147
Proc. 12th New Zealand Geothermal Workshop 1990
ECONOMIC ASPECTS OF
GEOTHERMAL DEVELOPMENT IN INDONESIA
Takhyan Yusgiantoro A. Danar
MIGAS, IIEE, PERTAMINA
of capitalized costs:
In accordance with its policy of diversifying energy sources, the year 1:
Government of Indonesia is very keen to develop the country's year 2:
abundant geothermal energy resources. Two geothermal year 3:
development systems have been established, these are year 4:
PERTAMINA'S own operation, and Joint Operation Contract year 5:
systems. This paper discuss the economic aspects of those year 6:
development systems with steam pricing as a major issue. In price
setting policy the factors to be considered are not just based on the with year 1being the year expenditure is incurred whether before or
financial and the aspects, but also the after production commences.
point of view.
5. Loss carry forward:
, Tax losses carried forward limitation, and recovered in the
succeeding year or years for losses incurred during first 5 years after
Concurrent with the government energy diversification policy, the commencement of production of initial unit; thereafter, 4 year loss
Indonesian Government has determined to develop geothermal carry forward limitation.
energy resources for elecmc power generation to reduce dependence
on oil for domestic energy consumption. 6. Investment :
Investment credit is 20% of capitallized costs at 5% per year for 4
The state Oil and Gas Company, PERTAMINA is in possession of year beginning the year expenditure is incurred whether before or
the expemse and technology required to develop geothermal energy afterproduction commences.
resources.
For PERTAMINA'S own operation the financial terms are slightly
Through Presidental decree No. 22 of 1981, the government has different than for JOC,that is there is no investment credit and the
granted the authority to undertake exploration and exploitation of depreciation method is depreciation of surface well equipment is 7
geothermal energy resources to PERTAMINA. PERTAMINA is years, while for sub surface well equipment (casing) is 20 years and
obliged to sell the produced from geothermal for pipeline is 15years.
energy sources to the State Elecmcity Public Corporation-PLU.
To carry out operations that cannot, or cannot yet, be executed by
PERTAMINA,the Minister of Mines and Energy may appointother
parties as contractors by entering into cooperation with Referring to the aboveregulation and flow chart of financial
PERTAMINA in the form of a Joint Operation Contract the cash flow model is as follows:
So, based on the above regulation, there are two systems in * Taxable Income = Revenue Operating Cost Depreciation -
geothermal development in Indonesia, these are PERTAMINA'S Investment lowance
own operation, and contractors of operation. At present,
PERTAMINA has explored more than 40 fields in Java, Sumatara, * Tax = 46% x Taxable Income. when cumulativetaxable income is
Bali and North Sulawesi, while JOC contractors, UNOCAL greater than zero.
Geothermal Indonesia and AMOSEAS, operate the G. Salak
and fields respectively. * Net Cash = Revenue Investment - Operating Cost - Tax
This paper will discuss economic aspect of those developments, with In developing a project, the dominant criterion from which the
the example of the developmentof and Salak. decision is taken is Rate of Return derived from the above
cash flow model, in which the steam price is one component.
There are two different price setting systems are for
PERTAMINA'S own and for JOC operation.
2. FINANCIAL AND FISCAL ASPECT
For PERTAMINA operations.the is as follows:
In executing the authority to undertake exploitation of geothermal
energy resources, the financialand fiscal term is regulated in a decree P = 80% x ECF x DF,
of President and Minister of Finance, the flow chart of which is
shown in figures 1 and 2. The summary of financial terms for JOC where,
are as follows: P= Price, Rupiah (IndonesiaCurrency)
per
1. Tax Rates 40 income tax ECF = Energy - Electricity Conversion factor,
10 dividends t ax 0.28 per Kwh,
46 on income DF = Domestic fuel oil price.
2. To be expensed: For JOC operations, there are three price components, these are:
Intangiblewell costs, operating expenses, administrative and base resource price, ceiling rate and floor price, with the formula as
costs, geological and geophysical costs, taxes other than income tax follows:
and dividends
3. To be capitalized and depreciated: SP = Steam price
Tangible well costs. Construction and materials costs of surface P ='base price as in
facilities. 1 = Inflation lndes
148
Takhyan al.
As generally known, the cost of geothermal development can be
classified as capital cost and 0 M cost. Capital cost consist of
Figure 1. exploration survey cost, well drilling cost and production facilities
cost. In Indonesia the cost of exploration survey is about 1- 5 of
total capital cost, drilling is the largest component, that is about
Financial Term of PERTAMINA and production facilities is about 15 35%. The capital
site specific, among others it depend on geothermal system,
is
topography, the depth and characteristicsof the reservoir as well as
fluid chemical composition and gas
GROSS REVENUE This will be shown in the examplesbelow.
