ADB Banks $350 Million Geothermal Project / Investment Powering Indonesia’s Clean Energy Future
Let’s talk seriously about Indonesia banking $350 for a geothermal project : because that’s no joke! Because Indonesia literally sits on one of the world’s greatest renewable energy resources: geothermal energy. Now while India is doing solar and possibly wind or tidal. However, much of that energy is not found in the sky or along the coastline; because it sits beneath the ground.
In March 2014, the Asian Development Bank (ADB) backed a major effort to tap that resource. ADB banks approved a $350 million financing package for the Sarulla Geothermal Power Generation Project in North Sumatra, Indonesia. The project planned to develop about 320 megawatts of geothermal generating capacity. (Asian Development Bank)
That made Sarulla much more than another power plant. Instead, the project represented a major investment in Indonesia’s ability to turn its enormous underground heat resources into reliable electricity.
How the ADB $350 Million Geothermal Package Worked for the Project
First, ADB structured the financing through several sources. According to ADB project records, $250 million came from its ordinary capital resources. In addition, another \$80 million came through the Clean Technology Fund.
Finally, the Canadian Climate Fund for the Private Sector in Asia supplied another $20 million. Together, those commitments brought ADB-managed financing to $350 million. (Asian Development Bank)
However, the overall Sarulla project required much more capital. The original financing package totaled roughly $1.17 billion. Therefore, ADB worked alongside the Japan Bank for International Cooperation (JBIC) and several major commercial banks to help finance construction. (The Green Living Guy)
That financing structure mattered. Large geothermal projects require substantial upfront investment. Developers must explore underground resources, drill wells, construct steam facilities and build generating equipment before a plant begins producing electricity.
Consequently, support from development banks can help reduce financing risks and attract additional private capital.
A 320-Megawatt Geothermal Powerhouse
The Sarulla project was designed around three geothermal generating units totaling about 320 MW.
Moreover, the plants would use steam resources from the Silangkitang and Namora-I-Langit reservoirs in North Sumatra. Developers planned production and injection facilities to manage those geothermal resources while supplying steam to the generating units. (Asian Development Bank)
The project also operated under long-term agreements. ADB records show a 30-year energy sales contract with Indonesia’s state electricity company PLN and a 30-year joint operating contract with Pertamina Geothermal Energy. (Asian Development Bank)
ADB provides 350 mln USD loan for Indonesian geothermal plant
Those long-term arrangements helped give investors greater certainty. At the same time, they supported Indonesia’s push to expand electricity generation without relying exclusively on coal, oil or natural gas.
Major International Companies Joined the Project
Several major energy companies participated in Sarulla.
The original project sponsors included ITOCHU Corporation, Kyushu Electric Power Company, Medco Power Indonesia and Ormat International. (Asian Development Bank)
Furthermore, the financing brought together public and private institutions from several countries. JBIC provided up to \$492 million of its own project financing, while commercial lenders also participated. (Japan Bank for International Cooperation)
As a result, Sarulla became an example of how international financing can help move large renewable energy projects from planning into construction.
Why Geothermal Energy Matters for Indonesia
Indonesia has an enormous advantage when it comes to geothermal energy. The country sits along the geologically active Pacific Ring of Fire. Therefore, underground heat is available across many parts of the Indonesian archipelago.
Unlike solar and wind power, geothermal plants can also generate electricity around the clock. They do not need sunshine or strong winds to produce power.
That makes geothermal especially valuable for an electric grid that needs steady generation.
In addition, expanding geothermal power can help diversify Indonesia’s energy supply. Instead of relying solely on fossil-fuel generation, the country can use heat already available beneath its surface.
Clean Energy Also Needs Serious Financing
Sarulla demonstrated another important lesson. Renewable energy projects do not grow on technology alone. They also need financing structures capable of handling billions of dollars in investment.
ADB later described the March 2014 Sarulla financing agreement as the first new geothermal independent power producer project in Indonesia in more than a decade. The bank also noted that its participation, together with JBIC, helped enable financing from six commercial banks. (Asian Development Bank)
Therefore, the $350 million ADB commitment had an impact beyond the money itself. It helped bring additional lenders to the table.
The Bigger Green Energy Picture
The Sarulla geothermal project showed what can happen when governments, development banks, energy companies and private lenders work together.
Indonesia already had the geothermal resources. The challenge was turning those resources into dependable electricity.
Consequently, projects such as Sarulla helped demonstrate a path forward. Large-scale geothermal development can provide steady renewable electricity while reducing the need for additional fossil-fuel generation.
Most importantly, the project showed that clean energy investment does not have to stop with solar panels and wind turbines. Sometimes one of the strongest renewable energy resources is directly beneath our feet.
Sources
Asian Development Bank — Sarulla Geothermal Power Generation Project
ADB Sarulla Geothermal Power Generation Project
Japan Bank for International Cooperation — Sarulla Project Financing
JBIC Sarulla Geothermal Project Financing
ITOCHU Corporation — Sarulla Geothermal IPP Project
ITOCHU Sarulla Geothermal Project Announcement
Mar 31,2014
MANILA, March 31 (Xinhua) — The Asian Development Bank (ADB) said Monday that it has provided a loan of 350 million U.S. dollars for the construction of a 320-megawatt geothermal power plant in North Sumatra, Indonesia.
Under the loan package for the Sarulla Geothermal Power Development Project, the Manila-based lender said 250 million U.S. dollars will come from its ordinary capital resources while 80 million U.S. dollars will come from the ADB Clean Technology Fund. The remaining 20 million U.S. dollars will be drawn from the Canadian Climate Fund for Private Sector in Asia.
The project requires a total loan package of 1.17 billion U.S. dollars. Six commercial banks will also co-finance the loan package while the ADB and the Japan Bank for International Cooperation acted as lead structuring banks.
Proponents of the project are Itochu Corp., Kyushu Electric Power Co., Ormat International, and Medco Power Indonesia.
Source: Shanghai Daily
