0023pi power insider volume 3 issue 5 aw2 lr copy by Pimagazine Asia

A S I A’ S L E A D I N G P O W E R R E P O R T

VOLUME 4 ISSUE 2

POWER STRUGGLE

TH E MA NY R E A S O N S WHY INDONESIA HAS PROBLEMS

FUEL CELLS WE SPEAK WITH ELCOGEN

STEAM TURBINES C AUSES FOR R OTOR MISSALIGNMENT

SPECIAL REPORT

FUTURE TIME FOR TECHNOLGY TO TAKE A STEP FORWARD?

ENHANCING ENERGY RETROFIT OF GAS TURBINE INTAKES

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Editors Note Welcome to another exciting edition of Pimagazine Asia. Well, its certainly been an exciting time in Asia’s energy markets over the past few months, with proposed mergers, acquisitions and big deals, it appears that the only market to be in at the present time is indeed Asia. For this edition we cover many bases as usual, from Data centres, LNG, Coal fired technology, Fuel Cells and of course water treatment, plus our regular features We have compiled a monster study on the Indonesian market, and when I say monster, have a look at the coverage! It gives you the low down on struggles, challenges and opportunities that exist for all, but also very interesting oversight and information. This is the a result of some causes, including: The lack of investment in power generation due to the financial condition prior to 2009, The delays in completion of works to serve the growing demand for investment, and the decrease in performance as a result of the limited equipment maintenance activities that cannot meet the level of quality of service. The situation of the electricity sector infrastructure has not been adequate, where demand continues to increase, while the internal funds to support the investment are still insufficient. In addition, many IPP projects were rescheduled and even stopped for reasons of funding disability.

In addition to the power generation, the increasing demand for electrical energy will put pressure on the transmission and distribution. Electricity supply and increasing electrification ratio in the underdeveloped provinces are very important as the availability of electricity in an area is closely related to the area’s progress rate. Lack of availability of electricity and low electrification ratio in an area will hinder the progress in other fields. Other highlights in this edition include a look at the design of smart meters with Texas Instruments, Sustaining growth in Asia in an unsustainable region, a market view of the use of LNG as a viable option to meeting fuel needs, the growth of large and mega data centres in Asia and the need for reliable back up, how to ensure exceptional PV performance. We have some fantastic interviews with Elcogen about Fuel cell technology, and some great contributions from Aggreko and Ansaldo. Its another jam packed issue, wed love to know what you think about the publication and even improvements we could make. Don’t hesitate to contact us via our website, Twitter feed, LinkedIn or Facebook page to voice your opinion, offer your services or provide an article.

Charles Fox, Editor

SKS Global Limited, 28 Burley Grove, Mangotsfield, Bristol, England, BS16 5QA T: +44 (0) 1179 148429 F: +44 (0) 1179 608126 E: info@sks-global.com W:www.sks-global.com, www.pimagazine-asia.com SKS Global Power Insider Asia magazine is published bi-monthly and is distributed to senior decision makers throughout Asia and the Pacific. The Publishers do not sponsor or otherwise support any substance or service advertised or mentioned in this book; nor is the publisher responsible for the accuracy of any statement in this publication. Copyright: the entire content of this publication is protected by copyright, full details of which are available from the publisher. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electric, mechanical, photocopying, recording or otherwise without the prior permission of the copyright owner.

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Contents

Inside This Issue

Regulars

Features 39

Smart Gas and Water Meters

News The latest headlines

Case Study Sustaining growth amid unsustainable shortage

Country Focus The power struggle in Indonesia

Case Study Frost & Sullivan

Ensuring Exceptional PV Performance with insolar

Straightening A Rotor, Ansaldo Energiaâ&#x20AC;&#x2122;s Experience

Upcoming Events

Case Study Enhancing energy

Mycommeter Detecting Bacteria

04 | POWER INSIDER VOLUME 4 ISSUE 2

Interviews & Opinions 60

Future Technology Speaking with Elcogen

Regulars

News Desk

Thailand EGAT will add another 2 power plants to the grid in order o secure the stability of electricity demand

China Sinovel begins work on the 102MW Lingang project, supplying 17 6MW turbines

News from around Asia The past 2 months have been interesting times in Asia. As per usual, the region has been faced with more rolling blackouts highlighting the desperate for energy throughout. Southeast Asia has a high gross domestic product, escalating population and rural electrification drives, its very energy hungry. The region is energy rich from hydro, oil, gas and renewables; however, its electricity grids are unable to handle additional loads.

Philippines Vestas secures two wind turbine contracts for 21 V90-3.0mw turbines

To better meet the soaring demand for electricity, utilities are investing in large-scale transmission and distribution (T&D) infrastructure development and thereby, giving a huge boost to the high voltage (HV) transmission market. Electric utilities in Indonesia, Vietnam and Myanmar have already laid out extensive power generation plans. As you will see with this months news stories, the market is beset by project delays due to financial constraints. Keep up to date with our news online; www.pimagazine-asia.com

06 | POWER INSIDER VOLUME 4 ISSUE 2

India GE makes a $16.9 billion bid to acquire the energy assets of Alstom India T&D

India

Malaysia

Alstom make market gains after securing a contract from BHEL for close to 30 Billion Euro to supply the Banharpalli STPP

Tenaga Nasional Bhd (TNB) signed a memorandum of understanding with Trilliant for supply of smart energy

Regulars

Country Focus - Power Struggle

the indonesian power struggle not enough capacity, unstable, lots of blackouts Referring to 2012-2021 PLN Plan to Develop Public Electric Power (RUPTL) demands for electricity would grow at 8.65% per year on average. the government has assigned PLN to build 26 power plants using renewable energy, coal and gas, along with the 12 transmission projects related to this, and also 72 power plants in cooperation with private electricity developers along with the 47 transmission projects related to this. This is the a result of some causes, including:

8 | POWER INSIDER VOLUME 4 ISSUE 2

The lack of investment in power generation due to the financial condition prior to 2009. The delays in completion of works to serve the growing demand for investment. The decrease in performance as a result of the limited equipment maintenance activities that cannot meet the level of quality of service. The situation of the electricity sector infrastructure has not been adequate, where demand continues to increase, while the internal funds to support the

investment are still insufficient. In addition, many IPP projects were rescheduled and even stopped for reasons of funding disability. In addition to the power generation, the increasing demand for electrical energy will put pressure on the transmission and distribution. Electricity supply and increasing electrification ratio in the underdeveloped provinces are very important as the availability of electricity in an area is closely related to the area’s progress rate. Lack of availability of electricity and low electrification ratio in an area will hinder the progress in other fields.

should be simple, add more capacity, but there are lots of obstacles slowing the progress However, delays in capacity development (including with Independent Power Producer (“IPP”) projects-discussed further below) have meant that Indonesia is actually struggling to provide electricity for its current needs. This under supply, compounded by Indonesia’s geographic complexity, means that Indonesia has, at about 66% in 2009, one of the lowest electrification ratios in the region. There are around 20 million households, or 80 million people, who currently have no access to public electricity. The historical reasons for this relative underdevelopment include: a) The low take up in the use of primary energy sources especially for natural gas, geothermal and renewables. This low take up has been

primarily due to the lack of development of distribution and transmission infrastructure (e.g. gas pipelines, coal transportation routes, distribution networks, etc.) which are necessary to bring the feed stock together with the generating assets, and onwards to the consumer. This is especially the case for the areas outside of the islands of Sumatra, Java and Bali; b) The historical difficulties in obtaining land for electricity assets including the necessary land use rights and achieving the associated land clearing; c) The lack of a robust regulatory framework especially to allow access to project-based financing in the international market place. On this point, a particular concern has been the absence of sovereign or similar guarantees over the key revenue streams; d) The lack of market pressures yielding profitable prices due to subsidies that cause power to be sold at prices less than the fuel cost of power generation.

Regulars - Power Struggle cheap chinese equipment China Power Investment Corporation has unveiled a plan to invest US$17 billion in developing 7,000 MW of hydroelectric power in Indonesia’s North Kalimantan region. The Chinese state-owned utility said the unnamed hydropower project will be constructed in stages along the Kayan River, with work hoped to begin next year. Indonesia, the region’s largest domestic market with 240 million people, is set to be the major “gold rush” destination for Chinese businesses striving for overseas expansion. Shanghai Electric, the country’s top power equipment maker, tapped into the Indonesia market as early as 2007 with a coal-fired power plant worth $891 million with three generating units providing a capacity of 350 megawatts each in Indonesia’s beach-resort town of Pelabuhan Ratu. China has emerged as Indonesia’s third largest trade partner. During the first nine months of this year, China’s trade volume with Indonesia was up 56 percent at $30.4 billion, according to statistics from China Customs. In 2009, China’s direct investment in Indonesia grew 29 percent. With capital and policy support from the central government, China’s State-owned firms have spearheaded investment in resources-rich Indonesia. After pumping billions of US dollars into Indonesia, big Chinese firms, including China Huadian Corporation, Sinopec and CNOOC, are looking for more investment on the back of preferential polices to facilitate business between China and the Association of Southeast Asian Nations (ASEAN) members, of which Indonesia is one. China’s leading offshore oil maker CNOOC said its investment in Indonesia will top $5.6 billion by 2011, following its first project in the Strait of Malacca in 1994. China Huadian, one of the five largest power generators in China, also said that their bidding for a coal power plant project in Bali that will have three generating units with a capacity of 145 megawatts each, has passed a pre-qualification test. China will provide capital and advanced manufacturing capabilities to support cooperation between Indonesia and China in the energy sector, NDRC’s Zhang said.

“Although investment in Indonesia’s clean energy is in its early days, we’re here actively seeking possibilities to help build up nuclear power plants in Indonesia” said Wang Kai, international marketing manager of China Guangdong Nuclear Power Holding Co Ltd, one of the country’s two nuclearenergy firms, when attending an energy forum in October.

not an attractive market for ipps; dominance of pln The power generation sector is dominated by PLN which controls around 86% (or 26.609GW) of generation assets in Indonesia including through subsidiaries such as PT Indonesia Power, PT Pembangkit Jawa Bali, and PT PLN Batam. Private sector partnership is allowed through Independent Power Producer (“IPP”) arrangements (which continued to be sanctioned by the 2009 Electricity Law). IPP appointment is usually through competitive bidding except in certain circumstances (e.g. for renewable energy, mine-mouth, crisis, marginal gas, or expansion projects) in which case appointment can be direct. The structure involves the IPP signing an Energy Sales Agreements or Power Purchase Agreement with PLN to produce electric power and supply PLN electricity at an agreed price for an agreed period. Of Indonesia’s current installed capacity of 30.941GW, IPPs account for 4.269GW, or approx. 14%. Electricity generation licences or “IUPTLs” can be offered to private entities (with up to 95% foreign shareholding) with PLN acting as the single buyer (see be-

“C.P.I.C has unveiled a plan to invest US$17 billion in developing 7,000 MW of hydroelectric power in Indonesia’s North Kalimantan region”

low). PT Perusahaan Listrik Negara (Persero) (“PLN”) PLN is responsible for the majority of Indonesia’s electricity generation and has exclusive powers in relation to the transmission, distribution and supply of electricity to the public. PLN is regulated and supervised by the Ministry of Energy and Mineral Resources (“MoEMR”), the Ministry of State Owned Enterprises (“MoSOE”), and the Ministry of Finance (“MoF”). In 2004, PLN was transformed from a public utility into a state-owned limited liability company (or Persero). The 2009 Electricity Law removed PLN’s role as the “PKUK” or Authorised Holder of Electricity Business Licence. PLN is now simply the holder of an Electricity Business Supply Licence for Public Use (“IUTPL”)10. The 2009 Electricity Law also provides a first right of refusal to PLN for conducting electricity supply in an area before the Central or Regional Governments can offer the opportunity to regional-owned entities, private entities or cooperatives. The high risk of resource exploration, but mainly the lack of a bankable Power Purchase Agreement (PPA) with the electricity recipeint (PLN) are the largest obstacles for success of independent power producers (IPP) in Indonesia, so a director with the National Development Planning Agency. The government has continueously made considerable efforts to accelerate the development of greenfields by working to attract more investors from the private sector — independent power producers (IPP) — to bring in new technology, efficiency and capital. However, these efforts have not produced any measurable level of success for two reasons. The first is a perceived high risk of resource exploration because of a lack of adequate data, and the second is because of the absence of a bankable Power Purchase Agreement (PPA) with the electricity recipient (PLN).

Negative list The negative list (created pursuant to presidential regulation 36 of 2010) imposes maximum limits of foreign

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Regulars - Power Struggle ownership for various categories of business activity. 95 percent foreign ownership is permitted for power generation projects above 10 MW. The remaining five percent must be held by indonesian entities or individuals. power projects of 10 MW and smaller are reserved for Indonesian entities. however, we are aware of some instances where foreign investors have successfully structured their participation in projects of less than 10 MW. a maximum of 95 percent foreign ownership is also permitted in relation to geothermal drilling.

Procurement methods Pursuant to law no. 30 of 2009 relating to the electricity sector, power generators are now permitted to sell electricity to entities other than pln, the state electricity utility. however, despite the change in law, most electricity generated in indonesia is still either self-generation (captive) or sold to pln. Some ipps are procured under indonesia’s public private partnership (ppp) programme, pursuant to presidential regulation no. 67 of 2005, (as last amended by presidential regulation no. 56 of 2011). the first project to be procured under this programme was the 2,000 MW ultrasuper critical coal-fired central Java project. pln also procures ipps outside of each of these two programmes, and currently they include a variety of coal mine-mouth projects. Power Purchase Agreement (PPA) pln does not use one standard form ppa. rather, the form of the ppa evolves from project to project, with most projects containing a generally similar risk allocation. Developers and lenders have become comfortable with the typical risk features of the ppa which include: Take-or-pay Force majeure and change in law relief Termination payments for pln default and political force majeure International arbitration Assignment to lenders is permitted An agreed form of direct agreement between lenders and pln. Many terms of the ppa have become fairly standard

12 | POWER INSIDER VOLUME 4 ISSUE 2

Power Struggle and non-negotiable. fundamental changes to the Indonesian practice regarding these guarantees or support was introduced through presidential regulation no 139 of 2011 on procedures for providing the Business viability guarantee to pln for the development of renewable energy, coal and gas fried power plants through the cooperation with private electricity developer (regulation 139) provides detail on the content of these guarantees. A key point in regulation 139 is that guarantees are only available for fast track ii projects. unless the Mof acknowledges that a particular project falls within the scope of the umbrella note of Mutual understanding between the Japan Bank for international cooperation (JBic) and the Mof, there is no formal basis upon which projects outside of the fast track ii or ppp programmes can obtain a government guarantee or support. The term guarantee used in regulation 139 is something of a misnomer and should be construed as a form of support undertaking. The guarantee is designed as a mechanism to ensure that the Mof funds pln in order for pln to fulfill its payment obligations to the ipp. regulation 139 does not state that the project company or its lenders have direct recourse to the Mof. under the Indonesian civil code the Mof support letter likely creates a primary legal obligation on the Mof to procure performance by pln. If it fails to do this damages were payable by the Mof to the project company. the guarantee

covers pln’s payment obligations for the purchase of power during the operation period of a project only. Whilst regulation 139 suggests that the guarantee will not cover termination payments by pln under the ppa, the first of the guarantees issued in 2012 do provide such cover. Support is not automatically granted to project companies and projects wishing to benefit from the guarantee are subject to an application process. the guarantee may be issued on or after signing of the ppa. Regulation 139 requires that the project benefiting from the guarantee must achieve financial close within 12 months from the date of issue of the guarantee. note, however, that the deadline for geothermal projects has been extended to 48 months. The guarantee is addressed to the project company (not lenders), but the project company is entitled to assign the guarantee by way of security to the lenders. the Mof is willing to enter into a consent agreement with lenders relating to the security interest.

cost of production too high The efforts to lower the BPP are strategic steps which must become the first priority, as it would be able to minimize the pressure of the government’s electricity subsidy. So far, the basic cost of production (BPP) has not yet been fully minimized, as the Company still relies on oil-based fuels which are relatively costly in

producing electricity. This is not only because of rolling outages cessation and the increase of customers in isolated areas by operating some oil plants, but also the delay to the scheduled operations of several 10.000 Mw non-oil power plants. Persistently high fuel use for electricity generation makes PLN to operate inefficiently and the basic costs of electricity production to increase. Efficiency would be difficult given the price of fuel oil is likely to increase and is dependent on the exchange rate of the U.S. dollar. The use of fuel oil is made efficient by converting fuel oil into coal and gas. The delayed target of the completion of the first stage 10,000 Mw power plant project, which uses coal; and unfulfilled gas supply, force PLN to make a breakthrough to resolve these chronics. But without the support of the government, the problems PLN is facing can not be solved easily.

fuel subsidies In Indonesia the retail price of electricity is below pln’s average cost of generation leaving pln with a deficit. the Ministry of finance (Mof ) provides funding to pln to bridge the gap, which is referred to as the public services obligation (pso). given that the pso is critical to pln’s solvency, developers and lenders have in the past sought confirmation from government that the pso will continue to be paid, so that pln will be in a position to meet its commitments under ppas. however, government support on this issue is now only available for projects failing within the fast track ii or ppp programmes. Such government support is issued by the Mof and/or the Indonesian infrastructure guarantee fund (iigf ). the iigf was established by the Indonesian government in 2009 for the purpose of providing guarantees for government contracting agencies’ obligations under ppp infrastructure projects, of which there are few power projects. the 2,000 MW central Java project is a notable exception and was issued with the first iigf guarantee in 2011 (alongside an Mof guarantee). Indonesia is also one of the few countries regionally that effectively demarcates electricity pricing according

to the user. In this regard, commercial and industrial electricity users pay an average 11-12US cents per KwH while retail customers pay approximately 6US cents per kwh (achieved largely through a Government subsidy currently running at US$5.5 billion2 p.a).

land acquisitions Land Land acquisition is an important issue for power projects in indonesia. Pln generally expects developers to acquire all of the land needed for the plant site and the transmission lines needed to connect the plant to the nearest substation. It is not uncommon for the transmission corridor to be 20 to 40 kms in length. PLN and lenders generally expect this land to be obtained and appropriate legal rights over that land to be granted by the financial closing date. the process of land acquisition can often be one of the longest lead items in the development of an indonesian power project. Indonesian law broadly recognises two categories of land rights: Unregistered land and registered land. numerous forms of unregistered land exist, the most common being Adat (or native title) land. given that native title land is unregistered, it is often difficult to ascertain the identity of the land owners. disputes with respect to transfers of communally-held land are particularly common, where one party has purported to represent the relevant community and signed land transfer documents. accordingly, it will be critical to establish who owns the Adat land and who can legitimately and lawfully relinquish rights over it so that it can be converted into registered land. Three forms of registered land exist. the most common are: Right of ownership (Hak Milik). This is the closest form of land title to the common law concept of freehold land. a right of ownership may be held by indonesian nationals only, therefore this will not be possible for a foreign owned project company. Right of Building (Hak Guna Bangunan or hgB). A right of Building is for a term of 30 years, and may be held

by a company, including a foreign-owned project company. This is the most popular form of land ownership for project companies. Right of use (HakPakai). A right of use is for a term of 20 years, and may be held by a company, including foreign- owned project companies. As foreign owned companies cannot hold unregistered land or rights of ownership, land which is unregistered or in the form of right of ownership must first be converted into either a right of Building or a right of use. this can sometimes be a lengthy (and expensive) process.

environmental impact – forests and fishing Forestry The location of a project is a key consideration in indonesia. not only does the developer have to consider the availability of nearby substations and transmission facilities, but it also needs to consider the proximity of forests. renewable energy projects such as geothermal and hydro projects are often located in forests raising special considerations for developers. Indonesian law distinguishes between conservation forests, protected forests and production forests; the latter category being forest areas having the main function of producing wood products. Power projects are permitted in production forests and since 2010, are permitted in protected forests (under government regulation no. 24 of 2010 regarding utilisation of forest area). Project developers, however, must obtain a forest Borrow permit (Ijin Pinjam Pakai) from the Ministry of forestry to “borrow” the forest area for this purpose. the application process for a forest Borrow permit is complicated, requiring (among others) a letter of recommendation to be issued by the provincial governor. We are aware of numerous instances where the issue of a forest Borrow permit has been delayed, or blocked, due to the reluctance (or refusal) of an authority to issue a letter of recommendation and that there is currently a significant backlog of forest Borrow permit applications at the Ministry of forestry. Forest

Regulars - Power Struggle Borrow permits are usually granted for a period of 20 years and may be extended only with the consent of the Ministry of forestry. note that this period is less than the term of a typical ppa at 25 or 30 years. they provide non- exclusive rights to carry out permitted activities in the forest but do not allow the developer to take title in the land. the permit is revocable in situations where the permit holder has breached conditions relating to the permit. such conditions typically include obligations to replant forest where it has been cut, to carry out forest protection and to pay fees for the utilisation of the forest land.

regulatory issues – complicated I would say, as an IPP developer, we experience similar difficulties especially when dealing with the government, determining the price, determining the current needs all the way to gaining access to capital market. When talking about funding a project, if you are looking at the first 100-200 megawatts, you will probably be looking for information or financing to help funding the project for domestic financing. Domestic financing is not as huge as the international market. You are faced with the scarcity of liquidity to build the plant. But notwithstanding the fact that we are not the only IPP around. There are many competing for the same case there, for the 10000 MW target. One of the blunders there, is that in different areas there is a very clear policy on how they determine the price of electricity that they can purchase from the IPP. In Eastern part of Indonesia they would probably quantify more while in the Western part of Indonesia they would probably less quantify. In any rate, the hardest part would be coming up with the priority structure that can be accessible to us. I think one of the major challenges is that the process of negotiating with the government is in a way very sluggish. There are so many elements that cannot be processed and even very very lengthy. Sometimes, you win the bid but to get to the bid, just for the sake of determining the price, it takes ages

14 | POWER INSIDER VOLUME 4 ISSUE 2

Enter promotional code and sometimes it doesn’t have sufficient ammunition to carry the deal. That kind of situation happens so often and comes with a price, so only those with strong capital and capability to cope and deal on to the pipeline is most likely to succeed. Others, they cannot hold on to a project too long and wait for the negotiation to conclude.

