#1ADB ADB-PLN Electrical Grid Strengthening Program: Ongoing and Planned Support 23th Feb 2021 1#2| ADB Energy Sector Support to Indonesia. Date 23rd Feb 2021 Transmission & Distribution Renewables Power Generation Sustainable and Inclusive Energy Sector in Indonesia Carbon Capture & Storage Energy Efficiency Natural Gas Analytics and Awareness Mainstreaming Energy Security, Energy Access, and Clean Energy Considerations Financing Clean Energy and Sustainable Infrastructure ADB's Lending Pipeline in Indonesia for 2021-2023 to support over USD 3 billion in financing. ADB 2#3| ADB Results-Based Lending for Grid Strengthening. TITLE Electricity Grid Strengthening Sumatra $600 million ADB ($25 million AIF); Approved: 2 Dec 2015 SCOPE ADB • First ever result-based lending (RBL) program in the energy sector in any country. Upgrading of existing SS and reconductoring of existing TLs. • New mid-voltage and low-voltage distribution lines. Sustainable Energy Access in Eastern Indonesia (SEAEI) - Electricity Grid Development Program (EGDP) $600 million ADB; Approved: 14 Sep 2017 SEAEI - Electricity Grid Development Program, Phase 2 (EGDP 2) $600 million ADB Approved: 8 Nov 2020 Sustainable and Reliable Energy Access Program (SREAP) $600 million ADB Approval: [Q4 2020] Date 23rd Feb 2021 • ● Strengthening and expanding distribution system in Nusa Tenggara and Sulawesi. Smart grid pilots considered to help improve power quality and increase use of renewable energy. Grant TA for independent verification. · . • • Strengthening / expansion of the distribution system in Kalimantan, Maluku and Papua. Small solar PVs. Participatory electrification programs with gender targets. Transmission and distribution strengthening in Banten, DKI Jakarta, West Java, and Central Java-Yogyakarta. Transmission losses reduction and line reconductoring. Distribution lines rehabilitation, extension, loss reduction. Jawa-Madura-Bali control centre modernization. • Increase the number of remote-controlled distribution switchgear. 3#4|West Kalimantan Power Grid Strengthening Project Cost: $130m Financing $99 million ADB (including 49.5 million co-financing from AFD); $2.0 million TA (grant from CEFPF) Approval: 27 Aug 2013 . . SCOPE 230 MW 83 km cross border transmission interconnection P1: 275 kV transmission line(TL) from Bengkayang to Jagoibabang . 150 kV TL from Bengkayang to Tayan • 150 kV TL from Tayan to Sekadau ( using loan saving) • Associated substations (SS) PLN energy purchase: 50 MW base load take or pay + 180 MW 6 hours take and pay = total 650GWh/yr PLN purchase price: 60% cost savings/KWh PLN savings: estimated $100m/yr Performance guarantee: to help fast track project $35m with $25k/day delay cost interconnection agreement signed on 30 June 2013 Jagoibabang 275/150 kV Bengkayang SS WEST KALIMANTAN, INDONESIA Date 23rd Feb 2021 20 kV Ngabang SS 150/20 kV Sanggau S$ Legend 150/20 kV Sekadau SS 150/20 kV Tayan SS International Borders :275 kV Transmission line : 150 kV Transmission line 275 kV Substation 150 kV Substation ADB 4#5Java-Bali 500 kV Power Transmission Crossing Financing Project Cost: $249 million) $20.84 million ADB (including $2.08 million co-financing from AIF), plus parallel co-financing from KfW Approval: 3 Dec 2013 Transmission of power from East Java to Bali at 500 kV optimal solution to improve the power supply in Bali based on least-cost power system studies. Coupling Bali with more efficient generation capacity in Java, transmitting power from Java would be a more technically and economically feasible option before installing new generation plants in Bali given demand growth in Bali. • • SCOPE Extension/upgrading of 11 existing SS New 500/150 kV SS - cancelled • 500 kV TL crossing the Bali Strait (KfW and PLN) with a total transmission capacity of 3,600 megavolt-amperes (MVA) with power capacity of 3,000 MW - cancelled yeman Kraksaan Probolinggo Component 1. Paiton 500 kV SS extension (ADB) Lumajang Tempeh Kunir Date 23rd Feb 2021 Nusa Barung Paiton Besuki Situbondo Component 2. 500kV Paiton to Watudodol TL, 131 km (ADB) Leung Component 3. 500 kV OHL Bali Strait crossing, 4km (KfW) Gn. Raung Jember Genteng Watudodol Segara Rupek Kalipuro Banyuwangi Component 4. 500 kV Segara Rupek to Gilimanuk TL, 10km (PLN) Gilimanuk Negara Taman Nasional Meru Betiri Kesilir Gradjagan SINGARAJA Component 5. 