Darajat Unit 3 CDM Program Contribution

Darajat Unit 3 Geothermal Clean Development Mechanism (CDM) Program Contribution in National Greenhouse Gas (GHG) Emission Reduction

Muhyidin, SKM

Star Energy Geothermal Darajat II, Limited

Sentral Senayan II, 25th floor. Jl.Asia Afrika No.8, Jakarta 10270. Indonesia

Note: this paper has been presented and submitted at The 5th Indonesia International Geothermal Convention & Exhibition 2017

Keywords: Darajat Unit 3, Clean Development Mechanism, Greenhouse Gas, Geothermal, Emission Reduction

ABSTRACT

Climate change and sustainable development currently become global challenges. The global countries formed United Nations Framework Convention on Climate Change (UNFCCC) to respond these challenges and legally binding emission targets under the treaty called Kyoto Protocol. To fulfill this commitment, the protocol allows for three flexible mechanism: Emission Trading (ET), Joint Implementation (JI) and Clean Development Mechanism (CDM). Indonesia belongs to the Non-Annex I parties has ratified the Kyoto Protocol through Law No. 17/2004.

Darajat Unit 3 was the pioneer of CDM program in Indonesia and registered at UNFCCC secretariat with reference number 0673 since 11 Dec 2006. This program has contributed in GHG emission reduction with 6,260,609 tonnes CO₂ equivalent (CO₂) and Darajat Unit 3 as the biggest CDM project in Indonesia for all sectors since 2009 or about 62.5% of total Certified Emission Reduction (CER) achieved from geothermal sector. Darajat Unit 3 also pioneer in CDM 2^nd renewal crediting period with approval renewal date on 5 September 2015.

Some continual improvements such as through eliminate extenal consultant cost especially during renewal & consultancy before external verification audit; capacity building improvement through periodic internal refresher training; standardized process through Standard Operating Procedures (SOP); and made new verification audit contract using local company with lower price. These improvements have reduced the cost and CDM implementation can be conducted smoothly & sustainable. Even though currently the CER price is very low, Darajat Unit 3 CDM project still continue and have positive revenue from the CERs sales as well as contribute to national GHG emission reduction.

Introduction

Most scientists now agree that human activities such as energy usage for electricity and transport comes from fossil fuel and deforestation are largely responsible for climate change. Since the dawn of the Industrial Revolution, this climate change have risen sharply include increasing concentrations of GHG emission. The GHG caused the earth to heat up by trapping the sun’s heat in the earth’s atmosphere and will cause global climate change to be warmer. This called the greeenhouse effect.

On 1992, global countries formed UNFCCC to respond this challenges to begin to consider what can be done to reduce global warming to cope whatever temperature increases are inevitable. And then on 1997, number of countries approved an addition to the treaty called Kyoto Protocol which has more legally binding measures. Each Annex I party to ensure that its total emissions from GHG sources listed in Annex A to the Kyoto Protocol over the commitment period do not exceed its allowable level of emissions (Annex A covers GHG emission from the energy, industrial processes, solvent and other product use, agriculture and waste sectors). The allowable level of emissions is called the party’s assigned amount (UNFCCC, 2008).

Under Kyoto Protocol, there are three flexible mechanism to reduce emission: Emission Trading (ET), Joint Implementation (JI) and Clean Development Mechanism (CDM). ET and JI allow Annex I parties to take advantage of lower-cost emission reduction outside their territories. Unlike ET and JI, CDM allow non-Annex I parties (developing countries) to participate in emission reduction program. CDM was designed to help Annex I parties to meet their emission reduction target cost-effectively and it also will help non-Annex I parties in achieving sustainable development as well as transfer of technology as the benefit of CDM to developing countries.

