Indonesia’s looming electricity shortage (see panel) provided an incentive for us to set up PT Adaro Power (AP) in order to to help us diversify and strengthen our business from pit to power.
We established Adaro Power in 2010 to act as a strategic vehicle for our active involvement in the development of power plants in Indonesia.
Our move into power will allow us to leverage our competitive advantage in securing coal supply and create a captive demand for our coal, boost our presence in the domestic market, secure a stable revenue stream and favorable returns, improve our bargaining position with boiler manufacturers, and minimize the impact of volatility from the cyclical nature of the coal sector.
The Government of Indonesia recently launched a 35GW electrification program. Inaugurated by President Joko Widodo in April 2015, the ambitious program is supposed to be realized by 2019.
Out of 35GW planned, coal-fired power plants have the biggest share at 20GW, followed by gas and renewables. Construction of the 20GW of coal-fired power capacity will increase coal supply needs by about 80Mt per year.
PT Makmur Sejahtera Wisesa
The Adaro Group’s fist downstream step into the power sector was marked by the 2x30 MW mine-mouth coal fied power plant in Tanjung, South Kalimantan, which was built, and now owned and operated by MSW. This power plant was designed to power the Adaro Group’s operations in the area and the excess power would be distributed to PLN’s South and Central Kalimantan grids.
MSW uses circulating fluidized bed (CFB) technology highly suitable for the combustion of higher moisture coals like E4000 as it reduces nitrous oxide emissions due to the low combustion temperature and uses electrostatic precipitators to eliminate ash emissions. In 2018, MSW consumed approximately 0.35 Mt of E4000 coal from AI’s Wara mine.
PT Bhimasena Power Indonesia
AP (34%), together with Electric Power Development Co. Ltd. (J-Power) (34%) and Itochu Corporation (32%), established PT Bhimasena Power Indonesia in 2011 to develop a 2x1,000 MW coal-fired power plant in the Batang district of Central Java. Upon completion, this power plant will be one of the first and largest in Southeast Asia to use ultra-supercritical (USC) boiler technology.
In the combustion process, USC boiler needs less energy to produce saturated steam, thus reducing the consumption of coal to generate one unit of electricity. This boiler also has a flue-gas desulfurization unit that captures sulfur dioxide (SO2) before being released to the environment and uses a filter bag that captures fly ashes. Therefore, this power plant is one of the most efficient and cleanest steam power plants available due to the lower consumption of coal and lower emission rate, which always falls below the effluent standard imposed by the government.
BPI reached the financial close for this project in June 2016 with the total project cost estimated to be US$4.2 billion, and received a commitment for project funding of approximately US$3.4 billion from the Japan Bank for International Cooperation and several commercial financial institutions. BPI will provide electricity to PLN for 25 years based on a Power Purchase Agreement (PPA), the first actualized public-private partnership project in Indonesia under the guarantee of the Indonesia Infrastructure Guarantee Fund (IIGF), and part of the Masterplan for Acceleration and Expansion of Indonesian Economic Development.
PT Tanjung Power Indonesia
PT Tanjung Power Indonesia is a consortium company owned by AP (65%) and PT East-West Power Indonesia (35%), a subsidiary of Korea East-West Power Co Ltd., to build and operate a 2x100 MW coal-fired power plant in the Tabalong regency, South Kalimantan, and to sell electricity to PLN under a PPA for a period of 25 years from the COD. The project cost is estimated to be US$545 million and TPI reached financial close in January 2017 with US$422 million (including a contingency facility of US$13 million) commitments received. The project is financed under a project financing scheme with comprehensive cover of Korea Trade Insurance Corporation (K-SURE) of approximately US$400 million.
TPI started construction in June 2016, six months before reaching financial close, using the shareholders’ own funds, which attested their strong commitment to this project and the government’s electrification program. The Government of Indonesia, through the Ministry of Finance, then issued a government guarantee for this project in the form of a Business Viability Guarantee Letter, under which the government guarantees PLN’s ability to fulfill its payment obligations as stipulated in the PPA.
Like MSW’s plant, this power plant will also use CFB technology to benefit from the reduced nitrous oxide emissions due to its low combustion temperature, in addition to using bag filters to eliminate ash emissions. The EPC contractor for the project is Hyundai Engineering Co Ltd. Operation and the maintenance of the power plant will be performed by TPI.
On 20th July 2018, TPI conducted Initial Oil Firing test of Unit-1. This was a major milestone in the construction progress and the successful outcome of this test guarantees the achievement of TPI’s commissioning target in 2019 as planned. As of the end of 2018, the construction of TPI’s project had reached 99%.
AP is actively looking for power projects from renewable energy sources to have a balanced energy mix in its portfolio. It has installed its first renewable project, the 100-kWp rooftop-mounted solar PV panels at AI’s coal processing and barge loading facility in Kelanis, Central Kalimantan, which is expected to generate 125,000 kWh per year.
In 2018, AP signed an MOU with Electricite de France (EDF) Group from France to kick-off a joint feasibility study of solar and biomass power plants in Sulawesi, Indonesia. Although it is still at an early development stage, this project is in line with AP’s strategy to diversify energy sources and expand portfolio of projects and will mark an important milestone in the history of the Adaro Power business pillar.