Ino Tacr

Golder Associates Ltd.
500 4260 Still Creek Drive

Burnaby, British Columbia, Canada V5C 6C6
Telephone 604 296-6623
Fax 604 298-5253
FINAL REPORT ON
TECHNICAL ASSISTANCE
FOR THE GAS GENERATION FROM WASTE
ADB TA 4333-INO
COC 05 342
VOLUME I
Submitted to:
Asian Development Bank
6 ADB Avenue
Mandaluyong City
1550 Metro Manila
Phillippines
DISTRIBUTION:
2
2
Copies Copies -

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September 29, 2006
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OFFICES IN NORTH AMERICA, SOUTH AMERICA, EUROPE, AFRICA, ASIA AND AUSTRALIA
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TABLE OF CONTENTS
PAGE
SECTION
1.0
PALM OIL MILL WASTE MANAGEMENT FRAMEWORK ........................ 1

1.1
1.2
1.3
1.4
2.0
TECHNICAL AND ECONOMIC ASSESSMENT ........................................ 6

2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
3.0
Demand Drivers.......................................................................................1
Waste Management Practices.................................................................1
Waste Management Guideline ................................................................3
Implementation ........................................................................................5
Sharing Generation Assets Capacity Between POMs and PLN..............6
Rural Electricity Using Biomass Gasification System ..............................9
Remnant Oil Recovery from EFB ..........................................................12
Biodiesel Plant.......................................................................................14
Medium Term Projects ..........................................................................16
2.5.1 Biogas Capture ..........................................................................16
Biomass Power Plant ............................................................................17
Emerging Technologies.........................................................................20
2.7.1 Organic Diesel Generation Using Biomass ...............................20
Overall Conclusion ................................................................................21
WASTE MANAGEMENT AND ENERGY CAPTURE PLAN .................... 22

3.1
3.2
3.3
3.4
Technical Implementation Approach .....................................................23

3.1.1 Commercialization Strategy.......................................................23
3.1.2 Immediate project implementation plan for cluster projects.......26
3.1.3 Implementation Option...............................................................30
3.1.4 Implementation Structure...........................................................31
Detailed Financial and Economic Analysis............................................33
3.2.1 Technical Design .......................................................................33
3.2.2 Technical Assumptions..............................................................33
3.2.3 Financial Assumption.................................................................34
3.2.4 Cost of Biomass Fuel.................................................................34
3.2.5 Borrowing...................................................................................34
3.2.6 Operational Cost........................................................................34
3.2.7 Tax Structure and Fiscal Allowances.........................................34
3.2.8 Income Stream ..........................................................................34
3.2.9 Exchange Rates ........................................................................35
3.2.10 Financial Performance...............................................................35
Financing Plan for PLN Biomass Power Plant ......................................36
3.3.1 The Financing of a State Enterprise ..........................................37
3.3.2 Financing Plan Using 100 % Equity...........................................37
3.3.3 Co-financing from Carbon Funds...............................................37
Financing Plan for Merchant Plant ........................................................37
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3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
4.0
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3.4.1 The Financing Strategy..............................................................38

3.4.2 Financing Plan ...........................................................................38
Risk Profile ............................................................................................39
3.5.1 Power Purchase Agreement......................................................40
Socio-Economic Assessment ................................................................41
3.6.1 Poverty Assessement in Riau....................................................41
3.6.2 Poverty Eradication....................................................................45
3.6.3 Gender issues............................................................................46
3.6.4 Indigenous People .....................................................................46
Conclusion of the Cluster Project in Siak Hulu ......................................47
3.7.1 Financial Analysis ......................................................................47
3.7.2 Economic Analysis.....................................................................48
3.7.3 Socio-economic Assessment.....................................................48
3.7.4 Clean Development Mechanism (CDM) ....................................49
Technical Implementation Plan .............................................................49
Project Structuring and Refinements of Technical Implementation Plan50
Long Term Sustainability Plan...............................................................50
Assessing the Need for Further ADB Support for the Development of
Sustainable Waste to Energy Programmes...........................................52
Implementation Framework and Action Plan.........................................53
3.12.1 Action Plan.................................................................................54
3.12.2 Implementation of Siak Hulu Project..........................................56
3.12.3 Implementation of Gunung Meliau Project.................................57
3.12.4 Socialization of TA Results to Other Areas Not Covered by
the TA ........................................................................................57
3.12.5 Facilitate the Implementation of CDM Projects..........................57
SUMMARY................................................................................................ 59
4.1
4.2
Overall Conclusions...............................................................................59
Recommendations.................................................................................60
LIST OF TABLES
TABLE
PAGE
Table 1
Summary of Waste Management Options
4
Table 2
Economic Assessments of POM Interconnections to the PLN Power
Grid
7
Table 3
Isolated Diesel Generating Units in Sumatera
9
Table 4
List of Potential Oil Recovery Projects
12
Table 5
Economic Assessment for the Biogas Capture System
16
Table 6
Availability of Biomass for Cluster Project
28
Table 7
Population Density and Sub-totals in Kampar District
43
Table 8
Summary of Investment for Technology Intervention Programmes 50
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LIST OF FIGURES
Figure 1
Location of Siak Hulu Cluster
LIST OF APPENDICES
Appendix I
Project Definition Report for Clusters and Individual POM
Appendix II
Distribution of Isolated Diesel Generating Plants in Sumatera
Appendix III
Financial Models for Clusters and Individual POM
Appendix IV
CDM Project Idea Notes and Expressions of Interest
Appendix V
Concept for ADB Support
Appendix VI
Socio-Economic Assessment of Siak Hulu Cluster Project
Appendix VII
Technology Overview Palm Oil Waste Management
Appendix VIII
Summary of Renewable Energy Potential in Indonesian POM
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LIST OF ACRONYMS
ADB
Bar.g
A measure of the pressure levels in boilers
Balitbangda
Regional Research and Development Department
BPPT
Agency of Assessment and Application of Technology
BPP
Province wide production cost for electricity
BPS
Central Bureau of Statistics
CDM
Clean Development Mechanism
CER
Certified Emission Reduction
CHP
Combined Heat and Power
CO2
Carbon Dioxide a GHG gas
CPO
Crude Palm Oil
DGEEU
Directorate General of Electricity and Energy Utilization
DG
Diesel Generator
Disbun
Provincial Agriculture Agency
EA
Executing Agency
EFB
Empty Fruit Bunch
EIA
Environmental Impact Assessment
EPC
Engineering, Procurement and Construction
Euro
Euro Dollar. Currency of Europe
EMU
Electricity Management Unit
ETP
Effluent Treatment Plant
FFB
Fresh Fruit Bunch
FSA
Fuel Supply Agreement
GAPKI
Association of Palm Oil Planters of Indonesia
GIS
Geographic Information Systems
Hr
Hour
HPP
Provincial Electricity Production cost for calculating RE tariff
HRD
Human Resources Development
IA
Implementing Agency
IDR
Indonesian Rupiah Currency of Indonesia
IOPRI
Indonesian Oil Palm Research Institute
IRR
Internal Rate of Return
IPP
Independent Power Project
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ITS
International Technology Specialist
Kabupaten
Locality comprising of several districts
KIMBUN
Agricultural Community Industrial Area
kWe
Kilo watt (electric)
kWh
Kilo watt hour electrical energy unit
MEMR
Ministry of Energy and Mineral Resources
MF
Mesocarp Fibre
Litre
OPI
O and M
Oil Palm Industry

Operations and maintenance
PDD
Project Design Document
Pemda
Local Government Authority
Pertambangan
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Local Energy Authority
Energi
PGN
State Owned Gas Company
PIN
Project Idea Note
PKS
Palm Kernel Shells
Plasma
Small palm plantation holdings (~2.0 ha) of local third party

farmers
PLN
State Owned Electricity Enterprise
POM
Palm Oil Mill
POME
Palm Oil Mill Effluent
PPKS
Palm Oil Research Centre (IOPRI)
PPA
Power Purchase Agreement
PSK Tersebar
Small Scale Power Generation Decree to Support RE
PSC
Project Steering Committee
PTL
Project Team Leader
PT PGN
Perusahaan Gas Negara (State Owned Gas Corporation)
PT PLN
Perusahaan Listrik Negara (State Owned Electricity Corporation)
PTPN
State Owned Plantation Enterprises
RE
renewable energy
ROR
Remnant Oil Recovery
SREP
Small Renewable Energy Programme
Tonne / Metric Ton
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TA
Technical Assistance
Tj
Terra Joule a measure of energy = 1 million MWh
TOR
Terms of Reference
TWH
Terra watt hours
UNDP
United Nations Development Programme
USAID
United States Agency for International Development
USD
United States Dollars
VAr
Volt Ampere reactive electrical measurement unit
WTE
Waste to energy
Yr
Year
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1.00 USD = 0.83 EURO