Tender process New energy projects can be procured under one of two different tender processes - direct appointment or public auction (see MeMr regulation no. 1 of 2006 regarding procedures for purchasing electricity and/or lease of grid for the purpose of supply of power for public interest, as amended by MeMr regulation no. 4 of 2007).

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Permits An Indonesian power project is subject to an extensive list of permits from a variety of government departments and ministries. project developers should be mindful of the extensive application and processing time associated with permitting. The main permits that a power project developer is required to obtain are: Registration with the investment coordinating Board for the establishment of the project company and investment principal license

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Business license or Izin Usaha

The direct appointment process is restricted to renewable projects, purchase of excess power and situations where the local power system is in critical condition. In addition, the direct appointment must be approved by the MeMr. accordingly, the direct appointment process is less often used by pln, than the public auction process.

Approval of the environmental impact assessments or Analisis Mengenai Dampak Lingkungan (aMdal)

Regardless of the two tender methods, pln is obliged to comply with presidential decree no.54 of 2010, (as last amended by presidential regulation no. 35 of 2011) regarding guidelines for the implementation of procurement of goods and services to government. this imposes obligations regarding public announcement, pre-qualification of bidders, submission and evaluation of bids. therefore, the two tender methods have many similarities. Note that apart from a few localised and small scale feed-in tariff schemes, there are generally no feed-in tariffs in indonesia. under both tender methods, the key bid parameter is the price payable by pln for the electricity generated.

Electricity Business license (izin Usaha Penyediaan Tenaga Listrik or iuptl)

Under the public tender process, the request for proposals issued by pln generally contains the draft form of ppa. Bidders are often given the opportunity to make submissions on the form of ppa before bid submission. By the time of bid submission, however, bidders must accept the draft ppa without deviation. The winning bidder is expected to execute the ppa within one month of the

INSIDER

date pln confirms the winning bid in its letter of intent. The MeMr must approve the price payable for the electricity.

Location permit (Izin Lokasi), which allows the company to procure the land that is required for the project from a third party (by way of sale and purchase or relinquishment) or from the state.

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Certificate of operation Worthiness (SertifikatLaikOperasi or slo). if a project company seeks finance from the international lending community, it is likely to have to comply with established environmental standards such as the equator principles or the ifc environmental standards. these raise requirements beyond the remit of the aMdal. Government guarantees.

lots of little power plants rather than a couple of big ones – more investment TARIFFS – WHAT PEOPLE CAN AFFORD Pursuant to the Ministry of Energy and Mineral Resources of the Republic of Indonesia Regulation No. 30 of 2012 on electricity tariff, effective starting from January 1, 2013 new provisions of the electricity tariff will apply. The provisions are principally the periodical increase in electricity tariff at different levels for each tariff class.

www.asian-utility-week.com

Regulars - Power Struggle These provisions will have a positive impact on the PLN, especially it will reduce the difference between tariffs and the basic cost of electricity production, which was previously significantly high. So PLN will have a better financial ability to support the realization of the power plant construction in order to be able to add the capacity and increase the national electrification ratio.

securing financing is difficult Lack of Company’s fund for investment PLN’s financial condition is still affected by the 1998 financial crisis, which resulted in a lack of investment. Due to the depreciation of the Rupiah during the crisis, PLN’s capital has decreased due to accumulated losses amounting to Rp15 trillion in the last five years (up to 2008). Despite since 2009 PLN has gained a PSO margin of 5% (2009) and 8% (2010 and 2011), resulting profit gain as seen in the financial statements, the liquidity was only sufficient to cover the operating costs. Thus there is no sufficient internal funds yet to support investment activities. Advising pln on the finance arrangements for all foreign currency projects in the 10,000MW fast track i coal-fired power project programme. financing was sourced from various chinese export credit agencies and banks, as well as indonesian banks. the projects included: Paiton 660MW Rembang 600MW Indramayu 900MW Suralaya 625MW Teluknaga 3x315MW Pelabuhanratu 3x350MW Aceh 2x110MW Pacitan 2x350MW Adipala 1x600/700MW Sumbar 2x100/150MW Sengkang 135MW

16 | POWER INSIDER VOLUME 4 ISSUE 2

Power Struggle export market versus domestic use A Chinese proposal to ban imports of low-quality coal threatens to roil international energy markets and unsettle major exporters like Indonesia, which could face a steep drop in revenue if they can’t find alternative customers quickly. The proposal being discussed by the government, and which may be revised, is a worry for China’s power utilities because they rely on imports for part of their supplies. The plan circulated by the National Energy Administration—part the National Development and Reform Commission, China’s top economic planner—would effectively ban imports of large volumes of low-quality coal. Of China’s two largest coal suppliers, Indonesia would be most at risk because it sells more of these grades than rival Australia. A first draft of the coal regulation called for a halt to imports of coal with a calorific value lower than 4,544 kilocalories per kilogram, sulfur content higher than 1% and 25% ash on a netas-received basis, according to an NEA document reviewed by Dow Jones Newswires. A coal trader in China said revisions are being discussed that would relax some of the proposal’s terms to lessen its impact, but Chinese government officials have declined to confirm that. If implemented, the ban may cut thermal coal imports into China by nearly a third, UOB KayHian senior analyst Helen Lau said in a recent note. In the first three months of 2013 China imported 5.6 million metric tons of low-grade coal, accounting for 28% of total thermal coal imports, most of which came from Indonesia, she said. Also, China’s five big power companies have already complained to the NDRC, because they feel the policy may increase their production costs, Ms. Lau said. “Coal imports have been rising steadily, helped by Chinese power utilities’ use of cheaper imported coal”, analysts said.

China’s Customs Administration, which doesn’t provide a clear breakdown of thermal and coking coal trade data, said imports to China totaled 63.8 million tons in the first quarter, up 27% from a year earlier. In 2012, imports rose by 29% while domestic output rose 4% to 3.66 billion tons, slowing from 8.7% growth in 2011, according to the China Coal Industry Association. Indonesia’s minister of energy, Jero Wacik, has said he isn’t worried about the plan. “There are still many markets other than China—such as India, South Korea, and others. If [demand for] our coal exports decrease, we can increase domestic absorption,” he said. “We have many markets. So if one country bans imports, we’ll look for other markets,” he told a coal conference Monday. But an Indonesia coal-industry executive was more concerned. “One of the short-term solutions is to shift exports to countries like India, but it’s just a stopgap measure”,he said. Wood Mackenzie coal market analyst Prakash Sharma estimated that as much as half of Indonesia’s coal shipments to China could be blocked under the proposal. The consultancy had forecast Indonesia would export 100 million tons of coal to China in 2013. “Near term, it would be difficult for Indonesia to find an alternative market” for its surplus low-grade material, said Mr. Sharma. With countries like India unable to absorb the tens of millions of tons that would be classified as unacceptable to be shipped to China. PLN’s revenue hinges on a tariff structure with tariffs required to be determined by the central or regional Governments and ultimately approved by the Parliament. Under the 2009 Electricity Law, the tariff need no longer be uniform throughout Indonesia and so may differ according to the business area. The 2009 Electricity Law also requires that the interests of relevant electricity business owners be considered in the tariff pricing and not just the interests of the public. Since tariff increases require approval from Parliament, PLN’s financial position is directly subject to the political process. Should the regulated price for electricity

fall below the cost of production (which has generally been the case), the Ministry of Finance is required to compensate PLN via a subsidy. The pro-household tariff is punitive for PLN but for the first time, PLN started booking a profit in 2009 thanks largely to the Government’s decision to set for the first time a 5% margin – to be continued at a minimum 5% level in 2010. Third Generation (2010 onwards) The third generation of IPPs will operate under the recent revisions to the PPP framework developed by the Policy Committee for the Acceleration of Infrastructure Provision (KKPPI). Third generation IPPs will differ from second generation IPPs in that the PPP risk allocation mechanism will be clearer and more supportive of the investor and more government support will be provided. Perpres No.13/2010 (issued January 2010) which amends Perpres No.67/2005 on PPP Infrastructure Projects, attempts to streamline the PPP process by offering: a) Revised bidding arrangements including extensive bidder/ tender consultations; b) Better-defined risk allocations to help with the bankability of projects; c) Government support and guarantees (such as in relation to land acquisition); d) Financial facilities (such as PT PII14 and the Infrastructure Financing Fund see below). Future improvements could also include: a) The synchronisation of Government support with the project preparation transaction cycle; b) Capacity building for Government contracting agencies; c) The mobilization of domestic capital markets; d) The linking of PPP policy with related polices such as in response to climate change. Serving as a template for third generation IPPs – such as the 5,035 MW of IPP development available

under the ‘second fast track program’15 – will be the flagship CJCPP with a proposed capacity of 2 x 1000 MW and an estimated cost US$3 billion. The CJCPP will operate under a ‘BOOT’ structure and will be the largest IPP in Indonesia. Seven bidders have prequalified and are expected to bid in late 2010. PLN has appointed the International Finance Corporation and the World Bank Group as transaction advisors. This project also provides the first opportunity to utilize the Indonesia Infrastructure Guarantee Fund (“IIGF”) structure (see 3.3).

Investment challenges Low electricity prices and poor returns on investment have been deterring large-scale private involvement in power plant projects. Financing has been a major challenge, exacerbated by the recent global financial crisis, which forced many energy companies to cut back on capital spending and delay or cancel projects. Attracting funds is often difficult given that the single buyer, PLN, has defaulted on contracts in the past. The bulk of IPPs rely on export credit and support from multilateral lending agencies such as the ADB, JBIC, Korean Exim, and China Exim for financing with co-financing usually from international or commercial banks rather than Indonesian domestic banks. For larger players, the complex regulatory environment, especially related to uncertainty in tendering, has acted as a disincentive. Improvements to Indonesia’s PPP-related regulations and improved fiscal support to guarantee against particular risks should hopefully address some of these issues in an attempt to attract private sector investment.

Project Finance The main sources of project finance include: a) International commercial banks; b) Multilateral Development Agencies (“MDAs”) such as regional multilateral banks (e.g. the Asian Development Bank and European Investment Bank) and the World Bank (which includes the International Bank for Reconstruction

and Development and the International Finance Corporation); c) Governmental agencies for investment promotion such as JBIC, China Exim, Korean Exim, the Deutsche Investitions – und Entwicklungs GmbH (“DEG”), the Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV (“FMO”), and the Indonesian Infrastructure Finance Fund. The MDAs and Governmental agencies usually provide guarantees or direct loans with ‘soft’ provisions such as lower than market value interest rates, and grace periods. The liquidity of domestic banks for long term structured financing is limited. High domestic interest rates which cannot be fixed for the long term are also an impediment. Indonesia steps up 2,000 MW thermo-power plant project Indonesia is accelerating a project to build a new 2,000 MW coal-fired thermo-power plant, the largest of its kind in Southeast Asian region, in the Central Java province. Deputy Minister for Infrastructure and Regional Planning Luky Eko Wuryanto was quoted as saying at a press briefing that the plant is one of the country’s key projects under the Government’s master plan on acceleration and expansion of long-term economic development. The four-billion-USD plant is said to use environmentally-friendly ultra-supercritical boilers to generate 2,000MW of electricity per year once completed by 2016. According to Wuryanto , Indonesia needs at least 4,000MW additional of electricity each year to sustain its annual economic growth of over 6 percent. The project is carried out by Indonesia’s PT Bhimasena Power Group along with J-Power Electric Power Development Company under Japan’s Itochi Power Corporation and Indonesia’s Adarro Energy company China Power Investment Corp. to invest 17 bln USD in power projects in Indonesia China Power Investment Corp., one of China’s largest state-owned firms, has committed to investing 17 billion US dollars in hydropower plant projects in

Regulars - Power Struggle North Kalimantan of Indonesia, an Indonesian minister said on Monday. Indonesian Energy and Mineral Resources Minister Jero Wacik made the statement after meeting with Vice President of the firm Xia Zhong at his office. The Chinese firm hoped to start the projects next year, at least the ground breaking, according to Wacik. The minister said that the hydropower station with a designed capacity of 7,000 megawatt would generate electricity by using the water in Kayan river. “It would be done gradually for seven years”, he said. China Power Investment Corp. has a good track record in building hydropower plant, as it has just completed a similar project in Myanmar. Indonesia’s electrification is at about 70 percent at present, according to state utility firm PT PLN. With an economy growing at a rate of more than 6 percent since 2010, and perhaps by 6.5 percent this year and 6.8 percent next year, the demand for electricity was going to rise by 10 percent annually, Adi Supriono, corporate secretary of PLN, said. Wacik said that the Chinese firm was also interested in taking part in funding the construction of smelters in Indonesia and development of renewable energy. Wacik added that he and Xia expected the financing could kick off next year as Indonesia badly needs processing sector (smelter) to support the downstream of the country’s mining industry.

“One of the shortterm solutions is to shift exports to countries like India, but it’s just a stopgap measure” 18 | POWER INSIDER VOLUME 4 ISSUE 2

Big hurdles for Indonesia power projects but many still planned for execution in short term despite numerous regulations supposed to speed up infrastructure development. Indonesia is still besieged with countless impediments to a sufficient supply of electricity. Demands consistently outpaces capacities. Blackouts continue across the country on a regular basis, with a significant one effecting virtually the whole of Jakarta at the beginning of April. State power company PT Perusahaan Listrik Negara (PLN) called the blackout inevitable and blamed damage to its main power line. Surprisingly, or perhaps unsurprisingly, the company has no contingency plans for a back up supply from other networks. PLN is simply unable to ensure that power for the heart of the country’s economic and governmental affairs remains uninterrupted. Jakarta’s woes, however, are almost trivial when compared to those of other regions, including those with rich natural resources. Samarinda, the capital of East Kalimantan, to cite one example, puts up with rotating blackouts on an almost daily basis despite the fact that the province is a major supplier of coal that fuels the country’s power plants. Other coal-rich provinces, such as Central Kalimantan and South Sumatra, share similar problems. Power penetration in these areas stands at less than 75 percent. While demand escalates, the government has said that efforts are already in place to keep up.

But the numbers tell a different story In the last few years, demand has grown by between 9 and 11 percent annually, or at least 4,500 megawatts (MW), outpacing a supply that has grown by less than 3 percent, or around 1,600 MW, according to the Energy and Mineral Resources Ministry. The protracted impediment that has slowed expansion of power capacity is partly attributable to vague, nebulous policies, bad planning and poor execution of existing regulations. Disruption in the construction of a 2,000 MW coal-fired plant in Batang, Central

Java, the largest project of its kind in Southeast Asia with a cost of around US$4 billion, is the latest example of the confusion in the sector. PLN initially expected the plant to be completed in 2016 on the assumption that land acquisition and permit issues would have been settled in October last year. However, problems have emerged that have kept construction on hold.

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Landowners have held out, refusing to sell their land unless investors pay considerably inflated prices. Aside from the land issues, the Batang plant has been bedeviled by legal uncertainties. The Batang administration is facing a lawsuit by villagers living near the planned site. The villagers oppose construction, claiming it will harm the surrounding environment. The central government has teamed up with local administrations to try to resolve the problem, but to no avail. Problems in land acquisition have become increasingly pervasive in the last five years, killing off, or at least severely wounding, many crucial power plant projects in Kupang in East Nusa Tenggara, Gorontalo, Tarakan in North Kalimantan and West Sumatra. The regulations that were intended to speed up land acquisition turned out to be hard to implement. A presidential regulation on land acquisition was issued in the middle of last year as the legal basis for the implementation of the 2011 Land Acquisition Law, but the regulation only covers projects that began after the enactment of the law. Land acquisition for projects approved before the law came into force are still regulated by the old law. However, if by 2014, land acquisition problems have not been settled, the new law can be used. “We urgently need to resolve these land procurement issues. Development of power plants must be accelerated”, said businessman Sandiaga Uno, whose company is involved in several power plant projects, including Batang.

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Regulars - Power Struggle “The main issue that needs to be addressed is bureaucracy”, he said. Sandiaga said Indonesia already had sufficient resources to build necessary power plants, including investor availability, abundant coal and gas to fuel the plants, and even finance from banks. “All we need is firm regulations”, he said. Even PLN as a state entity is struggling to build plants with a less-than-helpful bureaucracy. PLN president director Nur Pamudji has repeatedly said that aside from the land clearance problems, bureaucracy and licensing have hampered the company from speeding up the construction. Since the launch of the 10,000 MW power plant acceleration program in 2006, the government has only completed 46 percent of the project, according to the Energy and Mineral Resources Ministry. In 2009, the government launched a second 10,000 MW program that mostly covers geothermal power. It’s estimated that Indonesia has about 40 percent of the world’s potential geothermal energy. But construction has not even started yet due to red tape that has delayed regulation of the selling price of the electricity generated by PLN. While the issues have now been resolved, problems with land acquisition and the accuracy of the government’s geothermal mapping remain. Institute for Essential Services Reform energy expert Fabby Tumiwa said that mismanagement played a role in holding back plant construction. “The government has failed to produce sufficient distribution of primary energy and transportation infrastructure for the power plants”, he said. PLN is still in dire need of gas as one of its primary energies for its plants despite the fact that Indonesia is the world’s third-largest liquefied natural gas exporter after Qatar and Malaysia. PLN also struggles with coal supplies despite abundant resources. Indonesia is among the world’s biggest coal exporters.

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Power Struggle Given these impediments, investment in power plants carries worrying risks. Many private investors are turning away. Indonesian Electricity Producers Association’s Santoso believes players in the power plant industry are confronted with high-risk evaluations. The protracted expansion of power capacity is partly attributable to impediments such as vague, nebulous policies, bad planning and poor execution of existing regulations. “Banks still impose a relatively high interest rate for power plant investors. In China, banks charge 5 percent but here, the cost could be double”, Santoso said. “Tapping foreign loans is also difficult. An investor must have a vast and solid international network, but only a few players here can meet that requirement”, he said. At least $9.6 billion is needed annually to construct power plants and transmission networks, according to the Energy and Mineral Resources Ministry. The government, along with PLN, can only cover around half of that amount with the remainder expected to come from the private sector. Madhucon to set up Indonesia power plant. This mine is expected to assure the supply of coal to the project and also offer significant cost benefits. A consortium led by Madhucon Projects has received a letter of intent to set up 300 mw (2 x 150 mw) coal-fired power plant at south Sumatra in Indonesia. The mine-mouth project would be set up on a buildoperate-transfer basis. The project would come up close to a coal mine owned by PT Madhucon Indonesia at Dawas. This mine is expected to assure the supply of coal to the project and also offer significant cost benefits. According to sources, the power project would cost about Rs1,800-2,000 crore. The company would achieve financial closure for the project in about a year’s time and would have another 36 months from there to complete the project. The company officials were not

available for providing the details. A special purpose vehicle would be incorporated to handle the power project and Madhucon Projects would hold about 65% stake in the SPV, while its other group companies would hold the remaining 35%. However, Madhucon will have to sell the power produced to the Indonesia government-owned energy company PT PLN. According to a communiqué from the company to the exchanges, the SPV would enter into a 25-year power purchase agreement with PLN. The state-owned company has a monopoly over electricity distribution in Indonesia. Under the Indonesian laws, though the private companies are allowed to sell power to the consumers directly, they have to use PLN’s electricity network to reach the consumers.

