association (IDA)
Total
6. Contact point
Mr. Leiping Wang
The World Bank
1818 H Street, NW
Washington, DC 20433
USA
($m.)
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