= 9500 IDR
= 3.6 MYR
CER = 6.0 Euro/t CO2 e, except in sensitivity and alternate scenario analyses
1.0 t of COD = 500m3 biogas
Methane gas = 63% Biogas
POM operations = 20 h/day, operating 300 days/yr
1.0 litre diesel = 3kWh electricity
Inflation rate 8%
Interest Rate 12%
1kVA = 0.85kW
1 ton EFB contains 1% of remnant oil
1 ton FFB = 0.6 tons POME, except in sensitivities
1 ton FFB = 0.22 tons of CPO
1 ton FFB = 0.23 tons EFB
1 ton FFB = 0.06 tons PKS
1 ton FFB = 0.13 tons mesocarp fibres
1 ton CPO = 350 USD
1 ton ROR = 175 USD
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ADB TA 4333-INO: PROJECT SUMMARY

Indonesian palm oil production is the second largest in the world after Malaysia. With a
total planted area of over 5.4 million ha, the annual production of crude palm oil in 2005
was 13.8 million tons processed in 340 palm oil mills (POMs). This major commodity
generates export earnings in excess of $US 1 billion annually. New POMs are being
planned to meet milling shortages. The number of POMs and volume of fresh fruit
bunches (FFB) being processed gives rise to large quantities of solid and liquid waste.
When properly managed the wastes can be a viable energy source, providing a
sustainable economic benefit while managing the adverse environmental impacts
typically associated with POMs. To evaluate this potential, the Government of Indonesia
(GOI) requested the Asian Development Bank (ADB) to provide technical assistance
(TA) on gas generation and other opportunities for renewable energy (RE) projects
utilizing POM waste.
A team of specialists comprising international and domestic consultants were assembled
to undertake the TA. The overall objective of long term sustainable development focused
on improvement of waste management practice in the oil palm industry (OPI) and
evaluation of commercially viable sources of clean energy that can be generated from the
POM waste. The overall objective was achieved by:
Establishing a waste management framework for the industry;
Conducting a technical and economic assessment of different alternatives for energy
recovery and conversion from POM waste;
Developing a sustainable long term plan for effective waste management and energy
generation for a cluster of public and private sector POMs;
Evaluating the potential social and environmental benefits of improved waste
management practices; and,
Assessing the need for further ADB support for the development of sustainable waste
to energy programmes.
The TA was initiated on 16th June 2005; the Inception Report was completed in
August 2005. Multiple POM site visits were conducted in Kalimantan and Sumatera to
more than 20 POMs. Meetings were held with more than 15 City, Provincial and central
government agencies. Thereafter the survey data collected were analysed for technical
and economic feasibility of technological interventions. Five mature technologies and
two emerging technologies were identified with commercially viable internal rates of
return (IRR). Technical and economic assessments were undertaken for those sites with
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the appropriate technology and logistically feasible energy use from improved waste
management.
This work was summarized in an Interim Report submitted
December 10, 2005. Socio-economic assessments of the identified waste management
and energy capture projects followed approval of the Interim Report. Waste management
workshops were conducted in Pekanbaru, Sumatera and Pontianak, West Kalimantan to
raise awareness and socialize the findings of the Interim Reports and discuss possible
partnership models for the implementation of the projects. A third workshop was
formulated for Asahan, Sumatera to extend the opportunities for partnerships.
The Draft Final Report was submitted on April 10, 2006, which included an assessment
of the socio-economic impacts, a waste management framework for the OPI, and an
action plan for government agencies and parastatal organizations (e.g. PLN) moving
forward. The Draft Final Report also identified that the wrap-up workshop with a
recommendation to expand participation to include industry leaders, carbon financing
groups, and investment brokers.
The Wrap Up Workshop on Gas Generation from Waste was held at DGEEU on
July 27, 2004, involving a broad audience with over 50 participants. Potential developers
such as PLN, PTPN and Riau PEMDA actively participated in discussions. The meeting
also discussed the possibilities of financing biodiesel plants, which have been included in
the technology interventions identified by the TA. Clustered power projects using EFB as
feedstock are being actively developed as a result of the TA activities, and some POM
were implementing Remnant Oil Recovery (ROR) technology for biodiesel production. .
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REPORT OUTLINE
This report consists of three (3) volumes. Volume I is the main report, while Volume II
and Volume III contain supporting documentation and appendices.
Volume I
The volume is comprised of an Executive Summary and a main report. The Executive
Summary includes the objectives, findings, deliverables, conclusions and
recommendations of the report. Seven technological interventions are summarized on
page xv and xvi. Section 1.0 covers the issues of a waste management framework in palm
oil mills. Section 2.0 elaborates on the technical and economic performance of each of
the technological interventions. Section 3.0 describes the commercialization strategy and
implementation models. Section 3.1.2 elaborates on immediate cluster projects in
Siak Hulu. Section 3.12 discusses the proposed implementation framework and
summarizes a set of action plans to further the objectives of the TA.
Volume II
Volume II contains the Project Definition Reports for the sites evaluated. The projects are
categorized into two namely cluster projects. Siak Hulu, Gunung Meliau and Kota Pinang
and individual POM. projects. Each report can be extracted as a stand alone report for
further action and implementation activities.
Volume III
Volume III is comprised of Appendix II to Appendix VIII. These appendices contain
relevant supporting documents and a detailed analysis of the findings.
Summary of Appendices
Appendix I compiles the project definition reports of the technological interventions in

the palm oil mills. The project definition reports are prepared for a cluster of POM
(called Cluster Projects) and individual POM.
POM Cluster Projects
1. Gunung Meliau Cluster, West Kalimantan
2. Kota Pinang Cluster, North Sumatera
3. Siak Hulu Cluster, Riau Sumatera
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POM Individual Projects

1. Aek Torop, North Sumatera
2. Asam Jawa, North Sumatera
3. Gunung Meliau, West Kalimantan
4. PT. Inti Indo Sawit Subur Buatan I, Riau, Sumatera
5. Multi Prima Entakai, West Kalimantan
6. Mitra Austral Sejahtera, West Kalimantan
7. P.T. Ramajaya Pramukti, Riau, Sumatera
8. PTPN V (PT PERKEBUNAN NUSANTARA V)
9. Sinar Agro Raya, Riau, Sumatera
10. Sinar Siak Dian Permai, Riau, Sumatera
Appendix II compiles the project consultants analysis of isolated diesel generation costs
in various areas of the provinces in Indonesia that were covered by this technical
assistance.
Appendix III compiles the relevant financial models developed for each of the
technological interventions and tailored according to this proposed implementation on
site for the POM Cluster Projects and POM Individual Projects as listed in Appendix I
above.
Appendix IV presents the draft outline of the CDM potential of the POM Cluster
Projects and the POM Individual Projects. This appendix also includes expressions of
interest from some carbon credit buyers for the identified projects.
Appendix V describes the concepts for possible ADB support to enhance the project
implementation prospects arising from this technical assistance.
Appendix VI presents an analysis on the socio-economic assessment for one of the
identified cluster projects in Siak Hulu Riau. The report summarizes the potential
socio-economic benefits derived from the implementation of the Siak Hulu Cluster
Project.
Appendix VII describes the technologies that were considered for improvement of waste
management techniques in the palm oil mills. The technologies are briefly outlined and
presentation materials associated with the technologies are incorporated for illustration
purposes.
Appendix VIII provides a summary list of POM in Indonesia, the ranges in operational
parameters and throughputs, across the POM production process, an analysis of
renewable energy potential in a typical POM, the benefits of technology interventions,
and the total industry investment anticipated for all POM in Indonesia.
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EXECUTIVE SUMMARY
1. Indonesian palm oil production is the second largest in the world after Malaysia. With
a total planted area of over 5.4 million ha,1 the annual production of crude palm oil in
2005 is reported to be 13.8 million tons processed via more than 340 palm oil mills
(POMs). This major commodity generates export earnings in excess of $US 1 billion
annually.
2. New POMs are being planned to meet milling shortages. The number of POMs and
volume of fresh fruit bunches (FFB) being processed gives rise to large quantities of solid
and liquid waste. The wastes when properly managed have potential as an energy source,
providing a sustainable economic benefit while managing the adverse environmental
inputs typically associated with POMs. To evaluate this potential, the Government of
Indonesia (GOI) requested the Asian Development Bank (ADB) to provide technical
assistance (TA) on gas generation and other opportunities for renewable energy (RE)
projects utilizing POM waste.
3. A team of specialists comprising international and domestic consultants were
assembled to undertake the TA. The overall objective of long term sustainable
development focuses on improvement of waste management practice in the oil palm
industry (OPI) and evaluation of commercially viable sources of clean energy that can be
generated from the POM waste. The overall objective will be achieved by:
i.
Establishing a waste management framework for the industry;
ii.
Conducting a technical and economic assessment of different alternatives for