“At least $9.6 billion is needed annually to construct power plants & transmission networks, according to the Energy and Mineral Resources Ministry” Interestingly, the company’s Dawas coal mine spread in about 8,600 acre is expected to have significant coal reserves to the tune of about 900 million tonne. The mine would commence production sometime in February 2012. The company, which has a mining licence for Dawas site, would use the mined coal for its new power project and explore the possibility of exporting it to India. Meanwhile, Madhucon Infra, a subsidiary of Madhucon Projects Ltd, is also setting up a 1,920 mw coal based power project near Nellore in AP.

The construction of Phase I of 300 mw is said to be complete and is heading towards synchronisation. The project, being set up by an SPV Simhapuri Energy, would enter into Phase II of another 300 mw sometime in August 2012. The company has applied for clearances for Phase III of 1,320 mw, which would commence activities in the second half of 2012.

the decree, the bidding for the power plant procurement can now be opened”, J. Purwono, the director general for electricity and energy use, said Friday. The power plants are expected to generate up to 10,153 MW in total. Of this figure, 5,770 MW or 57 percent will go into the Java - Bali grid, while the rest will go to the other islands across the archipelago.

Indonesia awards Chinese firm power plant project 2008

This second project is expected to promote the use of clean and renewable energy, but coal-fired power plants will still contribute significantly. Of the total capacity, up to 1,204 MW (12 percent) will be generated by hydroelectric plants; 1,660 MW (16 percent) from gas combined-cycle plants; 3,977 MW (39 percent) from geothermal plants, and 3,312 MW (33 percent) from coal-fired plants. The biggest hydroelectric plant in the project will be the 4x250-MW Upper Cisokan plant in West Java.

Indonesia’s state power firm PT Perusahaan Listrik Negara (PLN) said on Monday it has awarded a contract to China National Technical Import and Export Corp to build a 660 megawatt (MW) coal-fired power plant in Cilacap, Central Java. The chinese firm was also awarded a contract in 2006 to build a 600 MW coal-fired power plant in West Java as part of the Indonesia government’s crash programme to build a combined 10,000 MW of power plants. The Cilacap project needed financing of $605 million and 2.4 trillion rupiah ($218.2 million), Fahmi Mochtar, PLN’s president director, told reporters. “PLN and the Chinese firm will seek the funding for the project”, he added. Mochtar also said PLN was looking to borrow $775 million to finance a 630 MW coal-fired power plant in East Java and a 1,050 MW coal-fired power plant in Pelabuhan Ratu in West Java. Indonesia, the biggest economy in southeast Asia, is keen to encourage more foreign investment to support its economy and to funnel much needed cash to develop its power sector, while China is keen to increase its economic clout and influence in the region. Indonesian officials have said domestic electricity demand is growing at around 10 percent a year. PLN operates 25,000 MW of generation capacity, but most of its plants are ageing, so daily output is far below capacity. Indonesia to construct 93 power plants in 2nd project. The government has announced its list of 93 power plants to be built under the second 10,000-megawatt (MW) power generation scheme. “With the issuance of

The biggest gas combine-cycle plant will be the expanded Muara Tawar plant, also in West Java, with total capacity of 1,200 MW. The 1,000-MW Indramayu power plant in West Java will be the biggest of the coal-fired plants in this second phase, while the Sarulla 1 plant in North Sumatra, with expected total capacity of 3x110 MW, will be the biggest of the geothermal power plants. Of the total 10,153 MW power expected to be generated from the project, state electricity company PT PLN is expected to generate a little more than half, or 5,118 MW. The remaining 5,035 MW is expected to come from plants run by independent power producers (IPPs). Although set to produce an almost equal amount of electricity, the power plants to be built by the IPPs will require double the investment that PLN’s plants warrant. Constructing all the power plants will require US$15.96 billion in investment. Of this figure, only $5.90 billion will go to PLN. The IPPs will require a greater capital outlay as they will focus on geothermal power plants, which are far more costly than PLN’s coal-fired plants. Of the total 3,977 MW set to be generated by geothermal, IPPs are expected to contribute 3,097 MW. The second 10,000-MW project will include

the construction of 3,490 kilometers of power transmission lines, requiring $383 million in investment.

The project is expected to be finished in 2014 MedcoEnergi’s power business activities cover power producer and power project support services provider. Its first penetration into the power generation business came in 2004 with the operation of Panaran I, the Company’s first gas fired power plant on Batam Island. Today, MedcoPower has become the leading developer and operator of small-to-medium size Independent Power Producer (IPP) in Indonesia and the power project services provider with business activities including Operating and Maintenance (O&M) power plant services, as well as project Engineering, Procurement and Construction (EPC) and power plant Project

Development and Management This business is operated by an effective and efficient management system, with a lean organizational structure, allowing Management to maintain intensive communications and to quickly respond to prevailing conditions, in order to maintain an uninterrupted supply of electricity. MedcoEnergi’s power plants are also supported by highly skilled and professional employees with 5-to-20 years experience in various related fields, including electrical power generation, plant operation and maintenance, and project development and management. In line with MPI’s MedcoPower’s commitment to provide solutions for the Nation power supply shortage needs, while also preserving the environment, the Company has designed its power producer business growth plan to focus in generating electricity from green and renewable resources. The Company is currently working on executing its power producer business expansion by utilizing geothermal resources, of which Indonesia has in abundance. As at year end 2009, MedcoEnergi and its partners own and operate two gas-fired power plants with capacity of

Regulars - Power Struggle

Power Struggle

2x27.75 MW and 2x27 + 7.5 MW, respectively. In addition, MedcoEnergi has a truck-mounted gas-fired power plant with a capacity of 19 MW on Batam Island. Furthermore, MedcoEnergi has retained its holding of 5% equity interests in Sengkang IPP.

Benard, associate director of Standard & Poor’s (MHFI) Singapore, adding that the government’s handling of the process did not inspire confidence. The cuts “took over a year of handwringing, to-ing and fro-ing with all sorts of schemes proposed and then abandoned, until finally they managed to implement this”, he says.

As a power support services provider, MedcoEnergi and its other partners in a consortium continued to undertake the operation and Maintenance of PLN’s coal-fired power plant with a capacity 2x660 MW in Tanjung Jati, Central Java. In addition, as the power EPC and Project Management services provider, MPI Power has completed the gas-fired power plant development project owned by PLN at Sicanang, North Sumatra.

(VIDEO: Protests Against Indonesia’s Fuel Price Increase) Yudhoyono might have acted more forcefully if his party were not facing critical elections next year. (He’s barred from seeking a third term.) “We believe an expected increase in political noise is also likely to limit the scope for reform”, wrote Barclays Capital (BCS) analyst Prakriti Sofat in a June 14 report.

Key Development Project In early 2008, the Company declared the business expansion to power producer utilizing geothermal resources as one of the Company’s Key Development Projects. During the year 2009, MPI Power continued to work on one of its Key Development Projects, the development of 3x110MW Sarulla Geothermal Power Plant in Sarulla, North Sumatra province. Under this project, MedcoEnergi and its partners in a consortium will develop the potential geothermal fields at Sarulla and at the same time construct the geothermal steam-power plant.

Panaran I (Mitra Energi Batam) MedcoEnergi owns 54% shares in the company which is the operator of a gas-fired power plant with a capacity of 2x27.75 MW and plans to add a combined cycle 22 MW and 4,5 MW chiller to increase efficience and capacity, currently supplying electricity to local industries and housing in Batam. The electricity is generated by two gas turbine generators with advanced, computerized control systems, enabling the operator to accurately monitor the overall performance of the power plant and ensure its effectiveness and reliability. MEB Combined Cycle Power Plant Location at Panaran, Batam Island, Indonesia with capacity Chiller 8 MW + CC 20.6 MW. Using technology HRSG + Steam turbine + Generator.

22 | POWER INSIDER VOLUME 4 ISSUE 2

Indonesians seem resigned to the price increases. Jakarta’s streets have been quiet since the move was announced. Supraman, the baker, says he’s figuring out ways to cope with the fallout. “We will probably find a way to cut costs somewhere”, he says. Perhaps in the pastries his wife makes: “Maybe we will reduce the filling a little”.

unpriming the pump

Sarulla In consortium with Itochu Corporation & Ormat Technologies Inc was awarded to develop the 330 MW Sarulla geothermal Power project by PLN

UBE - Batam Configuration : 2 x 35 MW SC GTG Connection to 150 kV of Batam grids system

indonesia cuts fuel subsidies, risking social unrest Supraman is concerned about the price of gasoline. The 32-year-old Jakarta bakery owner uses his motorcycle to make restaurant deliveries every day. On June 22, Indonesia’s government cut fuel subsidies for the first time since 2008, effectively raising gas prices 44 percent and diesel prices 22 percent. “Food, clothes, everything gets somewhere using fuel, so the prices of everything will definitely rise”, says Supraman, who like

many Indonesians uses only one name. As smoke from forest and plantation fires on the Indonesian island of Sumatra billows over southeast Asia, government officials in Jakarta have their eyes on another potential conflagration. After contemplating the idea for years, President Susilo Bambang Yudhoyono is cutting subsidies that threatened to swell to $30 billion in 2013, pushing the budget deficit well beyond the legal limit of 3 percent of gross domestic product. In doing so, he risks sparking street protests and inflation. In the 1997 Asian financial crisis, the then three-decade-old Suharto regime cut subsidies under pressure from the International Monetary Fund; the government collapsed a year later in the face of a popular revolt. SBY, as the current president is known at home, had to weigh the threat of social unrest against the risk that international

investors will desert the country. GDP growth in each of the last two years has topped 6 percent, prompting talk that the country should be inducted into the BRIC—Brazil, Russia, India, and China— club of emerging markets. (VIDEO: Indonesia Fuel Price Hike Sparks Inflation Concerns) That impressive streak is endangered by the slowdown in China, the top market for Indonesia’s exports. Meanwhile, the combination of a mounting budget deficit and a weakening currency—the rupiah has lost 5 percent of its value in the past 12 months, making it the second-worst-performing currency in Asia—has sapped investor confidence. Indonesia, like many emerging markets, faces tougher times as the world braces for an end to low interest rates in the U.S. For years, investors borrowed in dollars and bought high-yield securities issued by governments such as Indonesia’s.

“Southeast Asia enjoyed the ride”, says Rajeev Malik, an economist in Singapore with securities firm CLSA. “The end of easy money is going to be payback time”. With foreigners holding more than 30 percent of local-currency debt, Indonesia is ‘much more susceptible’ to a reversal in investor sentiment than countries such as India, says Christian de Guzman, a vice president and senior analyst with Moody’s Investors Service (MCO). Also, the protests in Turkey, like Indonesia a mostly Muslim country with a fledgling democracy, hit close to home for Yudhoyono and his cabinet. “We need to take steps to boost our economy”, said Coordinating Minister for the Economy Hatta Rajasa at a June 21 press briefing. While most analysts welcomed the cut in fuel subsidies, some say the government needs to do more. “It’s a stopgap measure,” says Agost

POLITICIANS anywhere, but perhaps especially in Indonesia, raise petrol prices at their peril. So it is a measure of the pain fuel subsidies are causing SouthEast Asia’s largest economy that the president, Susilo Bambang Yudhoyono, and legislators have agreed to stiff price rises less than a year before an election. On June 17th the House of Representatives approved a government budget that assumes the price of a litre of petrol will increase by 44% to 6,500 rupiah (66 cents, or $2.50 a gallon) and of diesel by 22% to 5,500 rupiah. The opposition voted against the budget, as did the Prosperous Justice Party (PKS), a member of the governing coalition. Outside parliament police and protesters clashed and more violence is likely. Yet Mr Yudhoyono is expected to implement the price rises this month. The legislature approved 9.3 trillion rupiah in compensatory cash handouts for 15.5m poorer households, to be paid

Power Struggle in four monthly instalments of 150,000 rupiah. But the price rises will hurt everybody. The government expects them to help drive consumer-price inflation up to 7.2% this year—the highest since 2006. Meanwhile the government has cut its GDP-growth forecast for 2013 from 6.8% to 6.3%. Leaving fuel prices alone would be worse, however. The most recent change was in January 2009, when a barrel of oil sold for $45 in global markets, compared with about $100 a barrel now. In the interim, fuel consumption has soared as more Indonesians can afford cars and motorcycles. The finance minister, Chatib Basri, had warned that the government’s budget deficit could swell to 3.8% of GDP this year if nothing is done to curb subsidies. Even after the price rises, the deficit is still expected to reach 2.4% of GDP, up from 1.8% in 2012. Fuel subsidies are expected to cost 199.9 trillion rupiah, or 13.3% of revenue. More worrying still is the impact of oil imports on the balance of payments (see chart). Since Indonesia became a net oil importer in the mid-2000s, its oil bill has risen almost fourfold, to $39 billion. That was a lot even when exports were booming, but now Indonesia’s commodity exports are depressed. Last year saw Indonesia’s first currentaccount deficit since 1997. Foreign reserves have dropped by almost $20 billion in the past two years. The rupiah has plunged by 15% against the dollar since mid-2011, forcing the central bank to raise interest rates this month for the first time in 16 months. Indonesia holds a parliamentary election in April 2014 and a presidential one in July. Voters may punish the government for cutting subsidies. Mr Yudhoyono’s Democratic Party also raised fuel prices in 2008. They were cut again as the oil price fell before the elections in 2009, though the compensatory cash handouts kept flowing. This helped Mr Yudhoyono to a landslide victory. If he cannot manage that reversal again, his coalition will regret not having acted sooner. Mr Yudhoyono did try to raise prices last year, but balked when the legislature resisted. His government then wasted time dreaming up ways of

limiting fuel consumption to avoid raising prices. (One bright idea was to fit all the cars in Jakarta with microchips to ration daily purchases at three litres.) Indonesian politicians still quake at the memory of previous fuel-price rises. The end of Suharto’s 32-year presidency in 1998 was precipitated by protests that followed IMF-mandated rises. Mr Yudhoyono’s own six-party coalition has been deeply divided by the issue. Before voting with the opposition, the PKS had reportedly agreed to support the subsidy cuts. Mr Yudhoyono must now decide whether to risk further coalition conflict by expelling the party’s three ministers from his cabinet—another decision he would have hoped to duck ahead of next year’s elections.

Indonesia fuel prices rocket by 44% sparking protests Indonesia’s government has cut a huge fuel subsidy after months of political haggling, causing petrol prices to rise by 44% and diesel by 22%. Thousands of motorists rushed to fill up before midnight, after the measure was announced late on Friday. The announcement sparked clashes in the capital, Jakarta, where protesters blocked roads and fought with police. Indonesians had been demonstrating on the streets of many major cities all week in anticipation of the rise. The measure was agreed by parliament on Monday, but MPs did not say when the new prices would come into effect. Late on Friday, Energy Minister Jero Wacik announced that there would be new prices from midnight on Friday. “The new price for Premium fuel is 6,500 rupiah ($0.66; £0.42) per litre, up from 4,500 rupiah, and Solar diesel will cost 5,500 rupiah per litre, also up from 4,500 rupiah per litre”, he said in a statement.

a major fuel price rise since 2008, and has some of the lowest prices in the world even after the rise. Analysts say Mr Yudhoyono’s failure was threatening the credibility of his government and putting severe pressure on the economy. Economists and international investors have applauded the move, but most Indonesians have been unimpressed. Police clashed with students in Surabaya and Yogyakarta during the week, making several arrests. Muslim groups held protests in Jakarta and Makassar. Local media reported violent clashes in Jakarta late on Friday, with protesters blocking roads and throwing petrol bombs. The police made a number of arrests and several protesters suffered

“Indonesia, an energy producer, is a net importer of oil and until December 2008 was Asia’s only member of the Organization of Petroleum Exporting Countries” minor injuries. The authorities deployed extra police throughout major cities on Saturday, but most protests passed off peacefully.

Indonesia set to cut fuel subsidy

Indonesia’s parliament has paved the way for a rise in petrol and diesel prices after months of debate and political haggling. The average 33% hike will reduce the government’s ballooning fuel subsidy which has been a major drain on resources. The move will likely stoke inflation and has sparked protests in recent days. The subsidies are estimated to cost The revised budget, passed late Monday, about $20bn a year, equivalent to almost has a cash handout for poor families. A 3% of Indonesia’s total economic output. date has not yet been set for when the fuel price rise will take effect. According Pressure on economy to the government proposal the price of President Susilo Bambang Yudhoyono petrol will rise 44% from 4,500 Indonesian had been trying to reform the subsidies rupiyah to an since early last year. But previous expected 6,500 rupiyah. attempts were derailed by violent protests. Indonesia has not implemented On Tuesday, Finance Minister Chatib

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SANDS EXPO & CONVENTION CENTER, MARINA BAY SANDS 1–5 JUNE 2014 Basri said the government needed to follow the administrative process of handing out 150,000 rupiah ($15; £10) per month to the poor, for a period of four months, to help offset the rise before implementing it.

Violent demonstrations It is a politically sensitive move, and one that many analysts did not think this administration had the stomach to push through. Indonesian President Susilo Bambang Yudhoyono has been trying to pass through reforms on fuel subsidies since early last year, but with little luck. A proposed increase of 33% in fuel prices last year led to violent demonstrations around the country. Opposition parties in parliament vehemently opposed a hike, despite economists saying a rise in fuel prices was critical for this country’s future. This time around there were protests again - but not as violent as demonstrations have been in the past. Opposition parties and even one coalition partner opposed the fuel price rise, but the government managed to pull through in the end with a cash handout for 15 million poor families of $910m (£579m). Mainly because there is a lot at stake. Indonesia, once a darling of foreign investors in the region, has been sorely criticised for its lack of action on fuel subsidies. Its reputation as a star amongst the emerging markets has suffered - although foreign direct investment figures have remained strong. Investors have begun to look elsewhere in the region - like the Philippines and Thailand - for returns. The bloated fuel subsidy bill has put pressure on Indonesia’s current account deficit, the stock market and the rupiah - the Indonesian currency. Shares and the Indonesian rupiah have seen sharp sell-offs as foreign investors have looked to put their money into what they deem to be safer options. Concerned about the lack of momentum on reforms, the international ratings agency Standard and Poor’s revised down its outlook for the country from positive to stable - while at the same time raising the rating for Indonesia’s

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neighbour, the Philippines. That was particularly embarrassing for the Indonesian government, given that it has always been seen as the strongest economy in South East Asia. The sizeable Indonesian middle class has tempted many foreign companies to set up shop here in recent years. Earlier this year, the Boston Consulting Group said that Indonesia’s middle class could double by 2020 to 141 million people - more than half the size of the current population.

Bitter pill Nevertheless, although the decision to raise fuel prices and cut the subsidy bill will be applauded by the international investment community, Indonesians aren’t thrilled by the move. Any increase in prices will lead to a short-term jump in inflation to between 7% and 8% from current levels of approximately 5% a jump that economists say is a bitter pill but one the country has to swallow. Already prices of goods have started increasing in local markets in the Indonesian capital Jakarta. “People have been expecting the price of fuel to go up”, said Ade, a street vendor in Jakarta. He sells fried rice to officegoers in the business district to make a living. “So already the price of all the basic food like rice and vegetables has gone up too. Also it is the beginning of the fasting month soon - and prices traditionally go up then too”. There is nothing more politically sensitive than rising prices in

Indonesia. Politicians here remember all too well how former president and strongman Suharto stepped down from three decades of ruling the country with an iron fist, after soaring prices prompted huge protests on the streets of Jakarta. That led to one of the most painful periods in Indonesia’s economic history.

Jakarta Calm After Subsidized Fuel Prices Are Increased The streets of Indonesia’s capital Jakarta were quiet today after the government raised fuel prices for the first time since 2008, compared with earlier this week when protests erupted across the country. The price of subsidized gasoline was increased by 44 percent to 6,500 rupiah ($0.65) a liter, while diesel is 22 percent higher at 5,500 rupiah a liter, Energy and Mineral Resources Minister Jero Wacik said June 21 in a press briefing in Jakarta. The changes are effective today. President Susilo Bambang Yudhoyono’s administration raised prices to cut subsidy costs and boost confidence in the rupiah, in a country where riots spurred by soaring living costs helped oust dictator Suharto in 1998. Curbing energy subsidies could reduce demand for oil imports, which have led to trade and current-account deficits and contributed to the rupiah being one of the worst performing currencies in Asia in the past year. “We need to take steps to boost our

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Power Struggle

economy”, Coordinating Minister for the Economy Hatta Rajasa said at the briefing. “In line with the revised state budget, the government is taking the step of adjusting fuel prices, realizing that this will affect inflation and people’s purchasing power”. Some Jakarta residents were thinking about how to save money in other areas to compensate for higher fuel prices. Supraman, 32, the owner and deliveryman of a bakery in Hayam Wuruk, western Jakarta, uses a motorbike to deliver bread filled with chocolate, coconut, cheese and minced meat made by his wife that cost 12,000 rupiah each to a few restaurants in the area. He said delivery makes up about 20% of his cost but he doesn’t charge a service fee to his customers.

