Opportunity and Challenges of CDM Projects

Opportunity and Challenges of Clean Development Mechanism Geothermal Projects in Indonesia to Contribute in National 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 6th Indonesia International Geothermal Convention & Exhibition 2018

ABSTRACT

Indonesia has renewable resources with potential more than 443 GW. Its potential such as hydro energy 75 GW, geothermal 29 GW, solar energy 207 GW, wind energy with 60.6 GW, and bioenergy with more than 102 GW. Indonesia is also known as a biggest geothermal resources in the world with total potential 29 GW at 312 areas in the ring of fire Sumatera, Java, Bali, Nusa Tenggara, North Sulawesi and Maluku. The government of Indonesia has commitment through Presidential Decree No.79/2014 on National Energy Policy to increase renewable energy. Renewable energy (include geothermal) currently only 7.7 % from the primary energy mix and targeted to minimum 23% or equal to 45 GW on 2025 (geothermal targeted to 7% by 2025)

Geothermal sector has contributed in national emission reduction from Clean Development Mechanism (CDM) projects with total 9,630,199 ton CO₂e or 29,94% of total certified emission reduction (CER). There are 13 CDM projects registered at United Nations Framework Convention on Climate Change (UNFCCC) secretariat and only 4 of them with CERs issued status. The biggest CERs issuance is from Darajat Unit 3 CDM project with total 6,260,609 ton CO₂e or 65% of total CERs issuance from geothermal project in Indonesia.

There are potential emission reduction 7,437,880 ton CO₂e / year from registered geothermal CDM project in Indonesia. Some improvement plan to be implemented to increase the amount of CERs from geothermal CDM project in Indonesia such as sharing best practice & knowledge among project participants to discuss the opportunity and challenges in CDM implementation.

INTRODUCTION

Indonesia, a country within the Southeast Asia countries, covers 790 million hectares (ha) with a total coastline of 81,000 km and land territory of about 200 million ha. It has approximately 13,667 islands which 56% of it are nameless and only 7% are permanently inhabited. The country population is the fourth most populous nation in the world, following China, India and the United States. The population grew from 119 million in 1971 to 219 million in 2005. It is projected that Indonesia’s population will reach 300 million in 2030 (KLH, 2010).

The increasing growth of population has led to the increase of energy consumption. Increasing of energy consumption shall provide energy sources to meet the energy needs whether from renewable or non-renewable energy sources. The use of non-renewable energy especially from fossil fuel energy has increased the potential of global warming.

Climate change is largely result of anthropogenic greenhouse gas (GHG) emission. Under the most pessimistic emission scenario developed in IPCC 2000, by the end of this century temperature could rise to more than 4 ⁰C above 1980-1999 levels. This would have serious consequences for the world’s growth and development (ADB, 2009).  

Southeast Asia with 563.1 million people is the most vulnerable region to climate change. Increasing trend in mean surface air temperature with a 0.1-0.3 ⁰C increase per decade recorded between 1951 and 2000. Rainfall has been trending down and sea levels up (at the rate of 1-3 millimeters per year), and the frequency of extreme weather events has increased such as heat waves are more frequent; heavy precipitation events rose significantly; and the number of tropical cyclones was higher during 1990-2003. Climate change is also exacerbating water shortages in many areas, constraining agricultural production and threatening food security, causing forest fires and degradation, and increasing the risk of outbreaks of infectious diseases. In 2000, Southeast Asia contributed 12% of the world’s GHG emissions, amounting to 5,187 MtCO₂e, an increase of 27% from 1990 and it is faster than the global average (ADB, 2009).

According to Indonesia’s Second National Communication of 2010, GHG emission in Indonesia were estimated to be 1.8 GtCO₂e in 2005. Most emissions (63%) are the result of land use change and peat and forest fires while combustion of fossil fuels contributing approximately 19% of total emission (KLHK, 2016)

Mitigation strategies are available in both the energy supply and demand sectors. On supply side, major options such as by using of renewable energy including biomass, solar, wind, hydro and geothermal resources. On the demand side, implementing energy efficiency is the key such as use of more efficient lighting and electrical appliances in residential and commercial building sector; use of more efficient boiler, motors and furnaces, fuel switching and material recycling and substitution in industry sector; switching to cleaner fuels, use of fuel-efficient vehicle and better traffic management in transport sector (ADB, 2009).