energy recovery and conversion from POM waste;
iii.
Developing a sustainable long term plan for effective waste management and
energy generation for a cluster of public and private sector POMs;
iv.
Evaluating the potential social and environmental benefits of improved waste

management practices; and,
v.
Assessing the need for further ADB support for the development of sustainable
waste to energy programmes.
Source: Statistik Perkebunan Kelapa Sawit 2005, Direktorat Jenderal Perkebunan, Departemen
Pertanian- Palm Oil Plantation Statistics 2005, Directorate General of Plantations, Department of
Agriculture.
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4. The TA was initiated on 16th June 2005; the Inception Report was completed in
August 2005. Following the acceptance of the Inception Report, site visits were
conducted to several potential sites. Thereafter the survey data collected were analysed
for technical and economic feasibility for potential technological interventions. Technical
and economic assessments were undertaken for those sites with the appropriate
technology and logistically feasible energy use from improved waste management.
The work culminated in the Interim Report, which was submitted December 10, 2005.
Socio-economic assessment of the identified waste management and energy capture
projects followed subsequent to the Interim Report. Two waste management workshops
were conducted in Sumatera and West Kalimantan respectively to socialize the findings
of the Interim Reports as well as to discuss possible partnership models for the
implementation of the projects. A third workshop was formulated for Asahan (Sumatera)
to extend the opportunities for partnerships.
Baseline Waste Management Activities
5. The baseline waste management practices in POMs in Sumatera are as follows:

i.
Solid wastes are used for in-house energy generation i.e. palm kernel shells (PKS)
and mesocarp fibres;
ii.
EFB is applied to plantation land as wet empty fruit bunches (EFB)
iii.
Alternatively, EFB is incinerated and EFB ash is applied to plantation land; and,
iv.
The liquid waste as palm oil mill effluent (POME) is digested in open lagoons and
thereafter applied to the plantation fields as fertiliser at BOD of 1,000 3,500 mg/l.
6. The baseline waste management practice in Kalimantan is similar except the liquid
effluents must be digested until suitable for water course discharge. The BOD level
required for water course discharge in Kalimantan is 100 mg/l.2 The lagoon digestion
technology has difficulty accomplishing this objective.
Demand Drivers
7. Demand for waste management is driven firstly by government and secondly by the
private sector. Government is responsible for policies and regulations that establish
standards for enforcement of waste management practices. Private sector is responsible
for productivity use a technologies that enable them to be competitive and profitable.
2
Reference: State Minister for the Environmental Decree No. 51 of 1995.

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Government and private sector provide a strategic balance between policy and
productivities. Similarly, there is a strategic balance between waste management
practices and profitability, in order to ensure sustainability of the private sector operation
without desecrating the common good. Just each of the foregoing becomes a demand
driver in the pursuit of waste to RE initiatives for the Indonesian OPI:
Environmental regulations have been weak drivers for waste management, as they
have provided no economic incentives;
Mill waste management practices have not been changed for nearly 30 years and
inefficient energy practices were a tool to handle biomass wastes; high historical
prices for CPO made for easy profits and a market glut, which has now depressed
CPO prices;
Matured and emerging technologies for RE could greatly change and improve the
rural economies and the profitability of the OPI;
Current policies and regulations provide a climate of for change, including

e.g. reduction of the fuel subsidies by the Government of Indonesia (GOI) October
2005; Kyoto accord and CDM/JI initiatives and a designated national Authority
(DNA) for Indonesia; and new energy policies to support RE initiatives;
Solid and liquid wastes are now energy assets and carbon credits will become a key
source of competitive advantage;
A variety of economical and profitable technologies are now available for the OPI but
the RE investment situation needs to be facilitated and strengthened for Indonesia.
Technological Intervention in POM Waste Management Improvement
8. The baseline energy practice in the POMs is developed on a totally independent

concept where the POM complex and its housing estate are ensured of energy from its
own energy generating assets. The POM is designed with a diesel black start system and
steam turbo alternators driven by steam generated from biomass boilers. Most of the
energy infrastructures are designed with redundancies.
9. The baseline energy designs also use the energy assets, such as boilers, as a biomass
waste reduction system. All the mesocarp fibers and part of the palm kernel shells are
disposed in the boilers. Currently, the efficiencies of the energy generating assets are
intentionally designed to maximise the incineration of the biomass. The boilers are
generally low pressure (20 25 bar.g) while the steam turbo alternators have specific
steam consumption in the region of 17 22 kg/kWh.
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10. The independent systems designed with redundancies to cater to POMs that are
remotely located from existing utilities. In the case of Sumatera, most of the POMs are
adjacent to roads or navigable waterways and the PT Perusahaan Listrik Negara (Persero)
(PLN)s 20 kV distribution line is within reach of the POMs. The close proximity to the
PLNs grid coupled with the fact that additional generating capacity is required
immediately, presents an opportunity to optimise the energy assets in waste biomass and
connecting the POM energy assets to the energy demand pool. The industry concepts of
the POM energy system needs to be modified from totally independent systems, to
partially integrated systems.
11. Waste management practices can be improved by the following technology
interventions:
i.
Utilize the heat energy in EFB for electric power generation, rather than
unproductive combustion;
ii.
EFB must be dewatered. This can be achieved with presses and also recovers
remnant oil before disposal;
iii.
Alternatively, utilize the dewatered EFB as feedstock for catalytic conversion to

organic diesel; and,
iv.
Digested POME in a controlled high rate system and combustible methane greatly
reduce GHG emissions.
12. The wastes management improvement strategies can be integrated with energy
capture and optimisation. The incineration of EFB can be replaced by efficient
combustion in a biomass boiler while the biogas collected can be combustible fuel for the
power plant.
13. The identified immediate opportunities for waste management improvement
technologies include the extraction of remnant oil from EFB as part of the EFB
dewatering process, and controlled digestion of palm oil mill effluent (POME) in covered
tanks. These technologies can be immediately considered as retrofits to improve the
current wastes management practices without compromising the benefits from the present
final application of the wastes to the plantation fields.
14. By introducing these wastes management technologies, the POM wastes can be
converted into a feedstock for value added activities of energy conversion. Sufficiently
treated EFB is suitable for combustion in efficient and automated biomass boilers, either
for generation of electric power or process steam or both. The biogas captured from
POME digesters can be combusted in the boiler for additional energy, converted into
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electrical energy using gas engines or delivered to the POM housing estate for domestic
utilisation purposes. Invariably, the improved waste management practices convert the
waste into commodities for RE resources for either local or national requirements.
Technological Intervention for Energy Capture and Conversion
15. Based on the baseline wastes management and energy system designs of the POMs
together with the wastes improvement practices, several energy conversion technologies
are being considered. Brief descriptions of the technologies are as follows:
i.
Interconnection to PLN 20 kV Grid
16. A synchronous electrical interconnection with the PLNs 20 kV distribution system is