The development of Kamojang.
The development of Kamojang has a long history. As early as 1918,
proposals were made to exploit geothermal energy at Kamojang.
INCOME However it was not until that five shallow exploration
wells were drilled by the Netherlands East Volcanological
survey. One of these wells, is still discharging steam
from a depth of 66 metres with a temperature of 140 degrees
and a pressure of 3.5 - 4 bar absolute. In 1972, after a
Joint reconnaissance programme between the New Zealand and
TAX Indonesian Government, involving a number of geothermal fields in
Java, Bali, Sulawesi, Sumatara and elsewhere, Kamojang was
accorded the highest for further scientific investigation,
continued by pre-feasibilitystudy, well drilling and feasibility study,
after two of five exploration wells successfully discharged.
The feasibility study recommended to install 30 M W for the first
stage. And with the grant of $ 2 4 million from New Zealand the
Term of single unit 30 M W (unit 1) station was commissioned in November
1982. And in November 1987the extension of unit 2 and 3, each 55
M W was completed, after PERTAMINA has drilled the wells and
installed the production facilities.
Kamojang is recognised as a field and produces dry
steam at of about 28 bar.
At present 47 wells have been drilled with a depth range of 535 -
2200 metres. The wells cost are between US$ US$
with average of US$ Based on the past
and estimated future cost, a cash flow model has been developed.
As the the relation between steam price and ROR for various
capacity factor is shown in figure 4. And the price applied now is
US$
The Development of
60.40
3.6 1 60.40
Gunung is located about 120 km of Jakarta.
I , entered into on February 1982, has drilled 11 wells, these are 8
wells in the Awibengkok field and 3 wells in the Kawah Ratu field.
TAKE The initial five Awibengkok wells produce an average of
43.01 per hour steam and per hour hot water. The other three
I I
wells incorporated larger than completions and have an
I average production per well per hour steam. A
field wide testing has been conducted. The field was
CONTRACTOR TAKE
as hot water Analysis of the production and
geological data have indicated that the field has proven adequate
reserve at least 230 for 30 years in the Awibengkok field. An
additional 370 M W of potential m a y also be available. UGI
is currently planning the development of this field for an 110
for ceiling and floor rate (price) are the following: power plant.
CR = 80% x x IF The depth of the wells drilled are between 1350-2850 metres with the
cost between US$ and the average of US$
where, The highest cost due to large well completion of 34 inch
CR = Ceiling rate conductor casing and 9 inch perforated liner. Based on the past
ECF = Energy conversion factor, and estimated future cost, the cash flow model has been developed
0.08 1855 barrel per and the result of the relation between steam price and ROR for
IF = Fuel oil price ex Singapore, barrel various capacity at capacity factor of 80% is shown in figure 5. The
FP = Floor price. price applied now is
FPB = base floor price.
1 = Inflation Index. As a comparison in figure 6 is shown the relation of price and ROR
for Kamojang operated by PERTAMINA and if
Base resource price and base floor price are determined as a result of Kamojang operated by JOC system (Kamojang-2) and Salak as
negotiation, based on an agreed cash flow model and ROR. As an operated by UGI of JOC contractor. The economic of Kamojang is
price profile of is shown in figure 3. Since better than Salak because the field condition is better, among others,
ceiling price is less than floor price, the price applied is floor price. the field is vapor system, moderate terrain and easier
At present this value is mad.
149
Takhyan et al.
Figure. 3 Figure.
SALAK GEOTHERMAL PROJECT VARIES IN SALAK
RESOURCE PRICE FACTOR 80.00
50
Figure. 6
IRR OF KAMOJANG SALAK
CAPACITY MW, 80.00
Figure. 4
VARIES KAMOJANG
110 MW
26 1
For the new field the cost is calculated by Average Full Cost (AFC)
eo
where,
82 84 88
Capital cost on year - j
and operatingcost on year o and j
and Energy out put on year o and j
i:
T economiclifetime.
This economic cost is introduced as a minimum economic price to
ensure all production variables labor, capital and physical
vary. This is a key element of economic cost on the supply side.