Indonesia has voluntary pledged to reduce emission by 26% on its own efforts and up to 41% with international support against the business as usual scenario by 2020. In energy sector, Indonesia has established the development of clean energy sources as a national policy directive to put this country on the path to de-carbonization in line with GHG reduction. (KLHK, 2016).

Indonesia has signed the United Nations Framework Convention on Climate Change in Rio de Janeiro on 1992 which was then ratified in 1994 through Law No.6/1994. In this framework, the countries divided into 2 groups which are Annex I and Non-Annex I countries. Annex I countries are the developed countries contributed to GHG emission since industrial revolution. Non-Annex I countries are developing countries excluded in the Annex I which less contribution to GHG emission. Indonesia is part of Non-Annex I countries. Under this framework, Indonesia has committed to fully implementing the framework and have the right and obligation to get support offered by UNFCCC to achieved its goal. To run the framework, UNFCCC formed the highest decision board which is Conference of Parties (COP). COP has annual meeting for all UNFCCC members and serving as meeting of parties to the Kyoto Protocol (CMP). In the third session of the COP (COP-3) at Kyoto, Japan, on 1997, there was consensus to adopt Kyoto Protocol as a framework for climate change. In Kyoto Protocol, Annex I countries legally binding to reduce their GHG emission at least 5% from emission level on 1990. Indonesia also signed and ratified it through Law No.17/2004. Under Kyoto Protocol, there are three flexible mechanism to reduce emission: Emission Trading (ET), Joint Implementation (JI) and CDM. Through this ratification, Indonesia able to participate in one of Kyoto Protocol mechanism which is CDM (DJPPI, 2016).

In COP-21 UNFCCC conducted meeting at Paris on 30 November – 12 December 2015. Total 196 countries agreed to adopt the Paris Agreement. Paris Agreement goal is to mitigate the global temperature below 2 ⁰C from pre-industrialization and effort to reduced it until below 1.5 ⁰C, and to improve the adaptation ability of negative climate change for low emission development (DJPPI, 2016).

Energy supply mix is still dominated by coal (57.22%), gas (24.82%), hydro (7.06%), fossil fuel (5.81%) and geothermal & other renewable resources (5.09%). Electrical consumption in 2017 was 1,012 kWh per capita or increase compared to 2016 with 956 kWh per capita. For the first time, Indonesia reached electrical consumption above 1,000 kWh per capita. It is one of indicator on economic growth (MEMR, 2018).

Indonesia has renewable resources with potential more than 443 GW. Its potential such as hydro energy 75 GW, geothermal 29 GW, solar energy 207 GW, wind energy with 60.6 GW, and bioenergy with more than102 GW (MEMR, 2018). Indonesia is also known as a biggest geothermal resources in the world with total potential 29 GW at 312 areas in the ring of fire Sumatera, Java, Bali, Nusa Tenggara, North Sulawesi and Maluku. Geothermal is clean, environmental friendly and sustainable energy resources (EBTKE, 2015). Table 1 show installed capacity per December 2016 per island location (EBTKE, 2016).

Table 1. Distribution of geothermal installed capacity

Source:  EBTKE, 2016

Total installed capacity of geothermal plant in Indonesia in 2017 is 1,808.5 MW which came from additional installed capacity of geothermal plant of Ulubelu 4 with 55 MW and operational start of Sarulla 2 with 110 MW. On 2018, additional install capacity from geothermal was targeted to 2,058.5 MW (MEMR, 2018).