technically feasible as most of the POMs that are adjacent to PLNs 20 kV distribution
grid that have excess installed capacity. The interconnection would assist the POM to
reduce its black start diesel cost and may export between 100 to 300 kilowatt (electric) of
power to the grid. PLN could reduce its diesel requirements for generation of electricity
servicing subsidized domestic needs. The immediate potential of exporting power to the
grid will also open up new opportunities to produce more energy by using the internally
generated excess biomass and improving the efficiency of the power generation units.
ii.
Biomass Power Generation
17. The EFB intended for incineration in the POMs can be sent to a biomass power
station but needs to be dewatered first for efficient conversion of the energy from the
biomass into heat and power. The power can be sold to PLN and reduce the diesel or
fossil fuel requirement for electricity generation.
iii.
Conversion of EFB Remnant Oil into Biodiesel
18. The EFB dewatering system produces liquor with remnant oil that can be recovered
for feedstock to a biodiesel methylation plant. The biodiesel plant could also obtain
supplemental feedstock from the fat pit. The waste oil would become value-added
biodiesel oil that can be added to mineral diesel.
iv.
Biogas Energy Generation
19. The biogas captured from the controlled POME anaerobic digestion can be used for
supplementary fuel for electricity generation using gas engines or micro turbines or
simply injected to supplement existing biomass feedstock to steam boilers.
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Biomass Gasification System to Generate Electricity
20. The excess shells in the POMs can be utilised as the biomass to fuel gasification
system for isolated demands in the rural areas that are currently supplied by diesel-based
power generation.
vi.
Organic Diesel Production from Biomass Conversion
21. The dewatered EFB can also be used as biomass input into a catalytic conversion
cycle (CCC) system that can convert biomass directly into organic biodiesel.
Techno Economic Analysis of the Technological Interventions
22. Each of the technological interventions was subjected to a techno-economic analysis

to ascertain their technical and commercial viability. The following summarizes these
analyses.
No.
Technology
Technology
Category
Benefits Basis
(Sources of
Income)
IRR
(%)
Payback
(Years)
Interconnection to
PLN Grid
Matured
Avoided diesel
cost, sale of excess
energy to PLN
10 - 32
4-10
Biomass Power
Generation
Matured
8 - 18
7 11
Remnant Oil
Recovery
Conversion of EFB
Remnant Oil into
Biodiesel
Biogas Energy
Generation
Biomass Gasification
to Generate Electricity
Organic Diesel from
Biomass
Matured
17-43
3-6
Matured
Sale of electricity
and sale of CER,
Economic
Avoidance
Sale of remnant oil
(CPO)
Sale of biodiesel
28-36
24
Matured
Sale of CER
12 - 30
46
Emerging
Avoided diesel
cost
Sale of organic
gasoline and diesel
15 - 32
36
23
34
5
6
7
Emerging
Details of the financial performance of the technological interventions when applied to

each site are shown in succeeding tables and in Appendix II.
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23. Most of the technological interventions can either be applied in the individual POM
itself or integrated in a cluster to improve economies of scale. The implementation
strategies of the various technological interventions are further deliberated in the relevant
attachments which include the implementation strategies such as financing options and
mechanisms for immediate and longer term projects. The summary of the technological
intervention is shown in the table below.
Cluster
PT Ramajaya Pramukti
PT Inti Indosawit
Subur Buatan 1
Cluster
PT Sinar Agro Raya
PTPN XIII Gunung
Cluster
Option
Electricity
Gasifier for Rural
Extraction System
x
Cluster
Option
v
x
Cluster
PT Multi Prima
Entakai
Organic Diesel
Permai
Meliau
Cluster
Gasifier in POM
PT Sinar Siak Dian
Remnant Oil
Biomass 5 MWe
Cluster
Methane Separator
Biogas
PTPN V Sei Pagar
Bio Diesel Plant 8 t/d
Palm Oil Mill
POM to PLN Grid
No
Interconnection of
Technological Intervention Matrix
v
v
PT Mitra Austral
Sejahtera
PT Asam Jawa
Cluster
Cluster
option
10
PTPN III Aek Torop
Cluster
Cluster
option
11
Siak Hulu Cluster
21
Gunung Meliau
12
Cluster
13
Kota Pinang Cluster
Total
Legend
x Technically not feasible/not viable
V Technically feasible
1 Number of potential units/modules
x
10
Cluster Part of a cluster implementation

Option Possible option for technological intervention
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Nationwide Potential
24. Based on the 2005 published data on POM and using the proposed technology
intervention matrix as a guide for waste to energy implementation in the OPI, the total
potential for greenhouse gas (GHG) reduction in terms of carbon dioxide (CO2)
equivalents is 6.5 million tons (t)/year (yr) of which 3.3 million m3 is from POME
methane sequestration. To achieve this environmental improvement, the estimated total
investment required is USD 980 million i.e., the average investment cost of GHG
reduction in the OPI in Indonesia will be 150 USD/t/CO2. The potential CER revenues
from the sustained implementation of the waste to energy projects in the POM are
estimated at 45 million USD/yr at the CER rate of USD 7/t CO2.
25. The other tangible benefit is the reduction in utilization of mineral diesel for power
generation. The estimated amount of diesel that can be displaced is 1.1 million t/yr based
on the forecasted potential annual RE generation of 4.2 Terrawatt hours (TWh).
The accrual of the benefits of electricity generation from the POM waste is the rural
electrification penetration rate. It is expected that a large proportion of the energy
generated will benefit the rural areas. Based on a typical household use of
1036 kWh/year4, the number of household that will benefit from the widespread
implementation is 4 million households.
26. The implementation models considered for the effective implementation of the
projects identified varies according to the final objectives and the likely obstacle that may
hinder the implementation activities. The summary of the major considerations are:
3
4
i.
Electricity related RE projects implemented by other than PLN have a high risk of
failure;
ii.
Scarcity of capital for investment and high interest rates is a major concern for all
project proponents;
iii.
Absence of supporting guidelines to facilitate the widespread implementation of

the waste to energy projects may hamper the intended initiatives; and,
iv.
The proposed implementation model embodies a ramping up scale of investment,

beginning with interconnections to the power grid, and progressing to more
capital intensive technology projects as markets and profitability dictate.
The POME methane sequestration is based on the POM that generate at least 380 m3 of POME per day.
The residential usage data from PLN Statistic, 2003.
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27. The partnership models that were deliberated in two potential clusters indicated the
willingness of PLN to explore the role of a project developer much like their investment
in isolated diesel generation system throughout the country. The PLN factor will enhance
the possibility of creating a sustainable collaboration between the public sector and the
private sector to establish a workable plan to reap the immediate potential.
Socio-Economic Benefits
28. The socio-economic benefits of the intended projects are summarized as follows:-
ii
Poverty profile and

Willingness to Pay
The poverty level near the project area (Kampar District) is

reported to be about 27%. A large percentage, i.e., 70% of the
habitants, use candles or flashlight as a means of lighting. Their
willingness to pay for electricity is currently pegged to their current
cost of the energy, i.e. unsubsidised fossil fuel such as kerosene
and diesel. The general perception is that the availability of energy
is more important and would be welcomed if it was competitive
with the current cost of electricity.
Work and business

opportunities
The intended projects will generate local work and business

opportunities, particularly during the construction phase and some
permanent employment during the operations and maintenance
phase, which are welcomed.
iii
Economic spin-offs
The projects will generate several economic spin offs such as

improved productivity, bio fuel market, bio fuel logistics support
and services for the repair and maintenance of the system.
iv
Clean and Renewable

Energy
The availability of clean energy to the rural folks will enhance their
living standards and generate other related benefits and economic
activities that require the consistent availability of electrical energy
Reduced costs of energy
Widespread implementation of the waste to energy projects will in

turn reduce the cost of energy as the indigenous and renewable
resources can readily compete cost-wise with unsubsidised fossil
fuel as of the feedstock fuel is much less expensive.
Increased penetration of
energy in rural areas
The projects identified in this TA have the potential of increasing

the penetration rate of energy availability in rural areas, thus
providing the impetus for growth and socio-economic
enhancement.
Gender issues
The impacts of the project on the current gender issues are

uncertain, but would include improved evening studies and
educational opportunities for women and children. The male
dominated workforce is expected to continue in the new projects
and the female roles in the project will be limited to the
administrative desk top work that may be created.
Indigenous people
The projects are mainly located within or close to the POM which
has already been developed. The immediate benefit or impact to
the indigenous people are not foreseen as most of the communities
surrounding the projects sites surveyed do not comprise those from
the indigenous groups
vi
vii
viii
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29. The impact of the waste management to energy projects to the locality is summarised
as follows:
Commercialization Strategy
30. The commercialization of the waste to energy projects and its ensuing widespread
application in Indonesia can be achieved via strategies that take into consideration the
local business climate and prevailing conditions. The partnership schemes between
private and public stakeholders assessed suggests the following generic strategy:i. Electricity-based waste to energy projects Implementation led by PLN
31. For electricity-based waste to energy projects, the implementation should be mainly
led by PLN. This is in line with their overall mandate to supply drive electricity and the
current burden of reducing cost associated with diesel-based energy generation. Projects
such as the interconnection of POM to the PLN distribution Grid, EFB biomass power
plant and biomass gasification plants are suitable for widespread implementation by PLN.
Except for the biomass gasification, the projects have tangible and significant commercial
benefits to PLN. Furthermore the projects can be part of PLNs RE portfolio.
ii. CPO based projects Implementation led by POM
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32. The POM can easily identify with CPO based projects as it is part of their core
business. Projects such as remnant oil recovery (ROR) and small scale biodiesel can be
commercialized by the POM themselves. ROR is a stand alone technology as well as a
logical technology progression for POM that for provision of dewatered EFB to a PLN
biomass power plant the EFB dewatering press also provides CPO as a byproduct.
The projects require relatively low investment and the technologies are simple to operate.
Some of the POM in Indonesia has already adopted the ROR and further socialization of
the TA findings will enhance the commercialization potential of these projects.
The biodiesel plant is being promoted by and local support for the technology is available
to push for widespread implementation.
iii.
POME biogas capture projects Implementation led by POM in