Indonesia with more than 17,000 islands geographically very vulnerable to the impacts of climate change. Climate change will increase the average sea level as a result of the increased volume of warmer water and the melting of polar ice caps. The combination of rising sea-level and lab subsidence will move the coastline inland and will cause increase of flooding. A study published in 2007 by Indonesia’s institute for Technology in Bandung, illustrated that with a sea level rise of 0.23, 0.57, and 1.00 cm per year, the total area of norh Jakarta that will be affected by inundation in the year 2050 would be about 40, 50, and 90 square km. The dissappearance of small island due to changing sea levels will also have serious implications for the Indonesian state border. At least eight of 92 outermost small island that serve as a baseline for the Indonesian sea terriitory (Kepala, Dolangan, Manterawu, Fani, Fanildo, Brass, Laag and Nipah islands) are very vulnerable to a rise in mean sea level (ADB, 2009).

Indonesia belongs to the non-Annex I parties has signed and committed on the implementation of United Nations Framework Convention on Climate Change in Rio which was ratified in 1994 through Law No.6/1994. Under this framework, Indonesia has committed to fully implementing the framework. Indonesia also signed the Kyoto Protocol and ratified it through Law No.17/2004.

In 2009 at the G-20 meeting in Pittsburgh and at Conference of Parties (COP) in Copenhagen, the President of the Republic of Indonesia committed to ambitious world-leading target of 26% voluntary reduction in carbon emission from Business As Usual (BAU) by 2020 and further emission reduction of 41% are expected with international support. With this commitment, Indonesia will follow a low carbon development path. To meet these objectives, Indonesia has set up various programs to reduce its emission in energy sector, industry sector, forestry sector, peatland, agriculture sector and waste. In energy sector, Indonesia committed to reduce emission through additional efforts related to energy conservation and new and renewable energy development.(i.e. enhance geothermal program, micro-hydro, biofuel, biomass waste to energy, wind energy). Indonesia committed to increase the share of geothermal energy from 2.48% (in 2005 to more than 5%) and to increase the share of other new and renewable energy, particularly biomass, nuclear, hydropower, solar and wind to more than 5%. The efforts can be achieved through the CDM scheme and private sector participation (KLH, 2000). This commitment to reduce 26% of GHG emission then renew become 29% by 2030 (as per Intended Nationally Determined Contribution (INDC) Indonesia submitted before COP-21 Paris) (DJPPI: 2015).

Darajat Unit 3 geothermal project was established to contribute to supply of electricity in the JAMALI (Jawa-Madura-Bali) interconnected grid system and generate from clean and environmentally-friendly resources. The plant located in Garut, West Java adjacent to the existing Darajat Unit 2 plant. The plant consisted of a conventional geothermal condensing steam turbine generator with a capacity of 121 MW. Construction and operation of Darajat Unit 3 resulted in over $128 MM foreign direct investment in Indonesia (CGI, 2015).

Darajat Unit 3 geothermal project has received endorsement from Indonesian host country on 31 August 2006 and registered at UNFCCC secretariat with reference number 0673 since 11 Dec 2006. Darajat Unit 3 geothermal project was a pioneer of CDM program in Indonesia even before its Commercial Operating Date (COD) in 2007 (Dwita, 2006). There was a changes of 1^st crediting period of Project Design Document (PDD) from 1 December 2006 – 30 Nov 2013 to period 14 June 2007 – 13 June 2014. This changes related with the increasing capacity of Darajat Unit 3 Power Plant from 110 MW to 121 MW and the revised PDD (document version number 5) was approved on 2 November 2010.

Method

This research is descriptive qualitative method to describe and explain the Darajat Unit 3 geothermal project by data collection method, review of literature, case study and interview with Darajat CDM team. More specifically it adressed the following research question: What contribution of Darajat Unit 3 CDM program in national GHG emission reduction?

The rationale of this qualitative approach was to explore and describe the experiences and perspective of Darajat CDM team in implementing CDM project. This study will contribute to the literature on the sources of Darajat Unit 3 CDM program implementation & best practices in contribution to national GHG emission reduction.

Result

Based on approved 2^nd crediting period renewal of PDD, approved on 5 Sep 2015, estimated amount of emission reduction from Darajat Unit 3 geothermal project is 753,136 tonnes CO₂ equivalent per annum. The methodology used was ACM0002 ver.16 – Grid-connected electricity generation from renewable sources with crediting period until 5 Oct 2019.