CDM project from geothermal projects in Indonesia has contributed in national GHG emission reduction. It has reduced 9,630,199 ton CO₂e (29.94%) from total CERs issuance from UNFCCC secretariat. Table 2 showed CDM register status from geothermal projects in Indonesia. There are 13 CDM projects registered with total amount of reduction is 7,437,880 ton CO₂e / year (UNFCCC, 2018).  

Table 2. CDM register status from geothermal projects in Indonesia

Only 4 of 13 (30.77%) from registered CDM projects have got CER issuances from UNFCCC secretariat.  It means those CDM projects have been run and verified by Designated Operational Entity (DOE) as per approved Project Design Document (PDD). The CER issuance amount of CDM project from geothermal sector is described in the Table 3.

Darajat Unit 3 geothermal project is a pioneer of CDM project in Indonesia. Its initial registration request was on 26 September 2006. The second CDM registration was from Lahendong II-20 MW Geothermal Project with the initial registration request was on 4 August 2009 and then followed by registration of CDM project from Kamojang Geothermal Project and Wayang Windu Phase 2 Geothermal Power Project on 2009.

The next CDM registration was on 2012 starting from Patuha Geothermal Project, Project Ulubelu Unit 3-4 PGE and lastly Project Karaha Unit I PGE. Lahendong Unit 5 & Unit 6 Geothermal Project, the registration request was on 11 Jan 2013 but until July 2018 the status is still Pending Publication and was not registered yet as CDM project. Another CDM project is Sibayak Geothermal Power Plant, the start validation was on 27 August 2008 and the current status is Validation Terminated. It means the total registered CDM project from geothermal sector in Indonesia is 13 projects.

(Read: GHG Emission Reduction Initiative at Darajat)

METHOD

This research is descriptive qualitative method to describe and explain the opportunity and challenges of CDM geothermal project in Indonesia by data collection method, review of literature, and interview & discussion. The rationale of this qualitative approach was to explore and describe the experiences and perspective of some CDM projects participants to contribute in national emission reduction.

Best practice sharing session among CDM participants already conducted in April 2018. This session was coordinated by Pertamina Geothermal Energy (PGE) and attended by geothermal company under PGE joint operation contract. There was no competition in this CDM project, and some of companies share their best practice and CDM update. Star Energy Geothermal Darajat II, Limited (SEGD) sharing on Darajat Unit 3 CDM project while Star Energy Geothermal (Wayang Windu) Ltd sharing on Wayang Windu Unit 2 CDM project experience including their Voluntary Emission Reduction (VER) program and PGE sharing on progress of all CDM project under PGE.                     

This study will contribute to the literature on the sources of geothermal project as a lower emission energy sources and its initiative GHG emission reduction program implementation & best practices in contribution to national GHG emission reduction.

RESULT & DISCUSSION

Even though there are 13 registered CDM project from geothermal power plant in Indonesia, but only 4 of them already got CER issuance from UNFCCC secretariat. The highest CDM project was from Darajat Unit 3 project with 65% of total CER issuance from geothermal sector. The second highest is from Wayang Windu Phase 2 Geothermal Power Project with 32% from total CER issuance. The detail CER issuance from geothermal sector is described in Table 3.

Table 3. CER issuance of CDM project from geothermal sector in Indonesia

Source: UNFCCC, 2018

There are some reasons why CDM project from geothermal sectors in Indonesia were not run smoothly mainly due to some projects have not been implemented and some registered project have not completed verification audit on their CDM monitoring report. There are 3 CDM project with status those projects have not been implemented which are: Gunung Rajabasa Geothermal Power Plant, Liki Pinangawan Muaralaboh Geothermal Power Plant and Rantau Dedap Geothermal Power Plant.

Kamojang Geothermal CDM project with installed capacity 60 MW, the current status is that verification contract has been terminated since 12 August 2015.  Last day of the las monitoring period was on 28 February 2011 with total CERs issuance was 92,691 ton CO₂e with latest issuance on 18 November 2011.