collaboration with CER buyer
33. The potential for commercializing the POME biogas capture projects relies on the
sale of certified emission reduction credits (CER). The energy component has some
commercial potential, however, the technology required to convert the biogas into further
useful energy such as electricity is currently too expensive for consideration. The POME
related projects are proposed to be initially implemented by third parties, particularly the
CER buyers or carbon funds that are seeking the CDM projects. This implementation
scheme is plausible and some active buyers have expressed interest in these projects.
Widespread implementation is possible and further facilitation between the lead
implementer and the POM will help to create the opportunities. As the market develops,
the implementation scheme will respond to market demands.
iv. Organic Diesel Implementation led by technology provider
34. The emerging technologies of converting biomass to organic diesel are proposed to be
demonstrated and spearheaded by the technology providers. This would ensure proper
demonstration of the technology and its commercial attribute to the OPI.
v. Immediate projects
35. There are two (2) immediate cluster projects that have been identified and a third
potential cluster has been evaluated for Kota Pinang, northern Sumatera. The models are
suggested as an interim scheme to demonstrate their technical and commercial viability.
The immediate projects are the Siak Hulu Cluster project and the Gunung Meliau pilot
project. The partnership model for the Siak Hulu Cluster project is between the
provincials investment arm, PD Sarana Pembangunan Riau and the POM to develop a
5 MWe biomass power plant. This model will assume a merchant plant status where sale
of electricity to PLN will be the main source of income. This project will also test the
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new RE mandates in the Ministerial Decree 002/20065. The other immediate potential
project is the Gunung Meliau pilot scheme in which PLN is keen to invest and establish
its first of hopefully many biomass power plants. This scheme has the more likely
potential of being successful and can be a model on which to base future projects. PLN
has also expressed keen interest to develop the Siak Hulu Biomass Power Plant.
Long Term Sustainability Plan
i. Integration of RE capture into overall provincial energy planning

36. The POM waste to energy projects can be a meaningful contributor to the
achievement of the National Energy Policy objectives. The scope of implementation
activities is sufficient to warrant these activities to be established as a programme in the
National RE initiatives. The inherent potential is attractive and the presently available
technologies are already feasible to harness the potential. The plan to sustain the
implementation requires the coordination of policy makers and provincial governments to
provide the necessary facilities and framework. Integration of the POM waste to energy
projects into the overall provincial energy development plan will require the close
coordination between the agricultural department (Dinas Perkebunan), the energy
department (Dinas Pertambangan Energi) and PLN to map out the template
implementation schemes. The POM waste to energy projects can also be the backbone
of rural electrification schemes in areas where existing POM and new plantations6 are
dominant. These two initiatives will create a conducive environment to sustain the
implementation of the POM waste management and energy capture projects. Over the
long term, the portfolio of economically viable technology interventions should increase,
which will further enhance the sustainability of the initiative.
ii Development of sustainable waste to energy projects.
37. The identified projects in Riau and West Kalimantan provinces have the immediate
potential to be implemented. The project developers and proponents are identified and
(for the cluster projects) have expressed their interest to consider actual implementation
of the projects. The long term sustainability of the waste management and energy
capture projects from the POM has immense potential to become the backbone of rural
electrification initiatives in Indonesia. The high cost of rural electricity production which
is normally isolated systems with diesel generators can be displaced using excess power
from the POM. The implementation of such widespread rural electrification initiatives
requires some support in the initial stages, particularly to prove the technical, commercial
Ministerial Decree of Energy and Mineral Resources, 002/2006

Government of Indonesia has identified the border areas between Malaysia and Indonesia in Borneo for
strategic palm plantation belt.
6
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and economic viability to the investing organizations and to prepare the guidelines to
effectively tap the inherent potential on a nationwide basis.
Financing Requirements
38. The estimated total potential for waste to energy projects in the entire OPI is
USD 980 million.
39. The concept proposal for the additional ADB support is summarized into two major
category namely:
i. Short term support Project implementation follow-up activities and
concessionary debt financing, including e.g. ADB Carbon Fund Initiative;
ii. Medium term support Development of rural electrification support
mechanisms.
40. The financing requirements from ADB would provide the debt component to or
through PLN. In the short term, there are several immediate projects that can be
implemented. These projects require an estimated USD 62 million of investment and
70% (USD 43.4 million) of it would be from debt financing. The biogas project may
have co-financing potential from interested carbon funds. Incremental support from
ADB would accelerate the adoption of the technologies in the OPI.
Conclusions
41. The waste management and environmental performance of the OPI in Indonesia can
be improved by establishing three primary activities, namely: interconnection to the PLN
grid, the dewatering of EFB and capturing of the biogas from the anaerobic digestion.
The proposed framework can fit into the current environmental regulations and are
technically and economically feasible for widespread consideration.
42. Seven potential technology interventions were identified as technically and
commercially attractive for waste management and energy capture. Although two of the
technology interventions are emerging and have valid outstanding issues to address, the
long term potential is significant and was duly considered.
43. The success of the long term plan for the OPI waste management and energy capture
depends on the coordination capacity of the various stakeholders to deal with the
integration of the POM as part of the provincial energy system. Guidelines of POM
retrofit, upgrading and new development by the agricultural department need to
coordinate with the provincial energy planning department, as well as electricity
distribution infrastructure planning by PLN, to enable the waste conversion and
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distribution of clean energy in the immediate localities. This concept is in line with the
policy objectives outlined in the Presidential Instruction No 001/2006, Presidential
Decree No 5/2006 and Ministerial Decree No 002/2006 and can be further reinforced as
programmes to support the prevailing policies.
44. The enhanced waste management practices have the potential to improve the local
surroundings and reduce the GHG emissions. Sequestration of methane and decrease in
use of fossil fuel, particularly diesel, are the main tangible green benefits while reduced
particulate emissions from EFB reduction and proper water course discharges of fully
digested POME are also anticipated when the waste management improvements are
adopted. The social aspects are mainly the additional direct and offshoot economic
activities that are generated by the projects and the potential of reduced electrification
rates and improved rural electrification using the POM waste management and energy
capture initiatives as backbones. Negative impacts on gender or indigenous people as a
result of the identified projects are not foreseen.
45. The waste management and energy capture initiatives have good long term potential
for Indonesia. Loan assistance to realize the application of the technology and adoption
of the country-wide commercialization strategies may be necessary. The short term
support is to demonstrate the technology interventions in Siak Hulu and Gunung Meliau
and the long term support is to help establish the framework to integrate the POM waste
to energy potential as part of the provincial energy development plans. There are two
cluster projects in Siak Hulu, Riau and Gunung Meliau, West Kalimantan that can help to
demonstrate the technology interventions as well as the commercial attractiveness for
further replication.
Recommendations
46. In accordance with the policy initiatives of Presidential Decree No 5/2006,
Presidential Instruction No 1/2006 and Ministerial Decree no 002/2006, it is
recommended that a task force led by the Implementing and Executing Agencies of the
TA provide the continued support of the succeeding activities, particularly in the
intervening period to sustain the implementation drive generated by the TA. The support
is to ensure that the execution momentum of candidate projects in Siak Hulu, Riau and
Gunung Meliau, West Kalimantan clusters as well its associated CDM aspects is
maintained. The support activities should include:
i. Socialisation of TA results in other provinces which has a thriving OPI
(and is not covered by the TA);
ii. Facilitation and mediation for CDM project between the CER buyer and the
POM;
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iii. The accumulated experience and intimate knowledge of the waste