3. AN ECONOMIC CONCEPT OF STEAM PRICING
On the demand side, net back value reflects the value of an energy
A startingpoint fromwhich to assess geothermal pricing option is to resources to the end user. This allows the end user to buy energy at
identify a set of energy prices from economic perspectives. A the lowest cost possible on a comparative basis. Net back values
pricing policy must be based on the base costs and the highest price generally differ according to the specific conditions governing their
that the consumer is willing to pay, net back value. The price use and location. This value is an approximation of consumer
interval between the base cost and net back value is the optimal behaviour and is considered as a maximum economic price.
economic price for a unit energy. The base cost include the long
marginal cost, depletion premium for non renewable energy and In economics, many power utility companies use a least
externality cost. In Indonesia since geothermal is categorized is generating cost method to select fuels for the development of
renewable energy, depletion premium is not Included in the base electricity generation. On the basis of the lowest generation cost, net
cost. The long-run-marginal cost (LRMC) Is identical to the back value for a particular energy can be determined. At present
planning curve. In practice, LRMC Is approximated by the average PLN favors the development of coal for its electric power generation
incrementalcost (AIC). AIC Is forward looking concept, and it must on Java so the net back value of geothermal steam is:
be calculatedupon the average basic cost that will be over a
specific in order to maintain a specific level of output.
1
Takhyan et
where,
Geothermal steam price,
Gc: Generation cost of coal steam power plant,
Capital cost of geothermal power plant,
OF rating and maintenance cost of
power plant.
Estimation of the range of value between the economic supply cost
and the value is an important aspect of an effective energy
pricing policy. This range represents the producer and consumer
surplus. However, the producer surplus is known as economic rent.
The economic is the area between the supply curve and the
equilibrium price. Any area above the equilibrium price but
below the represents surplus. (figure 7).
The rent plus the consumers surplus can be distributed among
producers, consumers and the government. In Indonesia,
government has a major role in utilizing the energy price. An
equilibrium price represents the economic optimum for each of the
consumer and the government. Deviation fromthis
will increase the return for one or two of these portions.
0.0469 0.0469
"
' A
0.0362if capital cost of
plant is
4.
Since the development of energy is
In reality, market barriers and government policy make such energy policy, it also be seen
impossible. For this reason, it is necessary to derive a point of view, that is by using Benefit Cost
pricing structure, such as a financial price, that will these
distortions. The next stage consists of adjusting these
prices to cover the cost of energy in the final price. This is
the one that the producer has to allow to explore, develop,
and to the energy to the consumer, including also a normal
profit to compensate for risks, income taxes, depreciations and
myalities paid to
On the basis of economic concept, the Kamojang and
development cost as follows:
gain at a certain time is
to loss due to using geothermal (Salak)
to coal.
T
prt value of coal
A net back value for and under the coal T
generation cost can be shown on table 2. - Coal Gen Cost]
From this least generation cost calculation, the net back is
0.0342 for and for and therefore, the since there is value cost, it is not
range of efficiency prices and the actual
is as on table 3.
selling price applied equation. If is equal or one, the .
is justified. In the of .l.
151
Takhyan et al.
5. CONCLUSION
In implementing a diversified energy policy the Indonesian S., The Potential and the Policy of Geothermal
is very to develop geothermal energy. In deciding Energy Development in Indonesia ,Indonesian Institute for Energy
steam policy, the not Just the financial and the Economic Seminar,Jakarta, March 1,1990.
price only, but also the macro analysis.
Sadli, M., Yusgiantoro, P, Dr, Primer Energy Price Setting to
cost of geothermal development is site among other Support Diversification on Elecmcity Generation , Workshop of
things it depends on the geothermal system, the topographic National Indonesian Committee for World Energy Council, Jakarta,
condition and the depth of reservoir as well the of 8-9, 1990.
S., The Potential of Geothermal Energy to support
In of Kamojang geothermal field development, it is considered Energy Diversification for Electricity Generation , workshop of
economically Justified, since the steam selling price is acceptable to National Indonesian Committee for World Energy Council, Jakarta,
both and consumer. While in Salak, although the net back
value is less than price, from a macro economic point of view
it is still justified. The most important economic indicators in this A.S.S., Legal Aspect of Geothermal Energy Source
ROR and tax. The development will be Undertakings in Indonesia , The ASEAN Geothermal Energy
justified from a micro economic point of view if the cost of Seminar, April 30 May 4,1984
the power plant is included.
UNOCAL Geothermal Indonesia ,Gunung Salak Power Project ,
ACKNOWLEDGEMENTS Indonesia, 1987.
The authors would like to thank the Director of Oil and Gas C.S., Economic Analysis of Geothermal Steam Price
and the Management of PERTAMINA for allowingus to publish this for Electricity Generation , Indonesian Institute for Energy
material. Thanks are also due to Darwin Mr. Seminar, Jakarta, March 1,1990.
and Dwi Retno Iriyawati for helping in preparing this