This estimated emission reduction (ER) was different compared to the 1^st crediting period of PDD, approved 2 November 2010, with estimated amount 717,391 tonnes CO₂ equivalent per annum. The changes due to the different method between ACM0002 version 6 and ACM0002 version 16.0 mainly due to the changes value of baseline Emission Factor (EF) at JAMALI grid from 0.754 tCO₂ per MWh (1^st crediting period) to 0.814 tCO₂ per MWh (2^nd crediting period) published by Department of Energy and Mineral Resources of Indonesia – Directorate General of Electricity and endorsed by Indonesia Designated National Authority (DNA). This EF value will not change for the each creditiong period after approved by UNFCCC Executive Board.

The emission reduction was calculated as follow:

ER_y = BE_y – PE_y – LE_y

Where:

• Baseline Emission (BE) are calculated as the product of the electricity produced by renewable generation unit, multiplied by an emission factor of the grid (BE = EG_PJ * EF). EG_PJ is the quantity of net electricity generation that is produced and fed into the grid as the result of the implementation of CDM project activity
• Project Emission (PE) for geothermal power plants are calculated PE from fossil fuel and PE from operation of geothermal power plants due to release of Non-Condensable Gases (NCG). PE from fossil fuel was not aplicable for this project. PE from operation are calculated of average mass fraction of carbon dioxide and methane and Global Warming Potential (GWP) due to release of steam produced (PE = {W_steam,CO2 + W_steam,CH4 * GWP_CH4})
• Leakage Emission (LE) was not considered in this project according to ACM0002 version 16.0
• Since the project is a capacity addition to an existing renewable energy power plant, then the EG_PJ is calculated as per formula (EG_PJ = EG_facility – (EG_historical + σ_historical); until DATE_{BaselineRetrofit}

Tabel 1. Summary of estimates of ER 2^nd crediting period

Table 1 shows the estimates total of ERs for 2^nd crediting period 14 Jun 2014 – 5 Oct 2019 are 4,000,906 tonnes CO₂ equivalent and total 5,021,734 tonnes CO₂ equivalent during 1^st crediting period 14 Jun 2007 – 13 Jun 2014 as per approved PDD (see Table 2). This estimated amount of ER shall be verified by Designated Operational Entity (DOE) on each monitoring period and approved by UNFCCC Executive Board to get Certified Emission Reduction (CER) issued by UNFCCC secretariat and published in their website.

Table 2. Summary of estimates of ER 1^st crediting period

Every monitoring report period, Darajat Unit 3 project as CDM participant asked DOE to conduct site verfification audit to verify that GHG emission reduction were calculated correctly on the basis of the approved monitoring methodology ACM0002 (version 6 and version 16.0). DOE verified all CDM equipments as data points during field audit on-site, include its equipment calibrations, maintenance history, and institution & personnel qualifications who conduct the calibration. DOE also verified the data of monthly electricity generation, steam analysis, NCG analysis, internal audit records, status and follow up of previous verification findings and ER calculation spreadsheet through desk review and on-site assessment including interview with relevant parties.

Closing out of verification findings was conducted to resolve any issues to be clarified prior DOE’s conclusion to ensure that project activity was implemented and operated in accordance with approved PDD and GHG emission reductions data and calculation were correct. Any corrective action request (CAR) or clarification request (CL) shall be followed up by participants before DOE complete the verification / certification report to be submitted to UNFCCC Executive Board to be reviewed and verified before CER issuance.

Darajat Unit 3 first CERs issuance 90,804 tonnes CO₂ equivalent was on 11 June 2009 for the Monitoring Report (MR) #1 period 14 June 2007 – 31 August 2007. Then on 25 May 2011, CERs of MR #2 and MR #3 were issued for period 1 September 2007 – 1 November 2008 and period 2 November 2008 – 31 July 2009. Starting MR #6 until MR #10 (end of MR of 1^st crediting period), MR verification audit by DOE were conducted every 6 months basis (semi annual).