management and energy capture projects and programmes within the
domestic consultants be gainfully mobilized to reinforce the supporting roles
of the IA and EA.
47. The commercialization strategy identified in the TA provides effective and sound
implementation approaches for the waste management and energy conversion projects.
The strategy identifies the following:
i. In light of the economic advantages and technical expediency for electricity
based projects, PLN should have a leading role in the development and
implementation of projects such as the interconnection of POM to the
distribution grid, biomass power plants and waste to energy projects for
rural electrification.
ii. To capitalize on the potential of foreign direct investment in CDM projects,
such as biogas capture, a task force of relevant members of the steering
committee such as BPPT (CDM facilitator), IOPRI, GAPKI, and others who
are active in Indonesia CDM landscape should facilitate and further develop
the CDM aspects of the identified projects.
48. To support and realized the immediate economic, social and environmental potential
and create a sustained implementation of waste management and energy capture projects
in Indonesia OPI, ADB should consider further assistance as follows:
i. Short term support as a project implementation assistance to provide
essential engineering and financial expertise for the development and
execution of the waste management and energy capture cluster projects
identified in Siak Hulu, Riau and Gunung Meliau, West Kalimantan.
ii. In conjunction with (i) above, ADB could provide a loan component for the
financing portion of the identified projects in Siak Hulu, Riau and
Gunung Meliau, West Kalimantan
iii. Utilize the CER initiative to provide partial up front financing designed to
assist project implementation, which has identified Indonesia as one of the
recipients.
iv. Implementation support for the development of practical integration
guidelines for incorporation of POM waste management and energy capture
as part of the provincial energy services to encourage the sustainability
aspect of the initiatives identified.
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1.0
PALM OIL MILL WASTE MANAGEMENT FRAMEWORK
1.1
Demand Drivers
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1. Demand for waste management is driven firstly by government and secondly by the
private sector. Government is responsible for policies and regulations that establish
standards for enforcement of waste management practices. Private sector is responsible
for productivity use a technologies that enable them to be competitive and profitable.
Government and private sector provide a strategic balance between policy and
productivities. Similarly, there is a strategic balance between waste management
practices and profitability, in order to ensure sustainability of the private sector operation
without desecrating the common good. Just each of the foregoing become idea driver in
the pursuit of waste to RE initiatives for the Indonesian OPI:
Environmental regulations have been weak drivers for waste management, as they
have provided no economic incentives;
Mill waste management practices have not been changed for nearly 30 years and
inefficient energy practices were a tool to handle biomass wastes; high historical
prices for CPO made for easy profits and a market glut, which has now depressed
CPO prices;
Matured and emerging technologies for RE could greatly change and improve the
rural economies and the profitability of the OPI;
Current policies and regulations provide a climate of for change, including

e.g. reduction of the fuel subsidies by the Government of Indonesia (GOI) October
2005; Kyoto accord and CDM/JI initiatives and a designated national Authority
(DNA) for Indonesia; and new energy policies to support RE initiatives;
Solid and liquid wastes are now energy assets and carbon credits will become a key
source of competitive advantage;
A variety of economical and profitable technologies are now available for the OPI but
the RE investment situation needs to be facilitated and strengthened for Indonesia.
1.2
Waste Management Practices
2. The baseline waste management produce in the Oil Palm Industry (OPI) in Sumatera
and Kalimantan are consistent and compliant to the current prevailing environmental
regulations. Most of the liquid wastes are anaerobically treated. For palm oil mills in
Sumatera, the general practice is to apply the partially digested effluents to the field as
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fertilizers. In Kalimantan, land application of POME is yet to be approved. According to

regulations, the effluent should be treated to the desired level of BOD of 100mg/l before
being discharged into a water course.
3. The other significant waste is the solid waste streams comprised of empty fruit
bunches (EFB), mesocarp fruit fibres (MF) and palm kernel shells (PKS). The MF and
some of the PKS are used as fuel to generate steam and electricity for the crude palm oil
(CPO) processing plant. Excess PKS are either used for road hardening or, where demand
exists, they are sold to third parties.
4. The EFBs are either incinerated or applied to the field. Some palm oil mills return
part of the untreated EFB for mulching in the plantation while the remaining EFB are
incinerated. Mulching is biased to areas along access roads and indiscriminant dumping,
which results in inefficient distribution characterized by excessive piles of EFB. The ash
recovered from the incinerated EFB is also sold or used as fertilizer in the palm
plantation.
5. The impacts of the current baseline activities to the environment are as follows:
a) Biogas generated from the anaerobic digestion is allowed to escape into the
atmosphere. The biogas contains about 65 % methane 7, which is one of the most
potent greenhouse gases;
b) The incineration of EFB emits particulates into the surrounding atmosphere; and,
c) Indiscriminate dumping of EFB causes additional methane emission into the
atmosphere.
6. The palm oil mill (POM) is designed to be a self sufficient plant in terms of its energy
requirements. The POM power system is started up using black start diesel generator sets.
Once the boiler reaches its operating temperature and pressure, steam is delivered to the
back pressure steam turbo generator to generate electricity. As soon as the turbo
generator sets are synchronized to the low voltage busbar and operating steadily, the
diesel generator(s) are taken off and shut down. When the POM is about to shut down for
the day, the diesel generator sets are operated to provide auxiliary supply and electricity
to the housing estate.
Source: B.G.Yeoh SIRIM Environment and Bioprocess Technology Centre, Malaysia.
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Waste Management Guideline
7.
The waste management guideline, among others, will address the concept of
waste as an asset. The approach is to create an awareness of the economic values in the
waste streams and introduce new practices that would generate sustainable development
in the POMs and the oil palm (OPI) industry in general. Waste management practices can
be improved as follows:
i.
EFB could be pre treated before disposal by crushing and dewatering and the
remnant oil recovered , and,
ii.
The pre treated EFB can then be used for power generation or organic diesel
synthesis;
iii.
Liquid effluents can be digested in a more enhanced and controlled manner and
the biogas captured flared to minimise GHG emissions into the atmosphere; and,
iv.
Secondarily, the biogas can be used as supplementary fuel for power and steam
generation.
8. By introducing these technologies, the POM wastes can be a feedstock for

value-added energy generation. Pre treated EFBs are suitable for combustion in efficient
and automatic biomass boilers, either for electric power or process steam or both.
The biogas captured from POME digesters can be combusted in the boiler for additional
energy or converted into electrical energy using gas engines or delivered to the POM
housing estate for domestic utilisation purposes. Invariably, the improved waste
management practices would convert the POMs wastes into RE resources for local and
regional uses.
9. One of the immediate sources of RE that could be harnessed is the capture of biogas
for supplemental energy to replace diesel during black start and shutdown in the palm oil
mill. This practice would require efficient capture of methane via controlled mechanical
digestion techniques, eliminating anaerobic digestion in open ponds. Capturing the biogas
in this manner would require less retention times and pond areas. The gas can also be
captured using lagoon covers instead of the mechanical digestion system. In this case the
anaerobic processes in the ponds remained the same and the technology intervention is
limited to external covers.
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10. The current practice of incinerating or applying EFB to the plantations can be
improved by reducing the moisture content in the EFB from 65 %8 to 40 - 45 %. There is
also remnant oil in the EFB, estimated at 1 % of EFB weight9 which could be recovered
as a valuable byproduct of the dewatering process. Dewatering EFB is necessary before it
can be used as a feedstock for electric power generation.
11. EFB incineration as a means of waste management should be revisited.
The technology is now available to use the EFB in highly efficient biomass power plants
that can generate additional electricity to support the local distribution grid. A cluster of
POMs that incinerates its EFB could be a primary supply of feedstock fuel for a clustered
biomass power plant utilizing dewatered EFB.
12. Guidance to improve waste management in palm oil mills can be summarized as
follows:
Table 1: Summary of Waste Management Options
a).
b).
Solid Waste: Empty Fruit

Bunches (EFB)
Incineration of EFB
c).
Excess Palm Kernel Shells

(PKS)
d)
Remnant Oil from EFB
e).
Liquid Waste Palm Oil

Mill Effluent (POME)
EFB should be dewatered prior to conversion or

incineration, for disposal as mulch or fertilizer.
Dewatered EFB should be sent to a centralized
biomass energy for conversion into heat and/or
electricity, or used to produce organic diesel.
Where biomass central energy plants exist, the
excess PKS can be delivered to the plant for
combustion with the other POM solid wastes.
The remnant oil recovered from the EFB can
supplement CPO production or can be used to
produce biodiesel.
Capture of Biogas from POME either combustion
in existing energy system or electricity generation.
13. To implement the proposed guidelines for waste management in POM, appropriate
technologies must be utilised and combined with changes in basic POM design practices
to unlock the RE potential. These technologies will be further discussed in the following
sections of this report.
14. Technological interventions such as biogas capture and energy generation, central of
biomass power plants and other emerging technologies can create a new demand for a
skilled workforce in the POMs both during construction, and in operation. The strategy of
8
9
Source: Bandung Institute of Technology, Research Paper 2004.