500kV Gilimanuk to New Kapal TL, 75 km (ADB) Pulu Antosari Component 6. Antosari 500/150 kV new SS (ADB) BALI ADB 5#6Investment planning has neglected networks leading to higher ADB costs and inadequate reliability. Unrealistic demand and generation planning led to greatly exceeded reserve margins Meanwhile, inadequate networks mean that service quality remains poor in many regions. Capacity (MW) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 50% Aceh 45% 40% 35% 30% 25% 20% Margin (%) Kep. Riau Kalimtan Utara Sumatera Utara Kep. Riau uku Utara Kalimantan Timur dlawesi Utara Kalimantan Barat Sororitdi Sumatera Barat Sulawestengah Kalimantan Tengah Sulawesi Barat Ben Sumatera Selatan tan Selatan 1 Sulawesi Selatan Sulawesi Tenggara Lambung DKI Jakarta Banten Jawa Bara Jawa Tengah Jawa Timur D. I Yogyakarta Nusa Tenggara Barat 30,000 20,000 15% 10% SAIDI [hours/year] < 6 Highly Satisfactory 10,000 5% 6-12 Satisfactory 12-24 Marginally Satisfactory 0 0% 24-36 Unsatisfactory 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 >36 Highly Unsatisfactory Existing (Derated) Ongoing and Committed Planned Target reserve margin Planned reserve margin Source: RUPTL 2019-28. Date 23rd Feb 2021 Source: Processed based on Statistik PLN 2018 Source: PLN Statistics 2018. Papua Barat Papua#7Need for Transmission Investment in Indonesia. 1 RUPTL 2019, identified additional transmission lines of 57,000 km, and sub-station transformer capacity of 124,000 MVA by 2028. Need to carefully assess what is really needed to avoid costly overbuilt. 2 ADB New transmission grid investments needed in Sumatra, Kalimantan, Java for intra-regional connection and reliability. EHV (km) Vietnam -500kV+220kV Indonesia - 500kV+275kV (EVN annual reports) (PLN statistics) 3 Inter-regional grid strengthening needed for example in Java/Bali to accommodate new generation. 2014 19,285 6,427 2018 24,876 8,531 Change (2014-18) 5,609 2,104 5 Introduction of "smart grid" technologies will require new investment in substations, control centers, etc.. 4 Date 23rd Feb 2021 Integration of renewable energy presents challenges: Geographical dispersion Small, multiple projects Need to smooth out variability in large geographical areas 7#8Transmission Investment Challenges. Date 23rd Feb 2021 Changing context Energy policy, medium and long-term planning of PLN, demand projection. " " Land acquisition securing land and forestry permits, and rights of way from the government. Planning If planning is not done well, public or private projects can lock in long-term financial obligations for under-used assets 180 Local content requirement increasing project cost, not in accordance with the lender's procurement policy. Safeguards In particular environment, indigenous communities, and other compliance issues. Capacity building and information management organizational changes, staff turn over, project supervision. ADB 8#9Transmission Financing Overview. • PLN CAPEX for EPC: based on state budget infusion. based on corporate lending. with multilateral funding (local content). PPP using build-lease-transfer and limited concession scheme as now permitted • Private investment in transmission is widespread in middle income countries (MICS) and new PPP transmission projects are being implemented in many MICs. All financing routes need to be based on comprehensive and detailed technical, environmental, political/legal, financial assessments are needed to make the business case. Date 23rd Feb 2021 ADB 9#10| Conventional - PPP Comparison. Conventional Procurement VS PPPS . • • . PLN can meet its transmission needs with conventional borrowing and traditional EPC construction. PLN has the experience, know-how, and staff to build transmission in Indonesia. Total life-cycle costs of the new transmission assets are not fully transparent and difficult to evaluate with government projects. In Brazil, India, Peru, etc., overall value for money judged to be less than that of PPPs. . Indonesia's PPP rules require qualitative & quantitative value-for-money analysis to fully & transparently justify projects. Indonesia's PPP process is time consuming. Preparation plus competition lowers private sector costs but there is local content. PPPs take on (and pay for) many project risks that can increase project costs. Total life-cycle costs often lower than for conventional procurement, which increases value for money. Date 23rd Feb 2021 ADB 10#11Summary Financing of transmission. Date 23rd Feb 2021 State-budget infusion cheapest option for PLN to fund new transmission. FINDINGS Multilateral funding more expensive but cheaper than corporate loans and have longer maturity. Adopting PPPs for transmission may be better value for PLN than borrowing but cost will depend on risk and PLN's ability to increase revenue from new transmission lines. There is a lack of an evidence base for PPPs as no value-for- money studies have been conducted to date. Conduct a VFM analysis for the high priority projects before deciding on the financing route. ADB 11#12ADB Thank you 13