More Expensive “What will happen is everything will get more expensive”, Supraman, who uses one name, said in an interview. “Food, clothes, everything gets somewhere using fuel so the prices of everything will definitely rise. We aren’t increasing our prices yet because we don’t want to shock our customers”. Supraman said he and his wife are thinking about ways maintain a profit without increasing prices. “We have to do what we can to live”, he said. “We will probably find a way to cut costs somewhere; I don’t want to raise prices so suddenly. Maybe we will reduce the filling a little or make the bread a little smaller, I don’t know. We have to think about it”. Consumer prices rose 5.47 percent in May, with the pace of gains slowing for a second month. The government predicts inflation will quicken to 7.2 percent this year from an initial estimate of 4.9 percent as a result of higher fuel prices.

Trade Balance The fuel-price increase will strengthen the nation’s currency and the trade balance as petroleum imports fall, while removing the incentive for smugglers to sell subsidized fuel abroad, Finance Minister Chatib Basri said in an interview June 19. Indonesia, an energy producer, is a net importer of oil and until December 2008 was Asia’s only member of the Organization of Petroleum Exporting Countries.Subsidized gasoline and diesel

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classes. The government is promising to direct the financial savings to the poor, both in the form of a cash hand out and much needed development in the poorer village areas.

Indonesia Finally Moves on Fuel Subsidies For years the Indonesian authorities have had to weigh the economic realities of providing fuel subsidies against the needs of its people, who have shown a readiness to protest – at times viciously – when prices become too high.

were previously set at 4,500 rupiah a liter. The world’s fourth-most populous nation last increased fuel prices on May 24, 2008. Indonesia also raised prices twice in 2005, according to Basri. The rupiah declined for a sixth week as of yesterday, losing 0.6 percent to 9,930 per dollar, prices from local banks compiled by Bloomberg show. It traded at a 4 percent premium to one-month nondeliverable forwards, which slid 2.8 percent to 10,345, data compiled by Bloomberg show. Indonesian policy makers have struggled to contain the rupiah’s decline, with the country’s currency reserves dropping as the central bank sold dollars.

Rating Outlook Yudhoyono had put off raising fuel prices since protests derailed a planned increase last year. There were d emonstrations this week as lawmakers voted in favor of a compensation program that the president made a precondition for raising fuel prices. Standard & Poor’s cut its rating outlook on Indonesia’s debt to stable from positive in May, saying a stalling of reform momentum and a weaker external profile had reduced the chance of an upgrade over the next 12 months. The government estimates that energy subsidies would have ballooned to $30 billion this year if left unchanged, eating up funds that could instead be spent on benefits for the poor or infrastructure

projects. Policy makers allocated 27.9 trillion rupiah in compensation in the revised 2013 budget approved by Parliament June 17. “The retail fuel price hike definitely represents a step in the right direction from a reform perspective”, Deyi Tan, a Singapore-based economist at Morgan Stanley, wrote in a June 18 report after Parliament approved the revised budget. “However, it will come with the short-term pain of higher inflation and higher policy rates”. The government is in an early stage of studying a new fuel subsidy system, Minister Basri said yesterday. Among the options being considered is to peg the subsidies at a certain amount above which fuel prices will follow an index, he said, without elaborating. Another option would be to make monthly price adjustments, he said. Indonesia: the fuel subsidy and the middle classes. Foreign Minister Bob Carr is currently in Indonesia as part of bilateral talks scheduled for the coming week. And it’s been a volatile couple of weeks in both countries. After years of political wrangling the Indonesian government has finally cut fuel subsidies. The price of fuel has risen by more than 33% as a result, and there have been widespread protests across the country since last Friday. The subsidies are estimated to cost about $20bn a year, with most of the money going to Indonesia’s middle

However, after months of haggling, petrol and diesel prices are set to rise by an average of 33 percent amid a revised budget. The government hopes cash handouts for the poor will limit protests over an inevitable surge in the inflation rate. The decision came as a surprise after President Susilo Bambang Yudhoyono (SBY) failed to push through economic reforms on fuel subsidies last year with a proposed increase of 33 percent. The plan has sparked violent demonstrations around the country and heated opposition in Parliament. SBY has also been accused of procrastinating in his second and last term in office, as he appears unwilling to push through much-needed reforms amid fears of a public backlash. Indonesian fuel prices are among the lowest in the world and the subsidies have for years led to a hike in demand for fuel while draining state finances and undermining foreign investment. The government spent $20 billion on fuel subsidies in 2012 and this was expected to rise to $23 billion this year. But a deal struck in parliament over payments for those left worse off proved pivotal and lawmakers voted 338 to 181 in favor of a revised 2013 state budget. A date for the rise has not been set and Finance Minister Chatib Basri said the government had to focus first on initiating the proposed $900 million in cash handouts for poor families which will be carried out over a four month period. The inflation rate is expected to rise from five percent to eight percent. Protests to date have been manageable, although sometimes violent. Clashes

between police and protestors outside of parliament in Jakarta were reported as the revised budget was being passed. Masked demonstrators hurled Molotov cocktails, rocks and fireworks at security forces who responded by firing tear gas into the crowds estimated in the hundreds. Protests were also reported in provincial cities across the country. However, a World Bank Report titled Winds of Change: East Asia’s Sustainable Energy Future, found that energy subsidies designed to protect the poor only ended up benefiting the rich. This simply increases the financial burden on governments and their budgets. In 2011, the World Bank also reported that the top 50 percent of Indonesian households by income consumed 84 percent of subsidized gasoline. However, the lowest 10 percent of households by income consumed less than one percent of subsidized petrol – lending much support for these reforms.

Indonesia Struggles to End Fuel Subsidies The fruit and vegetables that slowly gather flies in the morning heat at the Bendungan Hilir market in central Jakarta include both imported and Indonesian produce, but according to local sellers, origin does not matter: Everything is expensive. Indonesians are accustomed to the pain of rising food prices in a country where about 100 million people live on $2 a day or less. But both patrons and vendors at the market think things will get worse: The low fuel prices they count on, kept among the cheapest in the world by aggressive subsidies, may soon skyrocket, too. The national government has announced it wants to increase the price of gasoline, because state subsidies that keep it well below the international market rate are burning a hole in the budget. The country’s Finance Ministry says spending on fuel subsidies could reach $23 billion in 2013, compared with about $20 billion last year. Total subsidies for electricity and fuel could end up costing

about $32 billion, or 20 percent of the 2013 budget. The Indonesian government’s statistics show that it spends more on fuel subsidies annually than it does on social programs and capital expenditures combined. On Tuesday, PresidentSusilo Bambang Yudhoyonosaid he would submit a revised 2013 budget to the House of Representatives in May that would include a fuel price increase, but would also revive a cash compensation program for poor families to cushion the blow. “Usually when the price of gasoline goes up, all other prices go up”, said Therasa Natalia, 22, who runs a noodle stall in the market. “It pushes up transportation costs, and everything from food to clothes is higher. Even if it’s only private cars paying more, everything will go up. It’s always like that”. Last month, Mr. Yudhoyono’s government floated the idea of a two-tier gasoline pricing plan meant to shield Indonesia’s poor and lower classes from higher costs. People who drive motorcycles and public transportation vehicles would continue to pay 4,500 rupiah per liter, or about $1.74 per gallon, while owners of private vehicle and commercial vehicles like delivery trucks and company cars would pay 6,000 rupiah, a 33 percent increase. However, cabinet ministers and aides to Mr. Yudhoyono said this week that under the new plan, fuel prices would probably increase for everyone to 6,500 rupiah per liter. On Wednesday, tens of thousands of people from labor unions and groups representing women, students and environmentalists protested that proposal during street marches to observe Labor Day. Although Indonesia has a plenty of oil production fields and is among the top 25 oil-producing nations in the world, it is a net importer of petroleum. Gasoline is so heavily subsidized that at the end of 2012, the country had the lowest fuel prices of any net oil-consuming nation in the world, according to the World Bank. The second-lowest was the United States, where a gallon sold for $3.29 on Dec. 31 — nearly twice as much as in Indonesia.

Regulars - Power Struggle The Indonesian Finance Ministry has estimated that the country will exceed the 2013 budget quota of 46 trillion liters, or 12 trillion gallons, of subsidized fuel by at least 15 percent or more. Savings from eliminating or reducing a fuel subsidy could go to crucial public social programs including health care, as well as much-needed infrastructure investment, according to analysts. Ms. Natalia said she would be willing to endure higher gasoline prices — and the accompanying increases in the prices of food, clothing and other items — if the government would spend every penny of the money it saved on social and national development programs. But even then, she had doubts. Ms. Natalia predicted that unscrupulous traders would start hoarding staple foods like rice before a fuel price increase to drive prices up even further, perhaps setting off a crime wave in Jakarta. “It’s the ordinary people who are victimized”, she said. Fuel subsidies are a highly political and emotional issue in Indonesia. Some of the unrest that led to the ouster of the authoritarian PresidentSuharto, who died in 2008, was rooted in fuel prices. Mr. Yudhoyono drew theatrical, albeit minor, protests when he raised gasoline prices in 2005 and 2008, mainly because he gave poorer Indonesians cash handouts to ease the blow. But he then lowered fuel prices before his landslide re-election in 2009, while keeping the handouts in effect, angering his political rivals. In March 2012, Mr. Yudhoyono proposed raising fuel prices again, but even members of his own governing coalition revolted to embarrass him, quashing his plan at a raucous House of Representatives session as student and labor groups outside clashed with riot police officers on live national television. Mr. Yudhoyono was twice elected to office on a platform sympathetic to the country’s poor, and even with national elections scheduled for 2014 and his governing Democratic Party lagging in the polls, he has few viable alternatives but to raise gasoline prices in some fashion, according to analysts.

Power Struggle Indonesian law prevents Mr. Yudhoyono’s government from running a budget deficit higher than 3 percent, and the Finance Ministry estimates that raising gasoline prices would keep the deficit below the legal threshold. “It’s better than nothing”, said Ndiame Diop, lead economist at the World Bank in Jakarta. “It sends the signal that the government is doing something”. However, Mr. Diop said any incremental price increase should be viewed as a stopgap measure. The Indonesian private sector, the World Bank and others have long appealed to the Indonesian government to get rid of subsidies altogether, mainly because studies have shown that the country’s rich benefit from them far more than its poor do. Still, Mr. Diop said, an increase in the price of a liter of gasoline to make it even fractionally closer to the international market level would have to be accompanied by the same compensation program for the poor that Mr. Yudhoyono’s government had in 2005 and 2008, which was viewed as effective. “Our key point is compensation — the need to compensate the poor from the spike in inflation following a fuel subsidy reform”, he said. About 29 million Indonesians live below the country’s national poverty line — 250,000 rupiah per person per month or 1,250,000 rupiah per family per month, and in urban areas, 350,000 rupiah per person per month or 1,500,000 rupiah per family per month. A further 70 million, categorized as near poor, live just above that line. Didik Rachbini, a prominent economist and member of Mr. Yudhoyono’s National Economic Council, which comprises economists and leading businessmen and advises the president on economic policy, said the government had a longstanding fear that increasing the price of fuel would push tens of millions of near-poor Indonesians below the poverty line. “If we increase fuel prices for everyone, the price of 15 to 20 basic goods will also increase, such as rice”, he said. “It would reduce the purchasing power of the poor”. Indonesia has one of the world’s

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strongest emerging-market economies, with growth of better than 6 percent for the past three years. It also has a higher rate of foreign direct investment as a percentage of gross domestic product, at 2.75 percent, than countries like Brazil (2.69 percent), India (1.4 percent) or China (1.36 percent), according to BBVA Research in Hong Kong. Despite the country’s economic boom, Mr. Rachbini said, income among Indonesia’s poor and near poor rose 2 percent in 2012, compared with a nationwide average of 4.8 percent and between 7 percent and 8 percent for more affluent Indonesians. Hence, Mr. Rachbini said, quasi- socialist policies like low-cost gasoline are needed to maintain stability, given Indonesia’s high levels of poverty. “Our budget policy is almost like a socialist country”, Mr. Rachbini said, jokingly. “It’s like Venezuela. But in my view, it brings the stability that gives a chance for foreign investment to come and for us to build our economy”. Yet Mr. Yudhoyono must balance Indonesia’s status as a hot investment destination against deficits in its budget and its current account balance, a measure of foreign trade and investment, which have political, social and even security consequences. He has repeatedly wavered — and has been accused of being weak — on reducing fuel subsidies since being re-elected in 2009 and is highly sensitive to street

demonstrations like those on Wednesday, according to analysts. Mr. Yudhoyono again hedged his bets Tuesday by throwing the political hot potato back into the House, saying fuel prices would be raised “when the poverty funding is ready” from lawmakers when they debate his 2013 budget revision. Some lawmakers were on record last month as being against cash compensation because it could give Mr. Yudhoyono’s Democratic Party a lift before the legislative elections next year. Average Indonesians are anxiously considering their budget and transportation options. Kamela, a 55-year-old homemaker who shops regularly at the Bendungan Hilir market, said she would have to stop driving her Toyota Yaris and take public buses if the government raised the price of gasoline by even 1,500 rupiah. “I can’t just switch to a motorcycle, because I am scared to drive on the streets — it’s dangerous”, she said.

Indonesia’s Fuel Subsidies: Action plan for reform Indonesia spent IDR164.7 trillion (US$18.1 billion) subsidizing fuel products in 2011, of which IDR76.5 trillion (US$8.4 billion) was spent subsidizing gasoline. The rising cost of subsidies is placing a huge burden on limited public resources and presents a fiscal liability, vulnerable to increases in

the international price of oil. Fuel subsidies are also known to be regressive and a highly inefficient tool for reducing poverty and meeting the country’s development needs. The government has made progress toward reform. It has significantly reduced kerosene subsidies with its kerosene-to-LPG conversion program. In January 2012, the government announced plans to reduce subsidies by restricting access to subsidized gasoline and developing gas-based alternative transport fuels, to be implemented by April 2012; and, as of March 2012, the government has announced a plan to raise the price of subsidized gasoline (“Premium”) by IDR1,500 per litre, which is equivalent to one third of the current price. This report is an output from a project whose objective was to assist the Indonesian government to implement fossil-fuel subsidy reform and create a sustainable network to support it. The project mapped the positions of major stakeholder groups based on consultations and surveys conducted in 2011. It also provided new analysis of the practical challenges facing the government’s specific implementation plans to reduce gasoline subsidies, as announced in January 2012. Finally, the action plan draws on both research and consultations to provide a set of recommended actions for progressing fuel subsidy reform.

Unclear taxation obstacle to timely completion of Sarulla project Unclear taxation on the asset transfer for the Sarulla project in Indonesia is delaying the timely completion of the project and a start of operation in 2015. The Sarulla Geothermal Power project in North Tapanuli expected to come online with a capacity of 100 MW in 2015 is facing some obstacles due to unclear taxation issues. This is due to the difficulties of the Sarulla consortium not being able to pledge the assets to secure their loans, as they are still recognized as Pertamina Geothermal properties. The reason is that the upstream and downstream assets have been split with

the upstream assets managed by Pertamina. In regard of the taxation, PT Pertamina Geothermal Energy (PGE) expected that the asset transfer is not subjected by tax or in the other word it is given a tax incentive or tax exempt. Every transfer of assets, needs to be tax exempt. “That is the only problem left, and whenever it is finalized, the SKB can already be signed”, he continued. Djadjang confirmed, the settlement is not a matter of whether incentives will be provided by the Ministry of Finance or not. However, the Government will decide in accordance with applicable laws. “We will adapt the law”. The Medco Power CEO Fazil E Alfitri hopes the target may backtrack to the beginning of 2015 to the first 100 MW. “I still hope that the JOC and three ministerial decree to be signed at the end of this month. Since virtually all of the issues that need to be done live is decided by the government”, he said. Fazil said the drilling process will continue to run even if the SKB three ministers, comprises the Minister of Energy and Mineral Resources, Minister for State Owned Enterprises, and Ministry of Finance regarding Sarulla Geothermal Power Project has not signed yet. The Government wants the 330 MW in capacity project can be completed soon. The SKB would eventually clarify the ownership of assets in the geothermal working areas. However, the signing of the decree would have to wait the completion of the contract cooperation amendment (joint operating contract/JOC). In the Decree, Sarulla assets will be divided into two, the upstream and downstream assets. The State assets in the upstream of Sarulla geothermal are managed by PT Pertamina (Persero), while the downstream assets adjusted for the contract with the developer of geothermal energy. The SKB also give permission to the developer to make the assets as collateral for loans. The length of time the assets are pledged as collateral for future funding. As reported earlier, Sarulla Geothermal Power Plant should be operated by Sarulla Operated Limited (SOL) since last

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It’s taken Asian countries far too long to realise that fuel subsidies are unsustainable and poor economic policy, but there are encouraging signs that change is gathering momentum. Indonesia’s parliament voted in favour of measures on Monday that will see gasoline prices rise by 44 percent and diesel by 22 percent.

up in fuel prices, it might have led to demand destruction earlier, which in turn may have resulted in a milder global recession. In fact, it was after the 2008 oil price spike and subsequent collapse that Asian nations started to re-examine the concept of large subsidies on fuel, which were justified as helping the competitiveness of the economy and easing the burden on the poor.

While these increases by no way end the price support for fuel, it does go a long way to scaling back one of the most generous systems in Asia. Indonesia has joined China, the region’s biggest oil consumer, and India, the third-largest, in moving toward market-based pricing for transport fuels.

While it’s unlikely that Indonesia’s trimming of subsidies will have much short-term impact on Asia’s product markets, over time the nation should consume less fuel per capita than it otherwise would have, had the government support continued. Indonesia by itself isn’t enough to make much impact on global, or even Asian, oil and product markets, but if the process is replicated across Asia, the impact is enormous. Even with the sharp jump in prices, Indonesia will still have fairly generous fuel subsidies.

While scaling back subsidies carries obvious political risks for governments, the benefits are widespread and enduring. The top priority for most governments in lowering subsidies is to improve their fiscal positions, which in turn will allow them to boost social spending in order to alleviate hardship from the higher fuel costs. Indonesia spent about $20 billion on fuel subsidies last fiscal year, an amount that is putting pressure on the country’s budget deficit target and current account deficit. Indonesia raised interest rates last week to support the rupiah, but the real culprit is the current account deficit and that is partly driven by fuel subsidies. But repairing balance sheets isn’t the main benefit from an energy markets perspective. Lowering, or eliminating subsidies, encourages efficiency and improves economic output per unit of fuel. It also allows demand to adjust far more quickly to price shocks, which in turn should lessen the volatility of global oil prices. In 2008 when oil surged toward $150 a barrel, consumers in much of Asia were unaffected as the retail fuel prices remained largely steady. If they had been exposed to the run

Gasoline will cost about 66 cents a litre and diesel 55 cents. This is well below the Singapore prices of 73.5 cents and 76 cents respectively, on a free-on-board basis, meaning they exclude the costs of transportation from the refinery, any taxes and retail margin. However, major consumers China and India are now a lot closer to having market prices for their fuels, following several years of reforms. China’s gasoline currently costs about $1.08 a litre and diesel about $1.12, while India’s most recent adjustment on June 16 took gasoline to $1.14 and diesel to 86.6 cents. This means that only diesel in India enjoys any substantive subsidy, the rest being fairly close to the cost of production and distribution. However, countries such as Malaysia, and to a lesser extent Vietnam and Bangladesh, still retain fuel subsidies. Subsidies were an election issue in Malaysia’s recent vote that saw the ruling party return with a reduced majority. The opposition said it would lower them if elected in order to free up revenue for other priorities. But the end, or substantial reduction, of subsidies across Asia still isn’t enough to set the region’s fuel demand growth on

a more sustainable trajectory. It will require the imposition of taxes or government mandates to encourage improved efficiency. In Australia and Singapore, retail gasoline and diesel prices are roughly double the Singapore free-on-board price, with taxes making up about one-third of the total cost. This still leaves fuel cheaper than in most of Europe, but more expensive that in the United States. Higher prices would go some way toward moderating Asia’s demand growth outlook, which accounts for the bulk of the expected global total. The International Energy Agency (IEA) forecasts Asia-Pacific demand to rise by 500,000 barrels per day (bpd) in 2013 to 29.9 million bpd, while the rest of the world is expected to boost consumption by a combined 300,000 bpd. By 2016, Asia-Pacific oil demand is expected to be 3.4 million bpd higher than it was in 2012, according to the IEA. Removing subsidies and ultimately levying taxes on fuels would be the best way of slowing that figure down. The boost to government revenues, economic efficiency and the reduction in pollution would far outweigh the cost of establishing other assistance to genuinely poor households.