PIPOC Conference paper.
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capturing and conversion of energy from the waste streams will generate a surplus of
energy beyond the need of the POMs, which can be exported into the local energy grid.
This situation augurs well for Indonesia where the electricity demand is still largely
unserved, particularly in rural areas10. However, the role of PLN (being the monopoly
supplier of electrical energy and its distribution in Indonesia), is critical and influential in
making broad scale generation of RE a reality. Recent active participation of PLN in the
TA activities indicates their involvement is imminent.
15. As a long term strategy, the envisaged component practices of biogas capture and
biomass utilization resulting from this TA, could become an integrated case study
example on which to base a RE approach to the OPI. This should result in a first
generation of POMs producing energy for CPO processing, exporting excess RE to the
PLN grid and, as well, exporting biodiesel.
1.4
Implementation
16. The successful implementation of the new approach to waste management in POM is
dependent on the cooperation of other stakeholders. The evacuation of the excess energy
in the POM requires the strong support of PLN to be successful, while the integrated
POMBio Energy plant requires the intervention of policy makers and approving
authorities to incorporate into the local OPI development strategy. Dinas Perkebunan
(Provincial Agricultural Department), for example, may need to stipulate the new
direction that the OPI adopts, particularly the strategies and new design options that the
POM should be adopting. A clear guideline would facilitate the effective improvement of
waste management in the POM as well as in POM clusters, particularly in the long term.
Favourable RE prices purchased by PLN will have a catalytic effect on the
implementation of waste to energy projects11. Since the waste to energy projects are
competitive when compared to unsubsidized diesel or fossil fuel powered generation,
policy intervention and effective implementation are necessary to successfully address
non financial barriers caused by poor coordination of policy implementation12.
10
Electrification rate in Indonesia in 2005 is 59%, Rencana Usaha Penyediaan Tenaga Listrik, issued by
PLN 2005 (Electricity Supply Preparation Plan 2005, issued by PLN).
11
Ministerial Decree 002/2006 mandates purchase of RE by PLN at 80% production cost and 10 year
contract for capacities between 1-10MWe.
12
Presidential Instruction on National Energy Policy 005/2006.
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TECHNICAL AND ECONOMIC ASSESSMENT
17. There are numerous techniques to derive energy from POM wastes. The summary of
the potential RE projects in Indonesians POMs is described below.
2.1
Sharing Generation Assets Capacity Between POMs and PLN
18. The basic POM design incorporates an independent power generation system that is
planned with redundancies13. The POM can self start using diesel generator sets and later
operate continuously using biomass fuelled power and heat generation. The installed
combined heat and power (CHP) plant capacities vary in accordance with the size and
function of the POM.
19.
Typically most POMs have a redundant CHP plant to support the processing
system and the POM housing estate. This design approach is suited for a POM that is
located in remote areas with limited access to utilities such as electricity and water.
The basic POM design requires diesel fuel for the diesel generator sets to perform the
daily black start of the biomass power plant in the POM. Our initial site visits indicated
the amount of the diesel used for black start is significant, ranging between 10,000 to
25,000 litres per month.
20.
The anomaly of this POM design approach becomes evident when the POM is
situated and operating near a main road that also provides routing for close by PLNs
20 kV electricity distribution lines. This was the situation for the POMs that were visited
in the provinces of Sumatera and Riau. Most of these POMs were located less than
1,000 metres away from the nearest 20 kV distribution grid. PLN controls the grid but
does not normally supply either the POM or the POMs housing estate.
21.
In meetings conducted in Pekanbaru, Medan and Pontianak, the energy officials
from the provincial energy department, Dinas Pertambangan Energi, insisted that there
are shortages of electricity supply and new sources of power generation are required and
welcomed. The glaring mismatch is the redundant energy generation system in the POM
with excess capacity and the shortage of power in the distribution grid and the
surrounding areas.
22.
The obvious solution is to connect the excess power in the POMs to the
distribution grid which will allow the installed RE capacities to be optimally shared
between POM and PLN. The generation capacity sharing concept requires a framework
that can facilitate the technical power evacuation and the appropriate commercial scheme
13
Wambeck, N. Synopsis of Palm Oil Mill.

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September 2006
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to compensate the relevant participating parties. This is the crux of the barriers and
constraints to enable independent power projects (IPP) to export power to the grid.
23.
The immediate benefit to the POM of connecting to the grid is the reduction of
the POMs diesel expense to generate black start power. This cost can be avoided if it is
connected to the PLN grid and PLN supplies the black start power to the POM. Because
the POM has generation capacity in excess of its demand, the POM can export the excess
power daily when its CHP plant is fully operational. The payment of the black start
energy is proposed to be on a contra basis. The exported energy can be used as contra
payment to the initial power taken by the mill during start-up. In most cases, the POM
would be able to export more than it has taken for the black start. To accommodate this
excess export, the standard PSK Tersebar14 energy sales scheme can be applied to
determine the relevant rates for PLN to pay for energy that it takes from the POM.
24.
Alternatively, two separate metering systems can be utilised to monitor the flow
of energy. The POM can purchase power at the prevailing industrial rate for its start up
activities and sells power to the grid according to the prevailing rules. This mechanism
will simplify implementation by using available mechanisms instead of introducing the
contra techniques which may require further deliberations on then merits and demerits.
However, having separate import and export systems requires additional electrical
equipment and operational activities to achieve the same result. PLN has indicated its
willingness to prepare a POM PLN interconnection programme.
25.
From the analyses conducted for the various POM that were surveyed, the
potential of capacity sharing is evident. The following table summarise the assessments
that were completed.
Table 2: Economic Assessments of POM Interconnections to the PLN Power Grid
No
1
2
3
4
5
6
14
Palm Oil Mill
PTPN V Sei Pagar

PT Sinar Siak Dian
Permai
PT Inti Indosawit
Subur Buatan 1
PT Sinar Agro Raya
PTPN XIII Gunung
Meliau
POM Interconnection to PLN Power Grid

Capacity
kVA
NA
Annual Export
kWh
NA
Investment
USD
NA
IRR
%
NA
Simple
Payback
NA
750
1,920,000
270000
32
NA
NA
NA
NA
NA
350
1,125,000
180,000
10
10
700
2,660,000
270,000
16
NA
NA
NA
NA
NA
Source: Distributed RE, Ministrial Decree No 1122K/30/MEM/ 2002, 2002.

Golder Associates
September 2006
No
7
8
9
10
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Palm Oil Mill

PT Multi Prima
Entakai
PT Mitra Austral
Sejahtera
PT Asam Jawa
PTPN III Aek Torop
05-1113-244
POM Interconnection to PLN Power Grid

