Legal, Regulatory and Financial Incentive Framework to Support Landfill Gas Power Generation Project Development Presented by Leiping Wang Senior Energy Specialist The World Bank Energy Team Workshop on Landfill Gas for Energy Bali, Indonesia

Issues for Landfill Gas Generation Project Development  Landfill gas is renewable energy – maybe more expensive than conventional power generation technologies; “big” PLN  Landfill gas power generation projects are small embedded generators – much smaller than “big” PLN  Landfill gas power generation project faces both down stream and up stream risks:  Upstream: Solid Waste Management  Downstream: Power Purchase Agreement with power purchasers  Landfill gas power generation technology is widely regarded as one of the “least-cost” renewable energy technologies;  Landfill gas power generation projects are close to load centres – less transmission and distribution costs

Renewable Energy Projects

Financing Mechanism Subsidy Targets Cost of investmentPrice of output Charges for Operations Tax-payer pays  direct capital subsidies  soft loans  VAT exemption  Import duty exemption  Accelerated depreciation  Tax holidays on income  Subsidies to exporters of RET equipment  Subsidies to R&D&D  topping-up premiums to producers  topping-up premiums to consumers  VAT/ duty exemptions  Green electricity purchases for public institutions Electricity Consumer pays  Grid reinforcement (deep connection costs) paid by utilities  Part of (shallow) connection costs paid by utilities  R&D&D of power utilities on wind energy/electricity system interfaces  Premium feed-in tariffs for RET electricity  Renewable portfolio standards with or without RETs  Green tariffs  Eco-taxes on alternative fuels  Wheeling tariff below the true opportunity cost of utility  Balancing costs charged to consumers not to generators  Use-of-system charges fixed below cost CO 2 credits  CO 2 certificate  CER revenue/kWh Financial Incentives to Renewable Energy Development – International Experience

PurposeSpecificationLegal Requirements Licensing Authority Tariff Setting Authority Self Use (Below 200 kVA) No need for any licenses Self Use (Above 200 kVA) Installation facilities located inter-province Must Obtain IUKKS, (electricity business license for self interest) Minister of Energy and Mineral Resources None Installation facilities located inter-district Governor having jurisdiction over PIUKKS’ operation areas Installation facilities located in the district Head of the district having jurisdiction over PIUKKS operation areas Public Interest On Grid (IPP), to sell to PLN Must obtain IUKKU (electricity business license for public interest) Minister of Energy and Mineral Resources PPA with PLN Off Grid, Inter-Provincial Minister of Energy & Mineral Resources Off Grid, Inter-District Governor having the jurisdiction over the PIUKKS operation areas Off Grid, in the district Head of the district (Bupati) having the jurisdiction over PIUKKS operation areas Licensing and Price Setting

Conditions for License Granting PurposeCondition Self UseThe license for self use electricity provision can be granted if:  PLN/PIUKK is not present in the respective area  The service of PLN/PIUKK is not in good and reliable quality  Prospective licensee can generate electricity more economical than then one by PLN/PIUKK Public Use The license for public use electricity provision can be granted if:  PLN is not present in the respective areas  PLN is under capacity to meet the demand  PLN need supply of capacity from IPP

Eligible Entities for Electricity Business License License TypeCooperativeBusiness Entities IUKKS: Electricity Business License for Self Use Any types of Cooperatives  Local Government Enterprise/BUMD  Private entities  Community  Individuals  Central Government Enterprise/BUMN  Other government institution IUKKU: Electricity Business License for Public Use  Local Government Enterprise/BUMD  Private entities  Community  Individuals

INVESTMENT FOR SMALL-SCALE ENERGY PRODUCERS  PSK Tersebar is designed to attract investments into small scale renewable energy for sale to the national grid.  Automatic purchase of power by PLN through Standardized contract based on set pricing formula  Significant shortcomings have led to only two contracts:  Scale is less than 1 MW  Rate is less than PLN cost of supply (60% or 80%)  The Power Purchase Agreement needs to be renewed each year  PLN basic costs also tend to fluctuate  Presents opportunity for Landfill Gas Investments, but requires improvements to decree.

Universal Pricing Policy Despite Varying Costs PLN expansion Focuses on Java-Bali & Sumatra… … where they would minimize losses PLN incentives are for Loss Minimizing rather than Maximizing Access

Additional Generation Capacity is Needed The gap between planned generation expansion and actual is widening… … while plant efficiency is likely to go down What sources will future energy supply come from?

Workshop on Landfill Gas for Energy Bali, Indonesia TERIMA KASIH! Further detail, please contact: Leiping Wang Migara Jayawardena Eka Putra