The first crediting period of Darajat Unit 3 CDM project end was on 13 Jun 2014 and has been renewed to UNFCCC secretariat. Its second crediting period currently renewed become 14 Jun 2014 – 5 Oct 2019 with amount of emission reduction based on approved PDD is 753,136 ton CO₂e / year. The last day of the last monitoring period was 30 June 2016 with total CERs issuance 801,111 ton CO₂e (period 1 Jul 2015 – 30 June 2016). The CERs issuance on 18 August 2017.

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 CERs issuance 761,593 ton CO₂ equivalent on the beginning of MR of 2^nd crediting period (Muhyidin, 2017). Summary of Darajat Unit 3 CERs issuance can be seen in the Table 4 below.

Tabel 4. Summary of Darajat Unit 3 CER Issuance

Source: UNFCCC, 2018

Wayang Windu Phase 2 Geothermal Power Project with total CERs issuance was 3,060,595 ton CO₂e or 32% from total CER issuance in Indonesia from geothermal sector currently is still in progress of renewal of second crediting period. MR #6 with total CERs 1,678,445 ton CO₂e is currently awaiting issuance request. Table 5 showed summary CERs issuance from MR #1 – MR #6. Commercial Operation Date (COD) of Wayang Windu Phase 2 is on 4 Mar 2009 while their CDM registration was on 2 December 2010, so during that period the CERs cannot be claimed into CDM project under UNFCCC. Carbon credits developed by carbon offset which are not yet certified called Voluntary Emission Reduction (VER). The opportunity to commercialize the real and verifiable reductions for project which have not been operational prior the successful registration at UNFCCC secretariat. In this case, emission reduction from the COD to the registered date was under VER. The VER has been verified by external parties so it can be commercialized as carbon trading.

Tabel 5. Summary of Wayang Windu Phase 2 Geothermal Power Project CERs Issuance

Lahendong II-20 MW Geothermal Project already 3 MR that have been verified by DOE with total CERs issuance are 216,304 ton CO₂e. MR period 1 January 2013 – 18 December 2016 (first crediting period) has not been verified by DOE. Estimated total CERs as per approved PDD from Lahendong CDM project is 66,713 ton CO₂e / year.

Tabel 6. Summary of Lahendong II-20 MW Geothermal Project CERs Issuance

Source: UNFCCC, 2018

Even thought, CDM project from geothermal sector have opportunity to get some fund from carbon trading and can contribute to national emission reduction, some challenges to run this project shall be handled properly. Some challenges of CDM geothermal project in Indonesia were: a) financial barriers, b) carbon market, c) international CDM regulation and policy, d) capacity building and knowledge, e) local regulation and policy, and f) unspecific domestic policy related to CDM (DNPI, 2014).

Current situation of registered CDM project from geothermal sectors are described to explore the challenges and figure out the best practice to solve it. There are 3 of registered CDM project from geothermal sectors which have not been implemented. They are Gunung Rajabasa Geothermal Power Plant, Liki Pinangawan Muaralaboh Geothermal Power Plant, and Rantau Dedap Geothermal Power Plant.

Gunung Rajabasa Geothermal Power Plant was operated by PT Supreme Energy Rajabasa (SERB). This CDM project was registered since 30 May 2012 same with Liki Pinangawan Muaralaboh Geothermal Power Plant. SERB has started the engineering design for civil constructed since August 2012. On April 2014, SERB just receive Borrow Use Permit of Protection Forest (IPPKH) permit from the Ministry of Forestry. This permit is a final requirement for the commencement of construction work in the area of the protection forest (SE, 2018)

Liki Pinangawan Muaralaboh Geothermal Power Plant was operated by PT Supreme Energy Muara Laboh (SEML). By the end of 2013, SEML has completed the exploration drilling program covering 6 wells. In 2014, construction of admin and accommodation building was completed on September 2014. By the end of 2015, SEML has completed the Engineering, Procurement, and Construction (EPC) tender process, and construction of geothermal power plants began in 2016 and estimated electricity production in 2019 (SE, 2018).