Since MR #11, monitoring report verifications audit were conducted on annual basis with first CER issuance 761,593 tonnes CO₂ equivalent on the beginning of MR of 2^nd crediting period. MR #12 field verification audit by DOE was conducted on 20 – 21 December 2016 and currently as of 30 Jun 2017, the status is awaiting issuance request from UNFCCC secretariat. Summary of Darajat Unit 3 CER issuance can be seen in the Table 3 below.

Tabel 3. Summary of Darajat Unit 3 CER Issuance

According to UNFCCC CDM activities database as of 27 June 2017, with total CERs issued 5,459,498 tCO₂e from MR #1 until MR #11 has made Darajat Unit 3 geothermal project as the biggest CERs contributor from geothermal sectors around the world or about 49% CERs issued from this sectors. In Indonesia, the amount of total CERs contribution from Darajat Unit 3 is 62,5% of total CERs achieved from geothermal sectors and 19,6% of total CERs achieved from all sectors (solar, biomass energy, methane avoidance, cement, fugitive, landfill gas, hydro, etc) (UNFCCC, 2017).

With estimated annual CERs achieved from Darajat Unit 3 geothermal project were 717,391 tCO₂e and estimated average CER price USD 11 per tCO₂e, it was expected the revenue USD 7,8 million from CERs sells annually. In the approved 1^st crediting period PDD, it was stated that value of CERs obtained through the CDM process has a strong influence on the project’s economics and help to overcome some of the barriers / risks. The CERs could increase the annual revenue of the project up to 11%, the IRR of the project by up to 240 basis point, and the NPF by up to 20% (values as at investment funding decision in October 2004). The return will help to overcome the barriers to investment by improving the project’s economics and CDM component of the project was an important aspect in investment decision (CGI: 2015).

The CERs achieved from MR #1 with 90,804 tCO₂e was sold on July 2009 with the price USD 16,88 of CER/ton during sales (net after transaction fee). While CERs achieved from MR #2 with 737,846 tCO₂e and CERs achieved from MR #3 with 501,310 tCO₂e were sold on July 2011 with the price USD 6,33 of CER/ton during sales. The CERs achieved MR #4 and MR #5 sold on 2015 with the price less than USD 1 of CER/ton. The next CERs achieved from MR#6 onward have not been sold and awaiting for better CER price.

Some costs that need to be consider in running CDM project such as 1) Adaptation fund with total 2% CERs deducted by UNFCCC at issuance, 2) Registration fee to UNFCCC, 3) CER verification charges of fee payable to DOE for every verification, 4) Documentation cost include consultant’s fee, 5) Monitoring cost such as for NCG analysis and equipment calibrations, 6) Validation cost of fee payable to DOE for PDD validation. The CERs sales from Darajat Unit 3 still have positive revenue and able to cover the monitoring and verification cost eventhough the CERs price was fallen deeply (DNPI: 2014).

The fallen of CERs price because of the reduced emissions and the cap on the use of CERs for compliance by European Union Emission Trading System (EU ETS). The recession during 2009 and 2010 led to reduction in EU ETS installations’s emission, thus reducing the demand for European Union Allowances (EUAs), CER and other compliance units such as Emission Reduction Units (ERUs). Growh in the issuance of CERs (and ERUs) has increased the supply of compliance units. The price of CERs has fallen more because use of CERs and ERUs for compliance is capped and the EU has announced that this cap will apply up to 2020. Thus the demand for CERs for use for compliance by EU ETS installations is fixed, while the supply is increasing (Spalding-Fecher, 2012).

To date, EU ETS installations have used 1.45 GtCO₂e of CERs and ERUs to help them meet their compliance obligations, or 90% of the total 1.6 GtCO₂e allowed under that system between 2008 and 2020. If this trend persists. EU ETS installations are likely to exhaust their Kyoto credit quota in the next few years, leaving seller of Kyoto credits without their historically largest buyer (World Bank and Ecofys, 2015). Use of CERs by installations in the EU ETS for compliance has been the dominant use of CERs to date, accounting for almost half of the CERs issued (Spalding-Fecher, 2012).