Regulars - Power Struggle 2007. However, up to now the preparation is still on paper since the Sarulla consortium can’t pledge the assets to secure their loans. The assets are still recognized as PGE properties, while actually the Consortium is the institution that disburse the funds for the project finalization. This US$1.4 billion-worth project funding composition comprises around 30% from internal while the rest is by Japan Bank for International Cooperation (JBIC). PLN bidding resulted a consortium participated by, Medco Power which controls some 37.5%, Kyushu Electric (Japan) around 25%, Itochu Corporation (Japan) at 25%, and the remaining of 12.5% is owned by Ormat International Inc. (USA).

Why Indonesia’s 10,000 MW steam power plants target by 2014 a failure The first phase of the project aimed at producing 4,135 MW in 2010 but only 930 MW were in fact produced. Asian Power spoke with MedcoEnergi chief financial officer Syamsurizal Munaf and below is what he has to say about the ‘ambitious’ program and the hurdles that come with it. As you were probably aware, for the last 3 years the goverment has molded the so-called 10000 megawatts per year development and to our extend the program have been successful. Nevertheless, there are a series of hurdles in the implementation ranging from the prospects all the way to sponsors’ ability to access capital market to help developing this capital market which is very aggressive. I would say, very ambitious program, though the reality is we do need to accelerate the power generation to serve 225 million people across the country. I think this is the biggest, the largest if ever in the Southeast Asia. I would say, as an IPP developer, we experience similar difficulties especially when dealing with the government, determining the price, determining the current needs all the way to gaining access to capital market. When talking about funding a project, if you are looking at the first 100-200 megawatts, you will probably be looking for information or financing to help funding the project for domestic financing. Domestic financing is not as

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Power Struggle huge as the international market. You are faced with the scarcity of liquidity to build the plant. But notwithstanding the fact that we are not the only IPP around. There are many competing for the same case there, for the 10000 MW target. One of the blunders there, is that in different areas there is a very clear policy on how they determine the price of electricity that they can purchase from the IPP. In Eastern part of Indonesia they would probably quantify more while in the Western part of Indonesia they would probably less quantify. In any rate, the hardest part would be coming up with the priority structure that can be accessible to us. I think one of the major challenges is that the process of negotiating with the government is in a way very sluggish. There are so many elements that cannot be processed and even very very lengthy. Sometimes, you win the bid but to get to the bid, just for the sake of determining the price, it takes ages and sometimes it doesn’t have sufficient ammunition to carry the deal. That kind of situation happens so often and comes with a price, so only those with strong capital and capability to cope and deal on to the pipeline is most likely to succeed. Others, they cannot hold on to a project too long and wait for the negotiation to conclude. I don’t know much about how the neighboring country redeems in their effort to promote their power generation business. What I know is in Thailand, I learned that they are more lucrative in a sense that they have a long term contract of PPA. So in 25 years, their power generation system can secure gas enough for 25 years. Wherein in Indonesia, you can barely see anything, anywhere close to that parameter. In Indonesia, you could get a GSA gas sales agreement contract of not more than 6-7 years and it’s not even a committed-based contract. You see how difficult this is in Indonesia trying to get a healthy IPP contract because of that element. The gas supplier and its gases and the PPA itself will not go beyond 8-9 years. Because in our case, because we are focusing on gas, the parameter lays has competing the ability of gas and the ability of the taker which in our case, set

to enterprise to purchase our electricity and they cannot simply be too generous to purchase the parts because they are under pressure of the people of the parliament. They cannot purchase the electricity to expand it because they will get criticized deeply. We want to be on track but that hurdle some of the things that I’ve shared with you is becoming the aspect to ensure the government promotion to put this 10000 megawatt program to work because of the so many obstacles in the process. I’m not sure if the 10000 will ever be achieved. I think the Indonesian government before they launched, before they launched this 10000 megawatt program they should have probably looked into various aspects to make sure that the 10000 of the promoting is something feasible. There are other elements they need to look at not merely just the ambition, but they need to look at the capability, their resources, the power fee, the distribution capability but they are not yet attained since they launched this 10000 megawatt program. I think that the 10000 megawatt is something they have probably put a lot of study in order to achieve the ideal situation of having 25 million people getting electricity. The electricity reached only 60% of the population and we are still talking about 40 % of Indonesians that have no access to electricity.

Indonesia and China reform power sector Indonesia has the largest population in the Southeast Asia and the fourth largest population in the world (behind China, India, and the United States). But Indonesia’s power sector faces shortages on electricity due to underinvestment in new generating capacity. This is because the country’s power generation sector is dominated by the state-owned electric utility PT PLN (Persero), formerly known as Perusahaan Listrik Negara. The PT PLN operates 45 power plants, or roughly two-thirds of the country’s generating capacity. In 2004, Indonesia had 25 gigawatts (GW) of installed electricity generating capacity. During 2004, Indonesia generated 112.6

billion kilowatt hours (Bkwh) of electricity, of which 86 per cent came from conventional thermal sources (oil, natural gas, and coal), eight per cent from hydroelectric sources, and five per cent from geothermal and other renewable sources. In 2004, Indonesia consumed 104.7 Bkwh of electric power, showing net electricity exports during the year. According to the 2002 Electricity Law, certain markets for power generation was to be opened for competition from 2007, while retail market competition was scheduled for this 2008, when power producers would be able to sell directly to their customers rather than through PT PLN. The 2002 legislation also established a new regulatory body, the Power Market Supervisory Agency, and created incentives for rural electrification programmes. Because of the threats of severe underinvestment, the government set out on a programme to expand generation capacity. The plan, known as the “10,000 MW Acceleration Programme”, aims to add 10,000 MW of new capacity by 2010. In September 2002, the government passed a new legislation aimed at strengthening regulatory guidance in the power sector and promoting new investment in power projects. However, little progress has been made on these proposals, mostly because foreign and private companies have shown little interest in investing in Indonesia’s electricity sector. Some of the previously-cancelled Independent Power Projects have been revived, but many of them remain in a stalemate over payment disputes. One of the major obstacles to increasing Indonesia’s power generating capacity is pricing. The government sets the price at which PT PLN sells electricity in the country, and since the Asian Financial Crisis, it has often had to sell electricity at less than the cost of production. PT PLN’s financial difficulties, coupled with its inability to increase power prices, have prevented the company from investing in new infrastructure projects to build up capacity. Indonesia’s power is generated from a combination of sources including the conventional thermal, geothermal, thermal and other renewable. In 2004,

the country generated 9.4 Bkwh of electricity from hydroelectric sources, representing about eight per cent of the country’s total generation. According to a U.S. Energy Information Administration data, Indonesia generated 6Bkwh of electricity from geothermal and other renewable sources in 2004, making up about five per cent of the country’s total electricity supply. However, outside sources claim Indonesia currently has more than 800MW of geothermal capacity, making it the fourth largest producer of geothermal power in the world behind the United States, Philippines, and Mexico. Industry reports also suggest that Indonesia holds vast hydropower potential, but that the country was yet to embark on the same sorts of large hydroelectric facilities as seen elsewhere in the region. But the government estimates that the country holds large untapped geothermal resources, with the potential to supply up to 21 GW of additional generating capacity. Since hydropower plants require huge upfront capital investments, it is unlikely that PT PLN or other companies in Indonesia will have the incentive to invest in hydroelectric projects in the near term. Several plans for large-scale geothermal development projects were scrapped when Indonesia faced economic turmoil during the Asian Financial Crisis.

representing the currently best available technology.The development of the electricity supply sector is characterized by a dynamically growing renewable energy market and an increasing share of renewable electricity. This will compensate for the reduction of coal and a reduction in fossil-fired condensing power plants to the minimum required for grid stabilization. By 2050, 60 per cent of the electricity produced in Indonesia will come from renewable energy sources. ‘New’ renewables, such as wind, biomass, geothermal and solar energy, will contribute 70 per cent of this capacity. The following strategy paves the way for a future renewable energy supply:

But the government has stated that it would like to promote natural gas-fired and coal-fired power stations so that the country can utilize its domestic resource base and shift away from oil-fired power generation.

The reduction of coal power plants and increasing electricity demand will be compensated for initially by bringing into operation new highly efficient gas-fired combined-cycle power plants, plus an increasing capacity of geothermal power plants. In the long term, geothermal, solar photovoltaic and biomass will be the most important sources of electricity generation. PV, biomass and geothermal energy will make substantial contributions to electricity production. In particular, as non-fluctuating renewable energy sources, geothermal and biomass will be important elements in the overall generation mix. Because of nature conservation concerns, the use of hydro power will be limited to small hydro power plants and grow up to 12,000 MW in 2050, although the potential is even higher.

Under the Energy Revolution Scenario, electricity demand is expected to increase to a disproportionate extent, with households and services the main source of growing consumption. Due to the exploitation of efficiency measures, an even higher increase can be avoided, in spite of continuous economic growth, leading to an electricity demand of around 360 TWh/a in the year 2050. Compared to the Reference Scenario, efficiency measures will avoid the generation of about 200 TWh/a. This continuing reduction in energy demand can be achieved in particular by using highly efficient electronic devices

Again due to nature conservation concerns, the use of biomass will be largely limited to agricultural waste and grow up to 5,000 MW in 2050, although the technical potential is ten times higher. The installed capacity of renewable energy technologies will increase from the current 5GW to 78GW in 2050. Increasing renewable capacity by a factor of 15 within the next 42 years requires policy support and welldesigned policy instruments. Because electricity demand is still growing, there will be a large demand for investment in new capacity over the next 20 years. As investment cycles in the power sector

Regulars - Power Struggle are long, decisions for restructuring the Indonesian supply system need to be taken now. To achieve an economically attractive growth in renewable energy sources, a balanced and timely mobilization of all technologies is of great importance. This mobilization depends on technical potential, actual costs, cost reduction potential and technological maturity. Up to 2010, hydro-power and biomass will remain the main contributors. From 2020 onwards, the continually growing use of geothermal will be complemented by electricity from photovoltaics, especially for the supply of households in villages and Indonesia’s more than 6,000 inhabited islands.

“Indonesia has the largest population in the Southeast Asia and the fourth largest population in the world (behind China, India, and the United States” Until 2002, China’s power sector was run as a single unit under a state monopoly, the State Power Corporation. Thereafter, the unit was separated into generation, transmission, and services units. According to an industry study conducted at the end of 2005, over 120 GW of generating capacity is currently under construction in China. Although much of the new investment has been earmarked to alleviate electricity supply shortages, some independent analysts forecast the possibility of oversupply as an assortment of new projects are scheduled to come online between 2007 and 2009. To ward off a possible supply glut, Chinese government officials have made an effort to approve new projects at a steady and measured rate. Since the reform, China’s electricity generation sector is dominated by five state-owned holding companies, namely China Huaneng Group, China Datang

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Power Struggle Group, China Huandian, Guodian Power, and China Power Investment. These five holding companies manage more than 80 per cent of China’s generating capacity. Much of the remainder is operated by independent power producers, often in partnership with the privately listed arms of the state-owned companies. Deregulation and other reforms have opened the electricity sector to foreign investment, although this has so far been limited. During the 2002 reforms, SPC divested all of its electricity transmission and distribution assets into two new companies, the Southern Power Company and the State Power Grid Company. The government aims to merge SPC?s 12 regional grids into three large power grid networks, namely a northern and north-western grid operated by the State Power Grid Company and a southern grid operated by the Southern Power Company and the hope to achieve an integrated national electricity grid by 2020. Also in 2002, the State Electricity Regulatory Commission was established, which is responsible for the overall regulation of the electricity sector. In view of its huge population, China has a cocktail of energy mix, although its electricity generation continues to be dominated by fossil fuel sources, particularly coal but the government has made the expansion of natural gas-fired power plants a priority. Conventional thermal sources are expected to remain the dominant fuel for electricity generation in the coming years, with many power projects under construction or planned that will use coal or natural gas. In 2004, China was the world’s second-largest producer of hydroelectric power behind Canada. In the same year, it generated 328 billion kilowatt hours (Bkwh) of electricity from hydroelectric sources, representing 15.8 per cent of its total generation. This figure is likely to increase given the number of large-scale hydroelectric projects planned or under construction in China. During the same period, China had total installed electricity generating capacity of 391.4 GW, 74 per cent of which came from conventional thermal sources. In 2004, China generated 2.08(Bkwh) and consumed 1.93Bkwh of electricity. Since

2000, both electricity generation and consumption have increased by 60 per cent. Between 1990 and 2010, the country is expected to almost triple its consumption of electricity. China recently opened its power sector to foreign investment. Several joint ventures have already been established for the construction of electric generating units. China is modifying its legal framework to allow the possibility of full foreign ownership of power plants. In at least one project a build-ownership-transfer financing arrangement is being tested. Coastal constructed a 40-megawatt power plant in Wuxi City and began construction on a 76-MW power plant in Suzhou, and plans a 72-MW plant in Nanjing. Enserch reached an agreement to co-operatively develop and operate a 36-MW coal-fired plant near Zhejiang.As with coal mining, the Chinese government is looking to shut down or modernize many small and inefficient power plants in favour of medium-sized (300 to 600MW) and large (1000MW and up) units. China’s eleventh five-year plan, covering the period 2005-2010, calls for the country to increase the share of natural gas and other cleaner technologies into the country’s energy mix. There are several examples of China’s effort to bring new natural gas-fired power stations online. In July 2006, Huaneng Power International, which is China’s largest listed electricity generation company, started operations at a new natural gas-fired power plant in Shanghai. The facility has a capacity of 1,200MW, making it China’s largest natural gas-fired power station. Construction is also underway at the 2,000-MW Huizhou power plant near Shenzhen that will use 560,000 metric tonnes of Liquefied Natural Gas per year from the new Guangdong terminal. Also in Guangdong, at least six other 300-MW natural gas-fired units are planned or under construction, and 1.8GW of other existing coal and oil-fired power plants are being converted to run on natural gas. The first natural-gas fired plant in

Beijing started operations in July 2006. The new unit has a capacity of 150MW, and several companies worked hard to open additional larger natural gas-fired generators in Beijing before the 2008 summer Olympics. Although many analysts forecast that natural gas will see the greatest percentage rise in installed electricity generation capacity over the next decade, coal is expected to show the largest increase in absolute terms. In the first half of 2006, the continued uncertainty over future Russian natural gas supplies and the rising costs of planned LNG imports may push China even more toward coal for its future energy needs. China has vast coal reserves, much of which have yet to be developed, and coal projects tend to be much cheaper than natural gas or other sources. China is currently building the Three Gorges Dam hydroelectric facility, which, when completed in 2009, will be the largest hydroelectric project in the world. This will include 26 separate 700-MW generators, for a total of 18.2GW. When completed, although the Three Gorges project already had several units in operation, but the project is not expected to be fully completed until 2009. Another large hydropower project involves a series of dams on the upper portion of the Yellow River. Shaanxi, Qinghai, and Gansu provinces have joined to create the Yellow River Hydroelectric Development Corporation, with plans for the eventual construction of 25 generating stations with a combined installed capacity of 15.8GW. China is also actively promoting nuclear power as a clean and efficient source of electricity generation. Although it makes up only a small fraction of China’s installed generating capacity, many of the major developments taking place in the Chinese electricity sector recently involve nuclear power. EIA and independent sources forecast that China will add between 15 and 30 GW of new nuclear energy capacity by 2020, but even with this expansion, nuclear power will only represent between 2.5 and 4.5 per cent of total installed generating capacity. As of mid-2006, China had eight new

nuclear power plants under construction, the biggest of which is a 6-GW nuclear complex at Yangjiang in Guangdong province, set to begin commercial operation in 2010. The project faces an obstacle because of its unique business model “For the TJB expansion project of constructing Units 3 and 4, achieving an early start-up was the top priority, considering the tightening power supply in the country. Therefore, a finance lease scheme, the same business model used for Units 1 and 2, was considered as the best option”, said Yasushi Yoshida, Director of the Jepara Site Office, PT. Central Java Power (CJP), a fully-owned Indonesian subsidiary of Sumitomo Corporation. Mr. Yoshida was one of the members in Indonesia who promoted the expansion project. In the course of arranging the expansion project by again using the finance lease scheme, an unexpected problem emerged. It turned out that the legal framework needed to be sorted out regarding existing licenses for CJP operations, i.e., a business operation license granted by the Ministry of Finance and a license as an electricity generation operator granted by the Ministry of Energy and Mineral Resources. In Indonesia, a financial lease had not been used for a power plant project before and CJP was the first power business operator who had received licenses in such a way. The two licenses were both indispensable for CJP’s business; both were needed, or the company would not have been able to operate. The project team discussed possible solutions and concluded, “What we need to do first is to have the Indonesian government gain a better understanding that this business model is right for the project and that the TJB project is necessary for Indonesia. We should call on them to take necessary measures, say, developing new legislation or a similar framework. Doing this is necessary to protect the overall TJB project”. The governmental officials who had previously readily accepted the resumption of construction on Units 1 and 2 were no longer in office or no longer involved in the expansion project

due to a change in the ruling party and personnel shuffling. Therefore, the project team needed to patiently explain from scratch the rationale and benefits of using the finance lease scheme. “Although for the expansion project, that process required the longest amount of time, we were finally able to obtain the government’s understanding of the necessity of having two business licenses”, said Mr. Yoshida. In November 2008, CJP finally entered into a finance lease agreement with PLN for TJB Units 3 and 4. JAKARTA - PT PLN (Persero) will receive an additional power supply of 2,800 mega watts (MW) by the end of 2013 from 10,000 mega watts (MW) power generation acceleration program phase I (FTP I). Nasri Sebayang, Director of Construction and Renewable Energy of PLN, said additional electricity supply comes from 19 power plants. Total power plant of FTP I which operates by the end of the year would reach 8,000 MW. The government is asked to prepare standardization for the preparation of power plants construction to avoid initial obstacles and ensure timely start and completion. Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform Indonesia, said some power plants such as Batang steam power plant (CPP) in Central Java, experienced delay in construction because the government does not have standards for land acquisition and management of environmental impacts. Energy consumption failed to rise significantly because national energy sources have not been successfully supplied on time. Tumiran, member of the National Energy Council (DEN), said the accelerated development program of the 10,000 mega watts (MW) coal-based power plant remains unfinished, prohibiting energy consumption from increasing. “The growth in energy consumption occurs when there is reinforcement of energy infrastructure. The strengthening of energy infrastructure needs stronger industry. This will encourage employment growth and energy consumption”, he told Finace Today on Tuesday.

Feature

What to Consider When Designing Smart Gas and Water Meters The industry is in the midst of building a smarter grid. Billions of dollars worldwide are being poured into research and development, fueling innovations for and significant growth of the smart grid. One particular example is the shift towards smarter, more advanced meters. While this trend first started off with the electricity meter market, the adoption of smart meters within the gas and water meter market is also gaining momentum. The global smart water meter installation base continues to grow, tripling from 10.3 million units in 2011 to 29.9 million units by 2017 (Pike Research, 2012). As the global demand for this limited resource continues to increase to 45% by 2030 (World Bank, 2011) and as aging infrastructure becomes even greater of an issue, governments and utility companies are under increasing pressure to better manage their water supply. On the gas meter front, annual unit shipments will rise from 1.9 million

smart gas meters in 2010 to 7.8 million by 2016. Forecasts indicate that a total of 28.4 million smart gas meters will be shipped worldwide between 2010 and 2016, and that the total installed base will reach up to 36.3 million units by the end of that period (Pike Research, 2011). This trend is heavily driven by the European market where governments and regulations continue to drive smart gas meter rollouts. The 20% energy efficiency goal, part of the 2020-20 initiative driven by the EU’s Energy Efficiency Directive, attempts to address long-term challenges around an affordable, secure and sustainable energy supply. For consumers, access to more accurate and insightful data regarding their energy consumption can help them handle their energy use and save money more effectively. The UK currently has the largest number of gas meters in Europe with 22 million units. In response to the government’s vision of deploying all smart

gas meters by 2020, suppliers such as British Gas have pushed forward with smart gas meter rollouts. Italy, the second largest gas country in Europe with an installed base of 21 million units, has already kicked off large pilots for a mandatory mono gas rollout (van Dyck, 2011). Finally, in France, pilot programs have been supported by Gaz reseau Distribution France (GrDF) to analyze the possibility of a future mass deployment to its 11 million gas meter customers (Itron, 2010). These successful pilots enable comparison among meter-reading technologies, radio frequencies, and functionalities, along with other factors such as cost of ownership, of smart metering solutions from various vendors. The results and conclusions drawn have assisted in defining requirements and technical specifications for these specific markets, leading to greater contribution to the growth of the smart meter market.

