Impact of project variables on tariffs required for economic development of geothermal projects

Abstract

The author participated in 2015 in a World Bank/ADB funded study of Indonesia’s geothermal sector, aimed at advising on revised tariff setting procedures. The study identified a lack within the government sector of a definitive financial model to cater for the very wide variation in parameters that could potentially affect the tariff required for economic development. EBTKE subsequently requested assistance in the preparation of a suitable model to support development of a variable tariff system. This model was prepared by the author and colleagues, with initial inputs from Arup of UK, but subsequently by the NZ team alone. The model has been recognized as realistic by EBTKE, Ministry of Finance, INAGA and the World Bank, although the corresponding tariff system was not eventually adopted by the government, who preferred a fixed tariff system based on PLN’s avoided generation costs. The model has subsequently been further developed and used to examine the impacts of technical, subsidy and other potential regulatory changes.
The developers have now used the model to examine the impact on required tariffs of a number of project parameters, including resource quality, project size in terms of total MW capacity and generating unit configuration, costs of drilling to various depths, the use of slim hole exploration techniques, who is carrying exploration risk, development by SOEs or private sector etc. While the specific model was developed for Indonesia, the principles should be valid for all areas provided suitable input variables and financial factors are used. Although the actual derived tariffs will require the underlying cost database to be revised to reflect post-COVID costs, the ratio of the various required tariffs, as presented in this paper, is expected to remain relevant and will provide guidance to developers and regulators of the areas which need the most consideration in planning development.