1. STRATEGIC VALUE OF GEOTHERMAL ELECTRICITY AND THE IMPACT OF ITS PRICING Anang Yahmadi PT PLN (Persero) – Directorate of Construction and New/Renewable Energy – New/Renewable Energy Division INDONESIA INTERNATIONAL GEOTHERMAL CONVENTION AND EXHIBITION 2014 Jakarta, June 5 th, 2014 Assembly Hall JCC

2. AGENDA GEOTHERMAL FOR ELECTRICITY PLN POLICY ON GEOTHERMAL DEVELOPMENT (NOT LEAST COST VS PLN TARIFF) GEOTHERMAL OPERATION MODE (BASE VS PEAK) GEOTHERMAL TARIF IMPACT (SUBSIDY) FACTORS IMPACT TO GEOTHERMAL TARIFF CONCLUSION 1

3.  Power Plant Capacity (PLN + IPP): Non RE has share 86 % RE has share 14 % (geothermal 3,5 %)  Generation (PLN + IPP): Fossil power plant is dominant by 91 % (Coal, Oil and Gas ). Share of RE only 9 % (geothermal 4%) Generation Share (2013) Existing Total Capacity 38,320 MW 2 The Significance of Geothermal for Electricity ( Geothermal share of 4 % )

4. 3 Gas Geothermal Hydro LNG HSDMFO Coal Strengthening the power capacity and energy supplied to meet the electricity demand To reduce the dominant of Coal Fired Power Plant in Java Bali and Sumatra or large systems To replace the fossil fuel oil consumption in the system with fossil fuel oil generation (mostly in the small systems) To achieve more competitive the generation cost of electricity To increase energy security due to its highest capacity factor The Role of Geothermal for Electricity

5. Gas Geothermal LNG HSDMFO Coal  To support the National Policies on utilizing RE development (including geothermal) such as : Geothermal Law (UU 27/2003), Government Regulation for Geothermal Development (PP 59/2007), President Regulation for Contribution of RE (Perpres 5/2006), President Decree for Fast Track Programs II (Perpres 4/2010) and also related Ministries Regulation.  Consistently increasing the role of RE as capacity expansion: to supply electricity demand growth, to meet the electrification ratio target and to achieve the target of Fossil Fuel Consumption Reduction Program  In line with policy of prioritising the utilization of local energy source and vision on environmental perspective  The development of geothermal is not based on “least cost” but on the readiness of the scheme but should comply with the concept of demand – supply balance to avoid over capacity of base loader power plant in the system.  Expected to reduce the electricity generation cost in the related system or less than the electricity tariff. Policies on Geothermal Development for Electricity 4

6. Hydro Geothermal Gas LNG Fuel Oil PLN’s 10 YEARS ELECTRICITY DEVELOPMENT PLAN (RUPTL 2013 – 2022) ( Expected share of Geothermal increase from 4 % to 11 % by 2022 ) 5  Total 60 GW additional capacity in the period of (2013 – 2022) consisting of:  Coal fired: 38 GW  Hydro: 6.5 GW  Geothermal: 6.0 GW  Combined cycle: 5.0 GW  Gas Turbine/Engine: 3.7 GW  Other: 0.3 GW  Coal will be more dominant and geothermal is expected to increase significantly (from 4% to 11%) Fuel Mixed Projection Capacity Expantion Plan

7. Geothermal Capacity Expansion Plan (2013-2022) Total 6060 MW Expected commissioning years mostly after 2016. Geothermal development will be dominated by IPP (96 %) Majority is part of the Second Fast Track Program (FTP II) by 4965 MW (82 %) Mostly, 93%, developed in Java Bali and Sumatra system with base load operation mode to reduce the dominant of CFPP. 6

8. CFPP GothermalPP CCPP GTPP Demand and Supply Typical Curve of Java – Bali System Typical Daily Load of Java Bali System 7 Hydro Res & LNG/CNG

9. Gas Geothermal Hydro LNG HSDMFO Coal Geothermal power plant operated : total 1313 MW (566 MW of PLN and 747 MW by IPPs) Energy produced from geothermal (realization and projection): Energy cost from geothermal (at power plant) : National cost of electricity production (at power plant) : 9.23 c USD/kWh (RKAP 2014) Average tariff of electricity : 7.97 c USD/kWh (RKAP 2014) 8 COST OF ELECTRICITY FROM GEOTHERMAL Year20122013201420152016 TWh9.49.81010.916.0 Geothermal electricity price (2012)6.67 c USD/kWh Geothermal electricity price (contracted) Existing WKP (9 PPA) New WKP (6 PPA) 8.04 c USD/kWh (5.6 – 18.2) 7.02 c USD/kWh (6.79 – 8.25) 9.08 c USD/kWh (8.09 – 9.55) Geothermal electricity price (bidding result)8.25 c USD/kWh (5.6 – 18.2)

10. Gas Geothermal Hydro LNG HSDMFO Coal The contract of IPP Geothermal will increase PLN subsidy since the generation cost of geothermal electricity higher than coal fired electricity, except in small system, which the electricity mostly supplied by diesel oil. For example in Flores system, IPP Geothermal expected to reduce subsidy. Referring to Geothermal Tariff study by consultant of World Bank – ADB (2014), PLN avoided cost for geothermal tariff based on coal power plant : 6.92 c USD/kWh (2014) escalated to 8.50 c USD/kWh (2019) With assumption the average tariff of 3.5 GW IPP geothermal at 11.5 c USD/kWh in 2020, additional subsidy through PLN (estimate) : 0.78 bill USD in 2020. If the contract of IPP Geothermal about the ceiling price (14.7 c USD/kWh – WB/ADB study) the subsidy will be more than double. The Impact of Geothermal Tariff to PLN Subsidy 9

11. Gas Geothermal Hydro LNG HSDMFO Coal The Factor Impact to Geothermal Tariff Royalties, fees, retribution, taxes, incentives, guarantees : The Government has provided regulations to promote the attractive tariff for geothermal Permits (number and duration) : Need improvement Regulation Cost of fund : Developer should give the best effort to have access on the lowest cost of fund Capacity Factor, escalation, TOP/DOP : has been standardised in the PPA Cost of investment increase due to market condition: Cost of drilling increase due to many projects come in the same schedule Commercial Drilling success ratio : More developers state high difficulties to meet the success ratio target Well characteristic (capacity, steam fraction, chemist, etc) Project management (when the COD) : More developers fails to commit the COD target Technical 10

12. Gas Geothermal Hydro LNG HSDMFO Coal The contribution of geothermal for electricity is more to support the government policy on RE and more in line with PLN vision to doing business with environmental perspective and Geothermal power plant will reduce the high dependency on coal as power plant with base load operation mode, in which the GPP commonly have a higher security of supply than CFPP. Geothermal power plant will increase PLN cash out therefore, it is important to clearly defined and transparency disclosed the portion of geothermal tariff will be responsible cost of PLN, government incentive or pass trough to the consumer. Conclusion 11

13. 12 Thank you 12