Designing smart meters under changing regulatory environments Regulations affect smart meter adoption rates and also specifications that determine a meter’s functionality. The challenge is that future changes in regulations can bring significant unforeseen costs to stakeholders across the entire smart grid chain. The Department of Energy and Climate Change (DECC) in the UK, for example, is now on its second version of the Smart Metering Equipment Technical Specifications (SMETS). Under the SMETS v2, both 2.4 GHz and 868 MHz

Feature - Designing Smart Meters frequencies, with ZigBee® SEP v1.x as the proposed application layer for gas meters, have been recommended as viable radio frequency (RF) communication choices for Great Britain. While 2.4 GHz-based meters will continue to be developed and deployed into the market, the possibility of having to also support 868 MHz-based meters in the future adds complexity to designing future-proof smart meters. In general, some meter manufacturers may choose to go down the path of integration, while others may choose to take a more modular approach for their gas or water meter platform. This integration versus modular dilemma is commonly seen around the metrology and communication functionalities. There are clear pros and cons for each case. On one hand, combining the two functions onto one microcontroller can reduce up-front system cost, which can improve competitiveness in the market. RF system-on-chip (SoC) solutions, such as the CC430F6147 from Texas Instruments, can handle both metrology and communication functionalities for simpler smart meters. Designers save on board space and on device costs. However, the complexity of certifying the metrology portion, which requires securing the metrology firmware code against tampering and other potential sources of manipulation or failure, adds time and resources needed in the development process (Stefanov, 2012). On the other hand, splitting the two functions into two separate devices brings greater security and design flexibility. Designers can approach this with a two-processor architecture (MCU plus RF SoC), a single-processor architecture (MCU plus transceiver), or another logical combination (Stefanov, 2012). Combining two processors, such as TI’s ultra-low-power MSP430F5438A MCU and CC2538 RF SoC for the 2.4 GHz ZigBee market, creates a physical hardware separation between metrology and communication. This is more secure than running both codes from the same MCU and eliminates unnecessary time and cost

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for recertification of the metrology portion. While the modular, more risk-averse, approach tends to carry a higher price for bill-of-materials (BOM), reuse of certain portions helps realize potential cost savings for complex smart meter designs targeted for multiple markets. One example would be to use the same MCU platform based on the ultra-low-power MSP430F5435A microcontroller for both sub-1 GHz and 2.4 GHz markets, or to use the same RF module based on TI’s CC1120 sub-1 GHz transceiver for both gas and water meter solutions. IC suppliers typically also offer pin-compatible MCU or RF derivatives with additional memory and/or better system performance (Stefanov, 2012). Having the flexibility in options can significantly reduce resources needed for subsequent design changes. For meter manufacturers, this translates to reduced manufacturing costs and, all else being equal, greater return-on-investment. A few markets have clearly defined their technical specifications for smart gas and water meters, and have moved ahead with deployments. However, other markets around the world have not yet been impacted by mandates and regulations or have been slow to adopt. Neglecting to plan for potential changes in market requirements can generate unneces-

“Forecasts indcate that a total of 28.4 million smart gas meters will be shipped worldwide between 2010 and 2016, and that the total installed base will reach up to 36.3 million units by the end of that period”

Designing Smart Meters sary higher development and operational costs. Well-thought meter designs will therefore buffer for future market requirements, creating sustainable and cost-effective smart meters.

Enhancing performance by optimizing for low power and high efficiency Traditional electronic gas and water meters require up to 20 years of battery lifetime—this has long been mastered by the metering industry. The market continues to demand support for wireless communication, remote connection and disconnection, remote firmware upgrades, end-toend encryption and authentication, prepayment, and so on. This growing list of requirements compromises the ability to achieve battery lifetime standards. The electronics that enable such a smart gas or water meter can be broken down into the following building blocks as portrayed in Figure 1—a metrology or sensing section, a control/processing unit, a communication system, and a power management system. It goes without saying that selecting low-power IC components contributes to minimizing current consumption. However, designers quickly reach a point where the power-savings achieved by selecting the lowest-power components is simply not enough to hit battery-life goals. Let’s take Italy’s smart gas meter rollout as an example. The Italian market has leaned toward 169 MHz Wireless M-Bus (EN13747-4) over 2.4 GHz ZigBee as the preferred method for wireless communication. The use of the 169 MHz band offers better range, which reduces the need for and, more importantly, the high cost of implementing repeaters (van Dyck, 2011). However, 169 MHz-based designs require a power amplifier (PA) in order to achieve desirable RF performance (see Figure 2). Due to intrinsic inefficiencies, PAs consume a significant portion of the overall power budget and therein lies a major design challenge (Jacob, 2011). In order to prolong a meter’s life expectancy, designers must find the

most practical way to improve RF PA efficiency and performance. The cost of adding more batteries quickly outweighs the benefits of increased capacity or voltage supplied. Using super-capacitors or lithium batteries with a hybrid layer capacitor (HLC) can assist in extending battery service life. However, these solutions alone are sometimes not sufficient. A more design-friendly and cost-effective approach to enhancing the RF PA system efficiency would be to use DC/DC converters. Additionally, this approach can not only able to provide stable, higher supply voltages to the RF PA for greater output power, but it also offers more flexibility in battery and IC selection. Designers can boost a meter’s life expectancy even further by managing other power-hungry functionalities (e.g. encryption). Devices that are specifically designed for wireless and battery-operated applications range from standard ICs to integrated power solutions. A linear dropout regulator or DC/DC converter is an appropriate choice to resolve isolated performance issues. For more complex metering systems, a power management IC (PMIC) provides a more compact

and effective alternative to a discrete implementation. These techniques enable the industry to meet service-life requirements once again, sidestepping future meter maintenance and replacement costs. Running smart meters directly off lithium batteries has its limitations— power budget must be increased or performance, at times, must be compromised if meter requirements are to be met. Proper selection and implementation of a power management solution can eliminate having to sacrifice one over the other. When the long-term benefits that these solutions bring to the market are taken into account, the small up-front cost reveals itself as a valuable investment.

Conclusion

to drive the adoption of smart gas and water meters within the industry. While migrating to smart meters adds a new layer complexity, the return on investment, such as improved customer experience and energy efficiency, is becoming more apparent. As the grid continues to evolve, challenges around physical infrastructure, data management infrastructure, interoperability, consumer privacy and data protection, and security also influence the scope of smart meter design. This requires careful implementation of new technologies and design methodologies for true future-proof solutions. Collaboration amongst stakeholders, now more than ever, is instrumental in building a more secure, cost-effective, and resilient smart grid.

Regulations and standards continue

About the Author Olivier Monnier is the Worldwide Smart Grid Marketing Manager at Texas Instruments in Dallas, Texas - responsible for smart metering and smart grid market segments. With more than 14 years’ experience in industrial energy-related applications, he holds a degree in energy conversion and power electronics at the engineering school l’École Nationale Supérieure d’Electricité et de Mécanique (ENSEM, Nancy, France).

References Itron, Inc. (2010, 29 July). GrDF Selects Itron to Deploy Smart Metering System in France. [Press release]. Retrieved from http://investors.itron.com/releasedetail.cfm?ReleaseID=493973. Jacob, M. (2011). Optimizing RF Power Amplifier System Efficiency Using DC-DC Converters. Retrieved from http:// www.ti.com/lit/an/snva593/snva593.pdf. Pike Research. (2011, 24 March). Smart Gas Meter Penetration to Reach 11% by 2016. [Press release]. Retrieved from http://www.pikeresearch.com/newsroom/smart-gas-meter-penetration-to-reach-11-by-2016. Pike Research. (2012, 23 May). Rising Demand for Water to be a Key Driver for Smart Water Meter Adoption. [Press release]. Retrieved from http://www. pikeresearch.com/newsroom/rising-demand-for-water-to-be-a-key-driver-for-smart-water-meter-adoption. Stefanov, M. (2012). Enabling Next Gen Smart Utility Meters. Retrieved from http://www.eetimes.com/design/smart-energy-design/4397599/Enabling-next-gen-smart-utility-meters. van Dyck, C. (2011). Smart Gas Metering on the Move in Europe. Metering International, (4), 44-46. Retrieved from http://www.flonidan.dk/media/metering-4-2011_Article_Smart_Gasmetering_CVD.pdf.

TI @ a glance About TI:

Revenue in 2012: Total: $12.8

Case Study

TI is a global semiconductor design and manufacturing company

billion

• Operating in more than 35 • • •

countries Serving more than 100,000 customers worldwide Innovating for more than 80 years More than 100,000 analog ICs and embedded processors, along

with software and tools • Industry’s largest

sales and support staff Learn more at www.ti.com (in billions of dollars)

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Employee information: Approximately 33,200 worldwide $3.6 Other

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1,900 in Japan

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TI’s Jack Kilby invented the integrated circuit in 1958. TI has more than 40,000 patents and issued another 1,200 worldwide in 2012. TI has won two Emmy® Awards for DLP® technology. TI is the first semiconductor company to earn certification from the U.S. Green Building Council.

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• The company’s headquarters is located at 12500 TI Boulevard, Dallas, Texas 75243. • Rich Templeton serves as TI’s chairman, president and chief executive officer. • The company is publicly traded (NASDAQ: TXN).

Sustaining growth amid unsustainable shortage Countries acknowledge that consistent power supply is an imperative element in achieving and optimising economic development, and Asia’s emerging markets are no different. Often seen as the engine for global growth, these markets offer unique financial opportunities and rely on the continued strong performance of power-intensive industries to ensure a better standard of life for their people. The World Bank suggests that the East Asia and Pacific region‘s economy will grow by 7.9 per cent in 2013, having already contributed almost 40 per cent of global growth in 2012. Despite this, more than 130 million people in Southeast Asia – or over one-fifth of the region’s total population – still lack access to electricity. Compounding this is the fact that electricity consumption continues to grow by an average of 4.2 per cent per year, with the region’s electricity demand projected to dramatically increase 50 per cent by 2020. This rapid rise in required power is a result of both growing consumer demand and ever-increasing activity in the three industries most-

prominently driving the regional economy: mining, manufacturing and oil & gas. In fact, the manufacturing and oil & gas sectors will cumulatively account for more than 50 per cent of developing Asia’s GDP from 2013 onwards.

approach is helping them work around prevalent issues and putting them in a position to continue driving Asia’s economic prosperity.

These industries are connected by their critical reliance on large-scale power. In the mining industry, for example, significant energy is required to power the operation of essential exploration equipment, machinery in material processing plants, the accommodation facilities of workers, site offices from which key decisions are made and even the conveyor belts that transport raw materials. In order for these power-intensive industries to continue to survive and thrive, a stable power mix is vital.

The region is confronted by unique power challenges caused by both actionable and uncontrollable factors. These combined problems result in insufficient generation capacity and poor transmission infrastructure that have the potential to stymie socioeconomic development and

With ongoing power instability across the region now coming to a head and impacting the production and performance of vital sectors and the companies that operate within them, Asia’s economic potential is being significantly limited. Perennial issues such as electricity shortfalls and power outages have slowed long-term development and forced businesses and governments alike to consider immediate solutions. The barriers to eliminating power supply problems, such as subsidised energy prices and under-developed energy grid networks, are currently being addressed. However, these require long-term, infrastructuredriven solutions that do not necessarily provide immediate reprieve. Companies are therefore employing short-term, temporary solutions to meet power demand as effectively as possible. This alternative

The challenges of powering growth

“Future trends predict Asia will need to invest between $7 trillion and $9 trillion in power infrastructure by 2030 to meet electricity demand” industrial growth, keep foreign investors away and limit the competitiveness of local businesses. Consistent shortages are forcing Asian nations to import costlier foreign supplies and subsequently raising overall energy prices. The gap between demand and supply is a particularly prominent inhibition on economic growth, and this challenge is usually caused by a lack of grid capacity and infrastructure investment. India, for example, experienced an energy shortfall of 8.7 per cent in 2012-13, threatening a GDP

Case Study - Sustaining Growth drop of as much as 0.7 per cent. The Indian Ministry of Power states that electricity supply capacity has persistently fallen 10 per cent short of peak demand since 2000, causing prevalent rolling blackouts and subsequent losses of 566.4 billion rupees across the 15 Indian states that account for 91 per cent of the country’s electricity consumption. Similar problems are seen in Indonesia where, despite the country’s annual economic growth of six per cent, declining infrastructure investment over the last ten years is restraining further growth by as much as three to four per cent of GDP each year. While further investment can go some way to mitigating these problems,

Another significant power obstacle is the unique geographies of Asia’s emerging countries. Indonesia, for example, comprises 17,000 islands, making it particularly difficult to develop consistent grid infrastructure that serves large areas. Further to this, mining and oil & gas sites are usually located in remote areas with limited access to consistent power. These geographic peculiarities extend to the effects of the seasons on power supply. Hydroelectric dams supply 70 per cent of Myanmar’s power, but their capacity drops during the dry season. In a country where more than twothirds of the population has no access to electricity, this seasonal impact on existing power supply is devastating.

Sustaining Growth with the same systems. This change in the industry paradigm is being driven by the adoption of smart grid technologies and smart meters (particularly by private sector providers) which make it possible for utility businesses to accommodate emerging needs around demand response, real-time operational control and distributed generation. Plans are already underway to implement this technology in markets such as India, Japan (with its high-tech yet power-constrained grid landscape) and the Philippines. In India, it is believed smart metering could help eliminate the nearly 30 per cent of generated power that is wasted in the transmission & distribution process

generated by its large agricultural sector would significantly improve energy sustainability. However, these solutions are dependent on significant financial and time investments from both the public and private sectors. Future trends predict Asia will need to invest between $7 trillion and $9 trillion in power infrastructure by 2030 to meet electricity demand, and this level of capital outlay is not a realistic short-term possibility. The significant time commitment required for developing these more permanent infrastructures also has ramifications on businesses and growth in the immediate term.

demand often outstrips immediate financing ability – as in the case of Vietnam. The country’s growing energy needs can only be met through an annual investment of almost $5 billion for the next two decades, but this amount has proved difficult to raise thus far. In these circumstances, foreign investment is viewed as the best way to expand electricity generation, transmission and distribution. Vietnam’s Ministry of Planning and Investment has taken initial steps to make its energy sector more attractive by raising electricity prices, but these moves may not take effect in time to prevent significant power shortages in Southern Vietnam.

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Bridging the gap A number of solutions have been identified to address these problems in the long term. The importance of increasing efficiency in power generation throughout the region is cited as a vital first step – particularly in countries such as India, where consumers remain starved of energy despite 15 per cent of the state’s finances going to the power sector. To prevent these wasted efforts from continuing, experts have pointed to an imperative need to modernise power plants – a difficult step for an industry that has operated for several decades

through leakage and theft. In addition to technological improvement, alternative energy sources beyond traditional, coaldriven electricity are also on the agenda. China has recently announced an intention to start building nuclear power plants in inland areas, hoping to both optimise its energy distribution and ease the burden of coal transportation. Renewable energy is also growing in credibility, with biomass conversion now seen as part of the solution to India’s well-documented power issues. The country’s biomass potential is estimated at over six times its installed capacity, and the possibility of utilising mass waste

Increasingly, companies and governments are waking up to temporary power solutions to meet

near-term challenges and long-term goals. In augmenting both inconsistent supply and grid capacity that is inadequate for keeping up with demand from businesses and consumers alike, temporary power is helping Asia’s emerging markets achieve a stable power mix without significant financial outlay or long-term commitment. This approach also mitigates seasonal problems by offering a safe, reliable and cost-effective alternative to brownouts. The additional capacity created by temporary power generators helps to overcome energy shortfalls during bad weather and periods of peak demand, while also offering a contingency plan in natural disaster situations. This capacity is particularly crucial for mining and oil & gas sites in remote areas, which may not yet be

connected to the grid network. Governments and national utility companies realise the need to upgrade their energy transmission & distribution infrastructures. However, they also understand that driving economic growth throughout this process remains a priority. Power plant modernisation, smart grid implementation, identification of alternative power sources and targeted use of temporary power are all working as one to supply the energy required to sustain growth while more power generation capacity is brought online. Together, they are creating a stable, versatile energy mix for Asia and powering its continued economic prosperity. Debajit Das is Regional Director – APAC (Asia Pacific) for Aggreko

Feature

F&S Eco-Friendly

Frost & Sullivan:

Tan. “They are also building mini-LNG plants to provide gas to remote locations that are not connected by pipelines”.

Market View of Eco-Friendly LNG as a Viable Option to Meet Energy Needs Bodes Well for APAC EPC Contractors EPC contractors are using floating LNG and mini-LNG plants to cater to end-user demand Kuala Lumpur, Malaysia – March 26, 2014 –The environmental benefits that liquefied natural gas (LNG) offers over oil and coal are encouraging the development of natural gas-fired power plants to meet the intensifying energy demand in the Asia-Pacific (APAC) economies. Along with the need for more floating regasification terminals – that reduce the time required to receive cargoes – this is expected to strengthen the prospects of engineering, procurement, and construction (EPC) contractors in the region. New analysis from Frost & Sullivan, Strategic Analysis of EPC Opportunities in the Asia-Pacific

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LNG Market, finds that the market earned revenues of US$12.77 billion in 2012 and estimates this to reach US$24.85 billion by 2017. The market will witness a spike in revenues this year – due to the large number of EPC contracts expected to be awarded – and then revert to its normal course from 2015 onwards. Opportunities for EPC contractors are spread across four segments: exploration and production, liquefaction, transportation, and regasification. “The 2011 earthquake in Japan led to the shutting down of 54 nuclear power plants, resulting in a 12 percent increase in demand for LNG between 2011 and 2012 to meet the energy requirements of the country”, said Frost & Sullivan Energy & Environment Consultant Jieqiang Tan. “Demand for LNG is also expected

to rise in China, from 250 billion cubic meters per annum (bcma) in 2012 to 400 bcma in 2025, due to concerns surrounding energy security. China might even start importing LNG, in turn fuelling LNG production and exploration activities among APAC EPC contractors”.

“Overall, Southeast Asia dominates the market as countries such as Indonesia and Malaysia are highly active in LNG exploration and production activities”

Further, the increasing use of LNG as a shipping fuel – LNG has very low sulphur content and is more regulation compliant than fuel oil and marine diesel oil – bodes well for APAC EPC contractors. East Asia will see a huge uptake of LNG projects as the Japanese and South Korean governments encourage competition between suppliers in order to have low-priced LNG to support reducing dependence on nuclear plants. Overall, Southeast Asia dominates the market as countries such as Indonesia and Malaysia are highly active in LNG exploration and production activities. Australia too will emerge as a major participant in the APAC market with the construction of seven new liquefaction plants, which that translates to 61 million tonnes per

annum of additional liquefaction capacity over the forecast period. However, EPC contracts are expected to be hit by the drop in export to developed countries. While the boom in unconventional domestic gas sources is allowing the United States to cut down on LNG imports, Europe’s import of LNG has dropped due to the sluggish growth in the economy. The resulting glut in gas supplies will reduce the need for LNG exploration in the APAC region and dent the opportunities for EPC contractors. “To cater to existing customer demand, APAC EPC contract owners are beginning to use floating LNG as it presents a feasible option for monetising stranded offshore gas assets”, noted

If you are interested in more information on this study, please send an email to Donna Jeremiah, Corporate Communications, at djeremiah@frost.com, with your full name, company name, job title, telephone number, company email address, company website, city, state and country. Strategic Analysis of EPC Opportunities in the Asia-Pacific LNG Market is part of the Energy & Power (http://www.energy.frost.com) Growth Partnership Service program. Frost & Sullivan’s related studies include: Southeast Asia Renewable Energy Market, Global Opportunities in the Shale Gas Market, and Global Solar Power Market. All studies included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.