To make Darajat Unit 3 CDM project running smoothly, more competitive and sustainable, some continual improvements are taken such as through:

1.liminate external consultant cost

On the beginning, Darajat Unit 3 CDM project engaged external consultant to have baseline study in the early stage of project’s planning. External consultant also engaged in establishment of 1^st crediting period of PDD until the MR #1 verification audit from DOE.

Transfer of knowledge from external consultant to Darajat CDM team through formal training, coaching, forming report template and field engagement were conducted. So, after MR #1 was completed and first CERs were issued, hand over from project team to Darajat Unit 3 operational team was transfered smoothly. MR #2 onward up to date including during establishment of 2^nd crediting period of PDD, Darajat Unit 3 was able to run CDM activity independently without external consultant. Through this elimination of external consultant, Darajat Unit 3 was able to reduce CDM operational cost.

2. Improve capacity building

Darajat Unit 3 CDM concerned on the capacity building of all team members. Regular refresher training was conducted to all members. If any new team members join, CDM introduction, coaching and on the job training were delivered by other team member who expertise on each area to new member. All leader of team member shall acknowledge and sign their members competency on certain CDM topics. Eventhough company organization structure changed dinamically, this process has made the Darajat Unit 3 CDM activity was running smoothly.

Team building actvity was conducted among CDM team members to improve team performance. Team building through informal outdoor activity, fun games including recognition and award program are designed to make all CDM team members more excited and keep in good motivation.

3. Standardized process

To standardized the Darajat Unit 3 implementation, Standard Operating Procedures (SOPs) and guidelines were established. There are 11 main SOPs as reference standard in running the CDM implementation to meet approved PDD, starting from SOP #1 on Monitoring Report Review until SOP #11 on Equipment Calibrations. Specific equipment calibration procedures of 23 CDM data points are integrated with the procedures from maintenance SOP.

4. Re-new verification audit contract

Starting from MR #1 until MR #9 verification audit, Darajat Unit 3 engaged DOE from overseas. The selection of DOE was conducted by corporate. Darajat Unit 3 team reviewed this opportunity to reduce the operational cost on verification audit. Darajat Unit 3 team began to find out candidates of next DOE through direct selection process and invited DOEs candidates from national & overseas companies since 2013. On 2014, new DOE from Indonesia was selected to change the existing DOE.

The new contract stated the monitoring period verification audit to be conducted on annual basis. The changes of verification audit period from semi annnual basis to annual basis has reduced the DOE verification audit cost. The total verification cost from new DOE was 45% much lower compared the previous DOE and it contributed in reducing operational cost with same quality and meet CDM requirements.

5. Conclusions

Eventhough the CERs price fallen in the carbon market, with the continual improvements, initiatives and best practices from Darajat Unit 3 CDM have resulted in positive revenue from CERs sales and contribute in national GHG emission reduction program. The new initiaves and best practices always explored to keep Darajat Unit 3 CDM project as the biggest CERs contributor both national and worldwide in geothermal sector. This CDM program from Darajat Unit 3 was aligned with the commitments of government of Indonesia to reduce its emission through renewable energy development especially in geothermal sector.

References

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Chevron Geothermal Indonesia (2015), “Project Design Document 0673: Darajat Unit III Geothermal Project”, pg.4.

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Kementrian Lingkungan Hidup (2016), “Intended Nationally Determined Contribution Republic of Indonesia”, pg.1.

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Spalding-Fecher, et al (2012), “Assessing the Impact of the Clean Development Mechanism”, pg. 23-56.

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UNFCCC (2017), “Project 0673: Darajat Unit III Geothermal Project”.

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World Bank and Ecofys (2015), “State and Trends of Carbon Pricing 2015”, pg.34.