Rantau Dedap Geothermal Power Plant was operated by PT Supreme Energy Rantau Dedap (SERD). This CDM project has been registered since 24 July 2012. By the end of 2013, about 14 kilometers of road has already been opened and civil construction has been finished its original scope on July 2014. In November 2014, SERD reached financial closing to get USD 50 million facility agreement from the Asian Development Bank (ADB) supported by the Clean Technology Fund, for the exploration of Rantau Dedap geothermal project. The exploration drilling continued until early 2015 and completed 6 wells. In 2016, SERD completed the feasibility study report, and EPC tender.

The current challenges of Darajat Unit 3 Geothermal Project are on the transition of project participant names due to divestation process. Formerly the project participants from the host party (The Government of Indonesia) are Chevron Geothermal Indonesia, ltd and PT Darajat Geothermal Indonesia. After divestation, the project participant become Star Energy Geothermal Darajat II, limited (SEGD). While project participants from other party (The Government of the United Kingdom of Great Britain & Northern Island) are Chevron Limited and Chevron Products.

Since April 2017, SEGD as new operator of Darajat Unit 3 Geothermal Project was in progress of changing the project participant name including coordinated with UNFCCC, Government of Indonesia and Chevron. The MR #13 and MR #14 currently cannot be submitted to DOE for verification, due to the participant name has not been changed formally.

Lahendong II-20 MW Geothermal Project and Wayang Windu Phase 2 Geothermal Power Project are currently in progress of renewal for second crediting period in its CDM project. The end of first crediting period of Lahendong II-20 MW Geothermal Project was on 18 December 2016 while Wayang Windu Phase 2 Geothermal Power Project ended its first crediting period on 1 December 2017.

Past experience from Darajat Unit 3 Geothermal Project on its journey of second crediting period approval, it takes about 2 years since formal notification to UNFCCC secretariat on 10 December 2013 until renewal date of PDD approval from UNFCCC secretariat on 5 September 2015. It took time especially on preparing contract for consultant service, interview validator with CDM members, Ministry of Energy and Mineral Resources and National Council for Climate Change (DNPI) until supporting document and submit renewal of PDD report to DOE.

Patuha Geothermal Project was operated by PT Geo Dipa Energi. This project was registered since 12 December 2012. The estimated CERs from this CDM project based on approved PDD was 263,851 ton CO₂e. Currently there is no CERs issuance from this project that has been verified by DOE.

The rest of registered CDM projects under PT Pertamina Geothermal Energy (Project Ulubelu Unit 3 – 4, Project Lumut Balai Unit 1 – 2, Project Lumut Balai Unit 3 – 4, Project Kamojang Unit 5, and Project Karaha Unit 1) have not got CERs issued due to those project have not been verified by DOE. These projects have been upgraded to Gold Standard CDM project since February 2013. The Gold Standard is a standard for creating high quality emission reduction projects in the CDM, Joint Implementation (JI) and Voluntary Carbon Market. Its objective is to add branding, a label to existing and new carbon credits generated by projects which can then be brought and traded by countries that have a binding legal commitment according to the Kyoto Protocol.

Sarulla Operation, one of the geothermal project that already reached full commercial operation of its 3×110 MW, have not been registered yet as CDM project at UNFCCC secretariat. The commercial operation of the first unit was operated on 18 March 2017, the unit 2 in November 2017 and unit 3 in May 2018. The potential of CERs from this geothermal project will be more contribute in national emission reduction.

CONCLUSION

CDM project from geothermal sectors in Indonesia has significant contribution to national emission reduction. Current CERs from all geothermal sectors was 9,630,199 or 29.94% of all total CERs from all sector include biomass, cement, fossil fuel switch, hydro, methane avoidance, etc.

Only 30.77% of registered CDM projects achieved CERs issuances from UNFCCC secretariat. It means still have opportunity from all registered CDM project from geothermal sector to get more CERs to contribute in national emission reduction program.

Regular best practice sharing and discussion among CDM project participants need to be conducted to update and share best practice among participants so that CDM project implementation can be run smoothly and higher CERs can be achieved.

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