Case Study - Construction of Data Centers

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Frost & Sullivan:

Construction of Large and Mega Data Centers Spurs Asia-Pacific Data Center Infrastructure Solutions Market Service providers are shifting focus from standalone to comprehensive solutions Singapore, 19 November 2013 – Co-location services are fuelling the construction of large and mega data centers in the Asia-Pacific, in turn, driving demand for flexible, customised and scalable data center infrastructure solutions. In particular, the need to control rack level energy consumption and cut down operational costs will shift data center operators’ focus from the contribution of power and cooling equipment to comprehensive solution offerings.

consistent and improved network services, data center operators are struggling to maximise both network uptime and profitability,” said Frost & Sullivan Energy & Environmental Research Analyst Amit Singh. “This presents an opportunity for solution providers to empower data center operators with modular, cost-effective data center infrastructure solutions that meet requirements for efficiency, network reliability, and performance.”

As a result, the significance of data center infrastructure software (data center infrastructure management or DCIM) and services (after-sales support) is expected to overshadow the sales of standalone power and cooling units, according to the new study from Frost & Sullivan (http://www. powersupplies.frost.com), Data Center Infrastructure Solutions Market.

However, several industry forces have forged a new competitive landscape within which market participants from both IT and non-IT vendor groups have to cater to data center physical infrastructure requirements. Primarily, the replacement of long-term relationships with regular bidding will make it challenging for market participants to constantly upgrade solutions to ensure technical and commercial compliance.

“Faced with an uncertain economy and ever-increasing demand for

Moreover, small contractors and system integrators play a crucial role in the business. The difficulty in aligning them with original equipment manufacturers’ scalable systems will also limit market growth. “While constant innovation is the key to growth, especially in the power and cooling software segment, immense opportunities also lie in striking a direct contract with medium and large data centers,” asserted Singh. “Building a strong localised value chain through partnerships with system integrators and after-sales service vendors will further help solution providers complement their core proposition and create a competitive advantage in the Asia-Pacific market.” If you are interested in more information on this research, please send an e-mail to Donna Jeremiah, Corporate Communications, at djeremiah@frost.com, with your full name, company name, job title, telephone number, company e-mail address, company website, city, state and country. Data Center Infrastructure Solutions Market is part of the Power Supplies & Batteries Growth Partnership Service program. Frost & Sullivan’s related research services include: European Rack and Rack Options Market, Asia-Pacific UPS Market, Southeast Asian Modular Data Center Market, Global Industrial Batteries Market, and Asia Pacific Energy Storage Systems Market. All research services included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.

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Feature

F&S Renewable Energy Market

Frost & Sullivan:

Government-dependent Southeast Asian Renewable Energy Market Looks to Lower Reliance on Subsidies RE is ideal to address the high demand for energy security Kuala Lumpur, Malaysia – March 27, 2014 – The renewable energy (RE) market in all countries in Southeast Asia is riding high on government support in the form of concrete policies regarding targets and incentives for most RE technologies. The clear policy framework is encouraging RE adoption at the grass-root level. This is attracting investments from RE-focused North American and European companies, including OEM suppliers, engineering, procurement, construction (EPC) developers, consultants and

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carbon-based traders. New analysis from Frost & Sullivan, Southeast Asia Renewable Energy Market, finds that the market had an estimated annual CAPEX addition of US$3.15 billion in 2013 and this is expected to reach US$3.31 billion in 2018. Governments are encouraging domestic investments in renewable power generation sites as well as in RE equipment manufacture, with the intention of achieving grid parity through affordable RE. This heavy involvement of the government has ensured that nearly 70 percent of the RE market growth is dependent on governmental policies. The high installation cost of some RE technologies have made it necessary to have policies for tax benefits, rebates, feed-in-tariff

schemes, and other funding programs. Any withdrawal of such policies significantly limits market expansion. “Consequently, participants are attempting to achieve grid parity without government subsidies and grants and instead, are sourcing low-cost equipment and having leaner operations”, said Frost & Sullivan Energy & Environmental Industry Analyst Vishal Narain T. “The timing and methods of phasing out subsidies are critical for creating a vibrant, cost-competitive market”. Another issue that market participants need to contend with is the use of outdated and substandard electrical systems that result in poorly developed transmission and distribution infrastructure. This is especially relevant in regions that

are under-developed or are away from urban centers. Lobbyists are looking to mitigate this shortcoming by obtaining better grid facilities and provisions for modern smart grids. “Yet, as some RE technologies are still perceived to be expensive in newer markets, governmental support would go a long way in promoting the uptake of RE”, noted Narain. “As long as subsidies remain robust and predictable, investors’ confidence can be sustained, especially since there is a definitive return on investment”. Importantly, most RE sources do not involve fuel costs, geo-political risks or supply dependence on imported fuels. Conventional fuels, on the other hand, exhibit high price volatility that has a direct impact on electricity costs. The long-term constraints in getting coal, combined with emission reduction targets, have strengthened the business case for RE. It not only results in energy self-sufficiency but also enhances national security.

name, job title, telephone number, company email address, company website, city, state and country. Southeast Asia Renewable Energy Market is part of the Energy & Power (http://www.energy.frost.com) Growth Partnership Service program. Frost & Sullivan’s related research services include: Strategic Analysis of EPC Opportunities in the Asia-Pacific LNG Market, Southeast Asian HV Transmission Market, Asia-Pacific Switchgear Market, and Analysis of the Southeast Asia Transmission and Distribution Substation Market. All research services included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.

If you are interested in more information on this research, please send an email to Donna Jeremiah, Corporate Communications, at djeremiah@frost.com, with your full name, company

Feature - Renewable Energy Market

About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break todayâ&#x20AC;&#x2122;s market participants. Our â&#x20AC;&#x153;Growth Partnershipâ&#x20AC;? supports clients by addressing these opportunities and incorporating two key elements driving visionary innovation: The Integrated Value Proposition and The Partnership Infrastructure. The Integrated Value Proposition provides support to our clients throughout all phases of their journey to visionary innovation including: research, analysis, strategy, vision, innovation and implementation.

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Contact Donna Jeremiah Corporate Communications Asia Pacific

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Melissa Tan Corporate Communications Asia Pacific

P: +61 (02) 8247 8927

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E: melissa.tan@frost.com

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Case Study

PV Performance

Ensuring Exceptional PV Performance with insolar Introduction

The operation and maintenance (O&M) of a solar plant constitutes the most important service after plant commissioning. Actual yield and uninterrupted operation are entirely dependent on the prompts and proper detection, assessment, and correction of the various faults that may occur. A complete and reliable monitoring system is a necessary tool in order to maintain comprehensive control of the solar plant and to subsequently detect any minor or major malfunction, failure, or defect. Insolar, the integrated and vendor-independent solution from inaccess, facilitates the centralized

54 | POWER INSIDER VOLUME 4 ISSUE 2

management of geographically distributed solar plants. It is also the most analytical platform that can provide detailed information on every element of a plant.

Overview In the present case study, a monitoring procedure was followed using the insolar monitoring platform. This platform is described for use in a grid-connected 2 MWp solar power plant. The plant is located in the prefecture of Argolida, Peloponnese, Greece, and is owned by Elliniki Technodomiki Anemos SA. The owner’s company is one of the largest developers, owners, and

operators of renewable energy plants in Greece with a fleet of several wind and solar power plants. Meanwhile, it’s mother company is ELLAKTOR, a multinational construction group with operations spanning various sectors of public and private development. These include real estate, energy, railway, fuel pipes, and other infrastructure development in as many as ten countries. The solar plant was commissioned during August of 2009. Having completed several years of full operation, the plant constitutes a very strong example of monitoring features and capabilities and provides a clear and full-term overview of

these attributes. The solar plant is built with 186 SMA string inverters, so it is an operation that requires extensive monitoring analysis. It also calls for a detailed “reading” of possible alarms coming from many different kinds of sources. Apart from that issue, this specific solar plant has proven that a well-designed and technically competent combination of solar plant construction and monitoring should lead to an almost hassle-free, high-performance operation. This monitoring system was designed to include every single aspect of the solar plant. All elements of electro-mechanical equipment from strings, inverters, and electrical switchboards to transformers and substations are included. Also, energy meters positioned at critical points, such as the connection to the grid point and the load-connection point, are other key instruments that contribute to the completion of the PV plant’s performance evaluation. The communication system, the conditions of the substations (such as internal temperature), and security-alarm systems are monitored as well to ensure complete control of the plant. As it will be made evident in the ensuing discourse, there have been benefits of utilizing the unique advantages of the insolar system coupled with the skilled maintenance personnel at the plant. In particular, the plant’s average yearly performance ratio has never dropped below 81.7% with an average monthly value of 83.8%. It has to be noted that the performance ratio is calculated as per the IEC 61724 standard. This includes any module underperformance due to temperature variationsfrom STC along with any production losses due to equipment failures.

Yearly Performance Ratio

Using insolar to Detect Malfunctions

Any issue is immediately visible in three locations within insolar. On the Summary page is a sortable list of all current problems. The Map tab provides a basic description above the geographical pinpoint. The Events Viewer tab lists all current events in an easily sortable format.

The Summary View

PV Performance The Plant Browser

Â The Plant Browser is also characterized by a practical and variable coloring of any part of the plant where a specific issue or problem may occur. It is this page that has the most detailed analysis concerning all levels of monitoring ranging from the point of a common-coupling meter down to a string-level current.

The Plant Browser View

The Plant Manager

Â The Plant Manager screen provides quick access to all important elements and parameters of the solar plant. Included are values for the energy flow, present revenue and CO2 reduction results. Also handy are plots. By crosschecking those values with detailed logs produced from the plant browser components tree, it is possible to detect immediately the type of malfunction or failure that led to a lowered yield or an increased loss.

The Plant Manager View

The Event Handling

Â The Event Handling page enables the detection of similar issues that take place during a sepcific period of time. It is therefore easy to link them to the overall performance of the plant or to specific conditions such as soiling issues.

The Event Handling View

Case Study - PV Performance Examples of Real Problem Solving with insolar Below are some real-life examples of problems that were encountered during the last few years. They have been presented to emphasize the significance of detailed plantperformance monitoring. They are also vital for the accurate and timely notification of maintenance personnel in case of critical failures. Insolar made all required corrective maintenance visits more efficient by giving the technicians a complete overview of the problem and the proper approach to solve it before arriving at the plant. As a result, all failures are being restored within a few minutes or hours and without the need for any additional visits.

Low Performance Ratio Performance ratio is one of the most significant indicators of a solar plant’s performance and operation. Special attention is always given to any alarms or messages associated with a decrease in performance ratio. In one specific case, a noteable performance ratio drop was followed by a low-performance ratio alarm, which persisted for several days. Specifically the performance ratio dropped from it’s normal range of between 82 – 93% to values below 80% without any technical issues or malfunctions being present. The operator’s technical team visited the site and discovered extensive soiling of the PV panels. It turns out that a light rain during very dusty conditions had left heavy deposits on the panels. After cleaning them, the production and performance ratio returned to normal.

For further info, please contact: Mr. Angelos Koronias M: akoronias@inaccess.com T: +30 210 68 02 300

Low Current Abnormal Status At some point in time, an alarm indicating an abnormally low current status periodically appeared. By following the history of events, the low-current abnormal status was isolated to a number of specific strings and was limited to a few hours before sunset. Low current status is a message indicating that one or more strings are underperforming compared to others. This kind of irregularity typically indicates a shadowing issue. Combining the insolar recorded events with images taken from cameras close to this part of the plant provided proof. The vegetation beneath some panels had grown to such an extent that it shadowed some panels during the latter hours of the day. This conclusion was verified by an on-field technician and the vegetation was removed so as not to cause further problems in that specific group of panels.

Buckholz Relay Status The insolar system includes monitoring of the Buckholz relay status of the oil-immersed power

“The plant’s average yearly performance ratio has never dropped below 81.7% with an average monthly value of 83.8%”

transformers used at this solar plant. There are three states in the monitoring portal describing this relay’s condition: a) normal, b) alarm, and c) trip. The condition of the Buckholz relay is extremely important since a possible trip will lead to the disconnection of the transformer. Such an event will halt the plant section that is connected to this specific transformer and will lead to a great loss of energy produced. After the alarm was presented, a technician was sent to check on the transformer’s condition. The technician discovered that the transformer windings were overheating and that this activity had caused the alarm. Consequently, the alarming features of the insolar platform recovered a significant part of the money that was invested in monitoring with the detection of this single fault.

Conclusions The actual events described above confirm the important role and reliability of insolar’s monitoring system. Without a well-designed and competent monitoring platform, a solar-plant operation is always at risk for minor or major malfunctions and failures. These kinds of events could not only affect a plant’s availability but also cause equipment damage with financial consequences. Insolar’s monitoring hardware and software are designed in such a way that any source of abnormality or fault is detected in seconds, verified for persistance and communicated within minutes to the solar plant’s stakeholders. Such a detailed and immediate detection-and-alarming procedure is what makes the insolar system so valuable and so necessary for a solar plants with significant investments at risk.

Interview

1. SOFC is currently undergoing rapid development & are increasingly being employed in a number of different applications; can you explain to our readers how your products meet with intricate technology? Our SOFC products lay in the heart of SOFC technology based systems. The intrinsic technological advantage takes place as a series of chemical reactions on each unit cell surrounded and supported by stack. Stack can therefore be considered as a housing, but this housing too has to meet many difficult requirements and therefore the overall design can get rather complicated. One of the main complicating factor for this type of technology is very high temperature, usually exceeding 750°C and in some cases going well beyond 800°C. Elcogen has taken a strong step forward by developing both cell and stack technology which works as good or even better already at 600-700°C. At this reduced temperature level, Elcogen’s technologies can provide 60 | POWER INSIDER VOLUME 4 ISSUE 2

Future Technology

the same area specific power output as with most competitors achieve at approx. 100 °C higher temperature. The decreased operating temperature eases the system construction as e.g. the requirements for heat transfer and insulation become less demanding. It might not sound like a big deal, but at these temperatures one would need to stay below 700°C to design simpler systems which also contributes to lower price and faster pace to commercial market. Elcogen has analyzed closely the market needs and different market segments of solid oxide fuel cell applications. Our current understanding is that the existing markets can be divided into three main market clusters, namely residential micro-CHP, truck APU and large CHP production. In the residential micro-CHP applications, the required fuel cell power output is approx. 1 kW as in truck APU applications required power output is approx. 3 kW and the large electric production starts from 10 kW power output reaching to multi-

hundred kilowatts. Elcogen has designed its stack technology easily scalable to meet the market needs in these various applications. The basic stack building

3. Which SOFC applications do you envisage experiencing the

block is optimized for 1.5 kW power output and it can be upgraded for 3 kW power output. For the larger applications, Elcogen has currently ongoing development on integrating the 3 kW stacks into stack assemblies capable of providing 6 kW output. These 6kW stack assemblies are then to be used by system integrators to design their applications power for their desired level.

2. Could you explain to us Elcogens current experiences with the SOFC business in Asia and globally? At the moment Elcogen is concentrated on European and Asian market. We see rapid development in both of these areas and the number of companies and teams working on this subject is rising. Japanese market can of course be considered to be the most developed of these especially regarding residential systems. Japenese market development is also strongly supported by legislation and general perception towards a need to find new environmentally friendlier and more efficient technologies. Therefore Japanese are leading this movement and we are increasingly

seeing that Elcogen’s technology is become more and more known, tested and accepted there. Approaching Japanese companies from Europe can be rather tricky thing to handle from such a distance and to overcome this, we have found a very strong local partner who has helped us to successfully reach more and more clients. We are also seeing a shift on Chinese market, which is driven by governmental legislation and by understanding that to have a strong product for end-customers, one needs to use

high-standard SOFC core components. Korean market still lags behind the neighbors, but developments during recent years are showing clearly, that ambitions both in governmental and private sector are high, to reach sufficient market penetration in coming years. We believe that the Asian market will continue to drive the SOFC business especially in residential markets. European market is not that developed in sense of having working solutions for sales on commercial level (which Japan has more or less achieved by now though with some remaining obstacles). The number of field tests is growing together with rising public awareness of the SOFC technology. In a sense the latter can be as big hindering factor as some major technical question. But we see that the direction in Europe has been set, but it simply requires addition time to reach its target levels. In conclusion, we see a rising number of system developers who are in need for having reliable and trusted SOFC cells and stacks. Elcogen’s technology, as one of the very few, meets these targets.

Interview - Future Technology most growth in Asia?

Japenese market is driven by very ambitious ENEFARM project. The targets are extremely high – over 5 million installed residential fuel cell systems by 2030. Tens of thousands of systems already installed, most of them still PEM FC systems, but clear trend is the shift towards SOFC preference due to simpler system and higher efficiency. Korean system developers expect growth in multi-kW and MW class industrial solutions. Some stakeholders are looking at electrolysis and power to fuel systems. All of these sub-fields can successfully use Elcogen’s SOFC solutions and therefore we too are exited to see that how the market develops.

performance of your interconnects in the field, under different operating conditions? Elcogen is currently collaborating with selected system integration partners that do understand the risk level associated to this new technology. Elcogen is furthermore constantly validating its unit cell and stack solutions internally in order to demonstrate its technology maturity. This is made possible through the domestic and EU funding agencies.

6. What challenges still remain for full commercial SOFC roll out?

If we leave public awareness aside, then the biggest challenge for full commercial SOFC roll out is the same as with all other FC technologies, i.e., lifecycle verification. This can only be proven by gradual market entry with the most progressive customers engaged in improving energy efficiency and decreasing emissions of their products. The SOFC system durability can not all be assigned only to cells and stacks as the overall system design together with correct usage and fuel purity can play even bigger role. The numbers for durability

4. The lifecycleof interconnects has been a frustrating obstacle in stack performance. What progress are you making into rectifying this? Elcogen is basing its unit cell and stack development through high level academic research and collaboration with the state-of-the-art component and solution suppliers which is also true in the interconnect development. Elcogen has currently several material solutions under deep investigations both targeting interconnect cost issue as well as durability. As the Elcogen unit cells are optimized for reduced temperature region, this also opens new options for cost effective and durable interconnect solutions. We have however seen that through the complexity of the fuel cell stack, no single component can be separately optimized but the stack has to be treated as an entirety to achieve the best solution.

5. Where can SOFC stack developers go to assess the

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“Elcogen has taken a strong step forward by developing both cell and stack technology which works as good or even better already at 600-700°C”

are constantly improving and this is also expected as developers are gaining better insight with experience and time, but the last question is the price of the installed fuel cell system. As the number of units sold is low and development costs are high, the combined price of a working system is also high at the moment. Elcogen production processes are designed to meet with increasing demand, allowing us easily meet required price targets for unit cells and stacks.

Case Study

Enhancing energy efficiency â&#x20AC;&#x201C; Retrofit of gas turbine air intakes Europeâ&#x20AC;&#x2122;s larger combined-cycle power plants are currently navigating rough seas. Low-cost US coal, renewable energy and economic crisis have all combined to slash the average running hours of plants that utilize gas turbine technology. In this market, energy operators are focused more on flexibility than the efficiency of their equipment. Nevertheless, there remain a number of smaller gas turbine facilities that are continuing to work baseload. CHP and district heating plants are still working with more than 5000 running hours/year and the operators of these plants are definitely interested in energy efficiency. The main topic that will be discussed in this article is the aiintake of a gas turbine (air filtration system) and how it can be improved through the retrofit of existing power plants.

Ehancing Energy Case Study 1: Employing a combined prefilter/coalescer The first case study examines the air intakes of two neighbouring, 250 MW gas turbines. Both intakes had new filters installed in April 2012, but whilst one had the traditional arrangement of coalescer, prefilter and final filter, the second turbine trialled a new filter which condensed the first two stages into one ( see Pic.1,2) Macrogen GT Duo employs a hydrophobic media that provides effective water removal whilst also delivering particle filtration to G4 or M5 efficiencies. This means that separate coalescer and prefiltration stages are unnecessary and that the redundant filter phase can be removed. Stage 1

Pre-Filter

Final Stage

Gas Turbine A

[None]

Macrogen GT Duo M5

Compact F9

Gas Turbine B

Coalescer

Bag Filter G4

Compact F9

particle filtration to G4 or M5 efficiencies. This means that separate coalescer and prefiltration stages are unnecessary and that the redundant filter phase can be removed.

Evidences and real case studies will demonstrate the theory, while other aspects such as typical intake problems will also be examined.

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Case Study - Enhancing energy Results – Key Findings t

Macrogen GT Duo exhibited very stable pressure drop performance over the observed period of 4800 running hours, rising from 65 Pa in April 2012 to 90 Pa in late January 2013 (see graph of gas turbine A).

Gas turbine B’s separate coalescer panels required changing after 2000 hours of operation in November 2012 (see graph).

Performance of the F9 final filters was very similar in both the air intakes.

The F9 final filters downstream from the Macrogen GT Duo system ran for a greater number of hours and had a slightly lower pressure drop (105 against 110 Pascal) over the trial period.

This result is due to the fact that the Macrogen has not only reduced the pressure drop but, at the same time, has increased the efficiency of prefiltration (from G4 to M5) better protecting the final filter.

The total initial pressure drop of the (Macrogen GT Duo-equipped) turbine A was 165 Pa, significantly lower than turbine B (275 Pa) configured with coalescer pads, G4 bag prefilter and the same F9 final filter.

Other points of note are: t

The behaviour of Macrogen GT Duo was much more stable than the solution with coalescer pads; after nearly 5,000 running hours the total pressure drop was 220 Pa.

The parallel solution B showed a total pressure drop of 350 Pa after just 2200 hours, at which time it was necessary to change the coalescer panels

In December 2013, the filtration system of turbine A was still in service and operating with a low pressure drop.

Enhancing Energy Previous research has generally confirmed that a 50 Pa saving in pressure drop corresponds approximately to an increase in the efficiency of the turbine of 0.1%. The following chart summarises the results of the test and the savings regarding pressure drop.

Turbine

Filter Configuration

Flow Rate

Initial PD

Macrogen GT Duo (M5) + Compact Final Filter (F9)

4,250 m³/h

165 Pa

Coalescer Pads + Bag Prefilter (G4) + Compact Final Filter (F9)

4,250 m³/h

275 Pa

Final PD 220 Pa after 5000 hours 350 Pa after 2200 hours

Just considering the initial pressure drop, gas turbine A (with Macrogen GT Duo) has yielded a reduction of more than 100 Pa compared with gas turbine B. This pressure drop saving increased over time, especially as the coalescer pads became dirty and wet. This means that the gas turbine A has seen an increase in efficiency of at least 0.2%. This was achieved just by changing the filter stages and without any investments in retrofitting, as can be seen in the images below. Such performance represents a huge saving for the operator, especially considering that the gas turbine is 250 MW in size and running for approximately 5000 hours/year. Pic. 1 : BEFORE – Coalescer pads (left) and G4 bag prefilters (right)air intakes

Pic. 2 : AFTER – Macrogen GT Duo M5 (left) in place of bag prefilters with coalescers removed

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Case Study - Enhancing energy

Enhancing Energy

Case Study 2: Retrofit and upgrade to filter class E11

The scope of supply of the retrofit included:

The following case study will show how it is possible to increase the efficiency of the gas turbine through a retrofit of an air intake with EPA filtration. For energy operators, the main benefit of an increase in filter class is reduced fouling of the compressor blades. Less fouling offers an efficiency enhancement of the gas turbine itself, which has been covered extensively in previous publications.

New weather hood with improved performance – from 30 Pa to 10 Pa.

Removal of separate droplet separator (150 Pa saving) with the use of Macrogen GT Duo.

Installation of new filter wall system for a dual-phase compact filter F9 and E11 mounted together (see Pic. 4).

Relocation of anti-icing duct to free space for three more filter units.

New silencers – change from aluminium to stainless steel (see Pic. 5).

Sealing and painting of the air intake (inside and outside).

Replacement of the coupler.

Rebuild of the roof construction.

However, a normal retrofit with EPA filters will see an increase in pressure drop brought about by the switch to a higher filtration grade. The following case study will demonstrate how it is possible to carry-out such a retrofit without increasing the pressure drop of the filter system. The German power plant in this case study had experienced problems with final filters supplied by an international filter manufacturer. In fact, 20% of the final filters installed were damaged as a result of high moisture, dust and low burst pressure of these final filters (see Pic. 3)

Pic. 4 - Dual-phase compact filter

Results

Pic. 3 : – Burst final filters

Our experts began with a survey and full analysis of the gas turbine, preparing a solution that optimised the entire air intake – from the weather hood to the silencers. The following chart shows the before and after of the retrofit actions. Based on 3,500 m³/h per filter

Pic. 5 - New stainless steel silencers

Init. Pressure Drop [Pa] Original After Retrofit

The air intake retrofit allowed an upgrade in filter class to E11 and a switch to three filter stages with an initial pressure drop increase of just 20 Pa. Main benefits for the operator: t

Reduced dust penetration to the turbine of approximately 10 g/year, operating 8000 h/year (PM10) with the related efficiency enhancement of the gas turbine.

Filter life of stage 1: One year.

Weather Hood / Bird Grid

Filter life of stages 2 & 3: Two to three years.

Droplet Separator

150

On- and offline washing unnecessary.

Other aspects and commonly-encountered problems

F8 Compact Filter

F9 Compact Filter

100

E11 Compact Filter

180

335

355

Stage 1

G4 Bag Filter G4 Macrogen GT Duo

Stage 2 Stage 3

Total initial Pressure Drop: 4,250 m³/h

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Besides air filters, as previously mentioned, there are several technical points that can be improved in an air intake: t

Anti-icing system: in some cases the anti-icing system is behind the filters, allowing ice to form on the filters. This has a dramatic effect on pressure drop; increasing by up to 2000 Pa. Furthermore bleeding from gas turbine for anti-icing can be definitely expensive (up to 10 MW during winter) and must be defined very carefully.

Case Study - Enhancing energy To find out more visit

Other aspects and commonly-encountered problems

www.vokesair.com

Besides air filters, as previously mentioned, there are several technical points that can be improved in an air intake: t

Oil mist close to air intakes: on the roof of the power plants it is common to find a chimney for oil mist coming from the lubrication system of rotating equipment. If this oil mist is unfiltered by an appropriate system, it will simply enter the air intake and the air filters.

Air intake too small: whenever the air intake is too small and the flow rate for each filter element is too high (5000 m³/h) severe problems with pressure drop are evident.

Pulse jet cartridges: this type of filter is extensively used in Middle Eastern desert conditions. Employing pulse jet cartridges in a clean environment can cause a high pressure drop with no benefit to the gas turbine.

Position of the air intake: when there is a green-field project for a new power plant, the gas turbine air intakes must be a sufficient distance (or at least not in the downstream wind direction) from dirty, dusty sites. It is also imperative that sufficient space is provided away from the cooling towers, which can wet the filters and increase pressure drop.

Conclusions The two case studies and field experience has shown the huge potential to increase the energy efficiency of gas turbine through a few, straightforward actions of retrofit to existing air intakes.

Authors Thomas Helf – Product Manager Powergen & Industrial – Retrofit – Mann+Hummel Vokes Airgas turbine Carlo Coltri – Business Development Manager Powergen – Mann+Hummel Vokes Air

The perfect combination for GT air intakes Macrogen GT Duo & Compatex TMPC When it comes to gas turbine air filtration, there are three elements vital to overall system performance. The pressure drop, burst resistance and dust holding capacity regulate both the quantity and quality of air delivered to the turbine. Fortunately, two products work in unison to deliver best-in-class performance for each of these aspects. At the first stage, Macrogen GT Duo combines the prefilter and water removal functions to allow the elimination of a dedicated coalescer phase. Of course, this also removes an entire stage-worth of pressure drop too, yielding an instant boost to turbine performance with no retrofitting required.

Thomas Helf

Carlo Coltri

Following this is Compatex TMPC, which combines industry-leading pressure drop performance with the highest available dust holding capacity (now up to 30m2 of filter area) and unrivalled burst resistance. It's also available in filter grades from F7 to E12 for EPA levels of defence. Installing Macrogen GT Duo and Compatex TMPC will boost your turbine's performance; lower filter spend and operating costs; and provide assured safety to downstream components. The perfect combination.

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Feature

Detecting Bacteria emits light that can be measured at 445 nanometres (blue light). The intensity of the fluorescence is proportional to the concentration of bacteria. The entire procedure takes 10 – 30 minutes, and it can be undertaken on-site.

The need for greater water efficiency The industries are major consumers of water and are under growing pressure from politicians and other groups to reduce their water usage. Today we have a situation where the water will soon not be available in the quality and quantity required for food processing and cleaning processes. “The challenge today is to increase water efficiency in the industry by recycling

for response actions. On this basis, statistical changes can be detected at an early stage (ISO 11642-1). It is therefore possible to prevent problems from occurring, rather than using many more resources to correct them after they have occurred. The software is tailored to the requirements of the individual customer. “We have a great collaboration with Grontmij, an international consulting company based in The Netherlands, which allow us to provide a tailored software solution for our utility and industrial customers” says Morten Miller and continues “For our customers verification of water system hygiene is an indispensable requirement that requires rapid results and good data handling capabilities”

evaporative cooling products and a customer of Mycometer since 2006, has developed a comprehensive hygiene control system (HACCP) under ISO 22000. The system is based on firm hygiene instructions and procedures for the sale manufacture, installation and service of humidification systems. Condair service engineers carry mobile Bactiquant®-water equipment for rapid evaluation of water hygiene quality. The field equipment allows for on-site evaluation of feed water quality, post-treatment verification of cleaning and disinfection as well as rapid bacteriological trouble shooting. “Instead of waiting days for results, Condair can act immediately and make sure that their systems are safe, when they leave the customer” says Morten Miller.

BQW-value indicate level of total bacterial load in water samples

Morten Miller, Ph.D. and co-founder of Mycometer, talks to P1 magazine about Mycometers rapid method to detect bacterial loads in water samples.

Introduction Early detection of bacteria in drinking water and industrial process water is of utmost importance. Bacterial contamination is a serious potential health hazard. In the industry early warning can reduce water system downtime and reduce costs. With standard lab analysis, it can take up to 2 or even 7 days to grow bacteria cultures in order to determine if the water, e.g. in urban water supply, is contaminated. The Bactiquant®-water test reduces the time required from days into minutes. The concentration of bacteria in a filtered sample of water can be determined in less than half an hour, and potential problems can be identified before they become critical.

Comprehensive and quick results ”The conventional methods used for detection of microbial contamination of water are

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labour-intensive, time-consuming, and sensitive to errors during the performance of the tests”, says Morten Miller, co-founder of Mycometer. ”The problem is that you do not get timely results - our method is rapid and simple to perform”. Even if the concentration of bacteria is low, the test can be completed in less than half an hour. It strengthens the ability to respond quickly and appropriately”. The Bactiquant®-water has been extensively documented by customers worldwide and has recently Received ETV Technology Verification by the United States Environmental Protection Agency (US-EPA).

The technology – Info Box Elcogen has analyzed closely the Bactiquant®-water targets a naturally occurring enzyme activity in bacteria. The enzyme activity is present in a broad spectrum of bacteria, representing all major taxonomic

groups, including gram negative and gram positive bacteria as well as aerobic and anaerobic bacteria. The enzyme belongs to a class of enzymes called hydrolases. Bactiquant®-water is very sensitive to the presence of bacteria in water samples including suspended as well as bacteria immobilized on particles or in aggregates. The method follows the following steps. First bacteria in the water sample is concentrated on a filter. Then an enzyme substrate is added directly to the filter. The substrate contains enzyme specific moieties combined with a fluorophore. The enzyme specific moieties are molecules that are especially inclined to combine with certain microbial enzymes. When they do so, the bond to the fluorophore is broken. The fluorophore is a fluorescent chemical compound. When illuminated with light at a wavelength of 365 nanometres (barely visible ultraviolet light) it

BQW-value

Total CFU/ml equvalent

10 - 100

100

100 - 1000

1000

1000 - 10000

10000

10000 - 100000+

The CFU equivalent is based on total bacterial counts using R2A agar, 35oC, 48 hours.

water without compromising water quality – this is where our technology provides a valuable tool to monitor microbial loads in water samples in near real time” says Morten Miller and continues “Our method is particularly suited to document and evaluate different water treatment methods. If, for example, a method for the removal of bacteria does not work as it should, you can quickly detect it, respond to it and regain control”.

Action on critical thresholds The full advantage of the technology can be reaped by frequent and regular monitoring of the water quality. Mycometer provides a data handling software (FDA-21 CFR part 11 compatible) to help customers establish baselines for normal operation and to define thresholds

Verification of water hygiene in professional quality systems ISO 22000/HACCP HACCP is a systematic approach to reduce the risk of biological, chemical and physical hazards in production processes. The HACCP approach has been successfully applied to water quality management in the past two decades. The HACCP approach is based on the identification of critical control points, establishing critical limits, corrective actions and procedures for ensuring the HACCP system is working as intended. ISO 22000 specifies the requirements for a quality management system based on the HACCP principles. Condair, the world’s leading manufacturer of commercial and industrial humidification and FOLLOW US ON TWITTER: @PIMAGAZINEASIA WWW.PIMAGAZINE-ASIA.COM | 73

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Feature - Detecting Bacteria

Straightening A Rotor, Ansaldo Energia’s Experience Ansaldo Energia explains the causes for rotor misalignment in steam turbines. And how to tackle – and solve - this problem on site. Profiting from more than 160 years of history and a consolidated experience in the power generation industry, Ansaldo Energia has designed and manufactured more than heavy duty gas turbines, steam turbines, turbogenerators and hydrogenerators. In addition to designing and manufacturing its fleet, thus acquiring an exceptional first-hand practice on the operational performances of its fleet.

Applications in complex water samples Oil and Gas industry use billions of gallons of water in drilling, hydraulic fracturing and developing wells. The quality of the water is critical to the efficiency of the production, the quality of the production and the preservation of the well. A substantial cost in the management of this water is for biocides used to eliminate the bacterial load. “The technology can be used on a wide range of water types and is not affected by biocides, pH or hardness” says Morten Miller,

co-founder of Mycometer “this makes it applicable to complex water samples even under rugged conditions”. Bacteria, both aerobic and anaerobic, are significant risk factors in production. Bacterial contamination can cause corrosion of the equipment and the well casing and it can deteriorate additives that are necessary in the production process and can sour a well before production even has a chance to begin. “Monitoring the bacterial contamination is an essential part of the development and production of a well” says Morten Miller, “We have customers in the Oil

and Gas segment who benefit from our technology by getting rapid answers – the incubation time for traditional anaerobic counts can be up to 28 days”.

Robust technology in use world wide Industrial customers, water utilities and consultancy companies, worldwide use Bactiquant®-water. “The method is relevant for suppliers of water and industries throughout the world”, says Morten Miller. “They get a robust technology that has proven its applicability in practice”.

Thanks to such a strong and consolidated experience, Ansaldo Energia always try to develop different Solutions in order to increase performance, extend and/or improve the plant operational life, comply with the new environmental standards, and get the benefits of a virtually new turbine without the drawbacks of high investments, technical risks and long realization times. Improvements and upgrades have followed an evolutionary path, based on step-by-step design changes while keeping proven features and technologies. They are typically based on positive field experience and feedback showing additional potential for higher loading of components or utilizing already built-in design margins. Upgrades can also provide additional technological improvements based on more recent , yet validated and tested, technologies and materials. Ansaldo Energia ‘s field service activity can spam from on – call daily technical representative field dispatching to single or long term turn-key maintenance contracts with a jointly agreed quality and duration guarantee. The list of field services offered by Ansaldo Energia is long and diversified, as follow: t Power plants /components survey and condition assessment; t Components and parts life evaluation; t Life time extension; t Outages scheduling and technical planning;

t All- level field maintenenca and overhauls, from day-by-day to turbogroups major overhauls t Spare parts necessity assessment, procurement, delivery, installation and management; t Non destructive test (NDT)

t Specialist dispatching

t Boresonic Testing for rotor life assessment;

t Client support Hoy line

t Electrical Tests;

t Site Survey

t Chemical and metallurgical analysis with electronic microscope

t Engineering and design t Field inspection and Fact Finding t Failure & Root Cause Analysis

t All kind of field tools rentals, from balancing machines to portable lathes for rotors, containerized workshop etc.

Steam Turbines This article has the aim to focus and describe all the steps referring to a particular case in which Ansaldo Energia’s team of field service engineering, has effected and presented the technical operation, consisting on the straightening and rebalancing the rotor of the steam turbine, that made proud all the team, thanks to the good results and the increase performance followed to this activity effected on site. One of the problems that might have to be faced when operating steam turbines is shaft inflection, or rotor bowing, a condition that can be either temporary or permanent. Temporary bowing is usually solved with the cooling down of the turbine, so that it does not need further actions. Permanent bowing, on the other hand, needs addressing with the root causes to be deeply understood and corrected. There are a few conditions that can cause a bowing of the rotor: A cause is a long standstill of the rotor, in hot condition where the rotor have to be turned. Another one is an uneven steam flow with uneven temperatures in one or more admission branches. Often, the most serious causes of permanent bowing are attributed to water income the hot turbine (also known as “quenching of a rotor portion”, i.e. water coming from heat exchangers) and rubbing, which may cause a plastic deformation of a small portion of the rotor. According to Ansaldo Energia’ s experience, in case of rotor bowing, let’s say if the Total Indicated Run Out is above 0.2 mm, it is very difficult to recover by balancing. As a consequence, it is not possible to run the rotor above critical speed and the turbine cannot be operated. At this point there are two possible choices: replace the rotor with a new one, or straightening and rebalancing the rotor. Ansaldo Energia has developed a method to carry out this second option “in situ”, supervising the client’s personnel plus some portable equipment and special tools manufactured ad hoc.

Ansaldo Energia has tried different methods for straightening a rotor either in singularly or in combination, as for example cold mechanical straightening using jacks, the and thermo-mechanical straightening; both options were experienced successfully for very small size rotors and a light bowing. Depending on the inflection line and the amount of inflection, there is also the possibility of machining the rotor shaft (offsetting the shaft centerline). Peening, or hammering, is also a choice limited to small size rotors and light bowing. The procedure developed by Ansaldo Energia shows that is more effective the “Hot Spotting”, or rather the controlled application of a thermal source to a well-defined point and the subsequent controlled cooling down The procedure of the hot spotting is formed by several steps; At the very beginning comes a deep analysis of the rotor, before starting any activity. Tests must be carried out, as for example hardness and replicas, to assess the material structure and whether the material metallurgic structure have suffered of any modification. Before the actual intervention start, special tools have to be manufactured in situ or shipped. The whole job needs careful management. Then, before hot spotting, the rotor needs to be stress relieved by heat treatment (from the stresses originated during the causes of bending). The hot spotting can be roughly summarized as follows: a rapid warm up of the interested areas, paying attention of keeping the adjacent areas cold. The warm material begins to expand elastically, but is axially constrained by the adjacent cold material. Thus, the hot material plastically expands outside its original figure bounds. When cooling down, the material tries to shrink back to its original figure, but the figure’s shape has now changed. In the new figure, the material that is plastically expanded out of the borders of the original figure, when cooled cannot occupy the same space thus inducing a shrinkage higher than the expansion. After the hot spotting, the stress originated during the process, needs to be relieved through a post-heat treatment (which may be also aimed to recover the metallurgical characteristics decayed during spotting). A final lathing to finish the rotor shaft may also be applied. Tests are then repeated to guarantee that the material can safely operate again. Eventually, the rotor balancing must be foreseen. As above mentioned, some special tooling should be prepared in advance, as up-righting equipment, rotor holding tools during heat treatment, special torches and water-cooled shields. Other equipment is usually to be found on site, e.g. the crane, slings, inspection equipment, but also a lathe that is capable to carry the rotor and the balancing machine, plus the heat treatment equipment. Although it is not possible to guarantee the success of the straightening, so far, up to now, it has obtained 100% success in the treated rotors. All treated rotors have been straightened within one month time. The TEAM involved in this operation was formed by five persons of Client, two Ansaldo’s Supervisor, and three specialized operators (for lathing, balancing and HT). In terms of outage time and costs, according to Ansaldo Energia experience this solution is the most competitive with any other chance experienced up to now.

The Engineers that have given their contribution to develop this abstract are: - Enrico Foglino (Head of Steam Turbines Field Engineering) in Ansaldo Energia. - Paolo Tolomei (Power Plant Field Engineer) in Ansaldo Energia.

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Upcoming Events For the Energy Business in Asia May 2014

July - August 2014

SAP Asia Pacific Conference for Utilities - Singapore

International Renewable Energy Expo

Indorenergy – Indonesia

PV Guangzhou

June 2014

September 2014

Renewable Energy Asia

4th India Smart Utility Week

Asian Utility Week

Powergen Asia

20 May - 22 May Organisers: T. A. Cook Email: info@tacook.com URL: asia.tacook.com

21 May – 23 May Grand city convex Surabaya

4 June – 7 June Bangkok Thailand

10 June – 11 June Bangkok Thailand

27 July – 1 August Tokyo Big Sight Tokyo Japan

26 August – 28 August Guangzhou China

16 September – 18 September Delhi India

10 September – 12 September 2014 KLCC Kuala Lumpur Malaysia

Advertisers Index MWM Metito Ametek Asian Utility Week MWM Quartz Zelec Singapore National Water Week Hadek Wickeder Westfalenstahl

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Alstom Texas Instruments Inaccess Nalco Elcogen Vokes Air Mobil IDE

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