750
1,032,000
270000
3.0
750
1,836,000
270,000
28
350
350
1,569,600
1,428,840
150,000
150,000
18
11
5
10
Ramajaya Pramukti and Sei Pagar do not have enough capacity for export of power to the
grid. The details of the assessments are presented in each of the project definition reports
for each POM provided in Appendix 1
26. By implementing the generation asset capacity sharing concept, Indonesia will reduce
its diesel consumption demand. Assuming an average of 15 tons/month diesel
consumption per POM and that 100 POM can be connected to the PLN distribution grid,
the annual diesel demand reduction from the participating POM is 15 x 12 x 100 =
18,000 tons/year.
27. The excess energy that can be injected into the grid is about 1 million kWh per POM,
assuming an average of 200 kWe/POM operating for 5000 hours/year. The amount of
potential energy export to the grid, say for 100 POMs, will generate about 100 million
kWh. This will further reduce the diesel consumption by 33 million litres
(1 litre = 3 kWh15) or 33,000 tons of diesel. By adopting the strategy of generation assets
capacity sharing, Indonesia can expect to reduce about 51 million litres of diesel demand
a year. Further benefit can be accrued if the scheme is implemented by PLN, where the
potential of bundling the projects to secure its CDM potential is significant. The average
CDM potential of an interconnection displacing fossil fuel power is 650 tons CO2/year in
Sumatera and 800 tons CO2/year in Kalimantan. If the projects are bundled together,
distributed on a 70:30 basis in the geographical locations, the total potential for CER
sales per year is about 650 tons CO2/year x 70 POM and 800 tonsCO2/year x 30 POM =
69,500 tonsCO2/year.
28. Forecast for the entire POM industry based on a range of export capacities from
300kWe, 350kWe and 450kWe, indicates the amount of annual electrical energy
generated is 463GWh which has an equivalent diesel consumption amount 71,400 tons
(84,000kl) per year. The GHG reduction potential is 590,000 tonCO2eq.
15
The average electricity generation cost for isolated systems in Riau is 24UScents/kWh (IDR2260) in
North Sumatera is (IDR 2959) 31 US cents/kWh and in West Kalimantan is 23UScents/kWh (2204
IDR/kWh).
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September 2006
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29. In summary, the generation asset capacity sharing concept will benefit the POM by
reducing diesel cost for power generation, PLN will benefit as it can displace some of its
fossil fuel generation, and if implemented by a single entity such as PLN, the CDM
potential may be possible to harness to bring additional income to PLN.
30. PLN has a declared initiative to reduce fossil fuel consumption and implementation
by PLN will facilitate the potential for CDM. The drawback of this option may be the
potential delays for the completion due primarily to the anticipated lengthy project
approval process typical of large organizations such as PLN. PLNs role in providing the
black start power and later on receiving RE electricity from the POM is crucial in making
this technological intervention a success.
2.2
Rural Electricity Using Biomass Gasification System
31. The electricity supply mode in rural areas is dominated by small diesel generation
(DG) sets. Wherever the supply is provided by PLN, in which case the price of electricity
to the consumer is controlled, the income from electricity sales is not sufficient to cover
even the diesel fuel cost despite the previous subsidy enjoyed by PLN. Some remote
areas self generate using small DG sets with diesel purchased at industrial prices. Due to
the high cost of diesel, most of these villages are forced to limit the availability of
electricity. The cost of diesel generation in the three provinces of Riau, North Sumatera
and West Kalimantan is shown in Appendix II. For isolated systems in Sumatera, the
total installed capacity is 184,425kW from a total number of 230 units16.
Table 3: Isolated Diesel Generating Units in Sumatera
No
1
2
3
4
5
6
7
Area
Aceh.
North Sumatra
West Sumatra
Riau
S2JB
Lampung
Bangka belitung
Total
Total Plants
44
2
9
119
36
9
11
230
Data source: PT PLN (Regional).
16
Feasibility Study for Renewable Energy, PT PLN, 2005.

Golder Associates
Capacity (kWe)
15,851
440
1608
37,526
35973
7264
85763
184,425
September 2006
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32. The current rural electrification strategy has been to minimise losses. The information
gathered during discussions with PLN at the distribution level indicates that both PLN
and the local authorities are working together to minimize the losses. Some of the diesel
generators are purchased by the local development authorities (Pemerintah Daerah
Pemda) and operated by PLN using previously subsidized diesel. Both Pemda and PLN
share the losses in providing electricity as the income from electricity sales are
insufficient to cover the generation costs. There are several other locations where the
diesel generators are purchased by the Pemda and operated by the local cooperative using
diesel at prevailing market prices. Rural areas that do not enjoy electricity use kerosene
and battery operated lighting systems as alternatives.
33. With the partial removal of subsidies from diesel, PLNs cost of electricity production
in the rural areas has increased. The rural areas electrification program may be
jeopardized due to the new price structure of the fuel. As an alternative, the possibility of
using small scale biomass gasifier units to generate electricity is being considered.
The gasifier units are largely emerging technologies that have not been commercially
exploited. The investment is relatively small in comparison to its long term potential of
low energy cost production. In comparison, the energy production cost (fuel) of diesel is
above 0.2 USD/kWh, based on the market cost of diesel of about 0.57 USD/litre and the
average generation cost of isolated diesel plants in Riau, North Sumatera and
West Kalimantan17. The estimated electricity production cost for a biomass gasification
system is about 10 times lower than the diesel generator production cost. This technology
provides a clean energy alternative to the rural electrification, particularly for the self
generation areas.
Number
Price
Province
USD/kWh
IDR/kWh
Riau
0.24
2260
North Sumatera
0.31
2959
West Kalimantan
0.23
2204
The details of the assessment on the above prices are shown in Volume III, Appendix II.
34. The gasification systems are generally small in size. The sizes start from 20kWe and
go up to about 1,000 kWe. Taking a system of combined installed capacity of 140 kWe,
the annual avoided cost (diesel) is 140 kWe x 7,000hrs x 0.2 USD/kWh, about
196,000 USD per year. This is a significant annual savings. The estimated capital cost for
the above-mentioned biomass gasification system for a 7 x 20 kWe is about
17
On average 1 litre of diesel can generate about 3kWh of electricity and average costs of distributed
generation is shown in footnote no. 9.
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September 2006
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175,000 USD. Based on a low utilization rate comparable to existing diesel based owned
generation, the payback based on diesel cost avoidance is about six years (5.59 years).
In the survey conducted in Riau, the electricity supply system is provided by self
managed 40 x 3 kWe diesel generator sets. The estimated investment cost is
1,500 USD/kWe. The internal rate of return (IRR) at the current diesel generation
capacity load factor of 1,250 hrs/year is about 12 % and improves proportionately as the
load factor increases. For a typical 5,000 hrs per year utilization, the project return
improves to about 22 % with a payback of less than 5 years. The summary of the
financial model is provided in Appendix 3
35. The additional feature of the biomass gasification system is that it can be locally
fabricated to reduce cost. This will in turn generate new economic activities and further
growth of the RE industry. The potential of local fabrication also means that the gasifiers
can be customized to local requirements and the expertise accumulated there will
generate biomass gasifiers as home-grown technologies. Naturally, in the long run a more
efficient price structure is expected.
36. The biomass resource is abundant in the remote areas. It is suggested that the biomass
resource from POM, particularly the palm kernel shells which are sold at about
3.00 USD/ton, can be the main source of biomass to be gasified. Since Indonesia is
blessed with an abundance of biomass, the short term outlook for the biomass supply to
the gasifier stations is good and supply risks are limited.
37. The technological risk is the main concern. Performance of gasifier systems in
Indonesia has been dismal and around the globe biomass gasification is not popular.
This current status of the biomass gasifier as an emerging technology, where issues to be
resolved are a valid concern. However, faced with the current modus operandi of using
diesel generators that are both expensive to operate and dependent on depleting
indigenous fossil fuel resources, the gasifier option presents both a potential RE as well
as competitive technology in the long term.
38. The implementation model where a single entity owns the project will also open the
possibility of CDM financing. The CDM component which is directly related to the
avoidance of diesel as the alternative to baseline will be too small for an individual
project to sell its CER. However when many are bundled together as a single
entity-owned group of projects, the potential for CDM becomes realistic. In this respect,
the current implementation model where the Pemda invest and operate the rural
gasification units appears to be the most favourable approach. The possibility that PLN
takes an active role in RE based rural electrification will also facilitate the possibility of
CDM financing. The project, when proposed as a programme that includes various
provinces, may also be eligible for development centred financing, e.g. from ADB or
World Bank, since they have the long term developmental objective of poverty
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September 2006
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alleviation. The aggregated GHG potential of the gasification system in the OPI is
92,000 tonCO2 eq per year.
39. In conclusion, the gasifier units could replace the small scale diesel generators that
are operating off grid and managed by those local cooperatives using diesel procured at
market prices. The technology has a significant operating cost advantage, approximately
1/10th that of a diesel generator. The implementation scheme should consider bundling
the projects to enhance the possibilities of CDM as well as development-centred
financing.
2.3
Remnant Oil Recovery from EFB
40. The current and popular EFB disposal techniques in most POMs in Indonesia are
either incineration or mulching on the palm plantation. No pre-treatment of EFB is done
prior to the disposal in most of the POM. Experience in Malaysia shows that there are
some remnant oils in the EFB. The estimated quantity is about 0.2 % of FFB. The quality
of the CPO in remnant oil recovery (ROR) is similar and, in most cases, the POM
channels the ROR liquor extracted from the EFB to the same CPO processing system.
41. The pre-treatment process where the EFB is dewatered to recover the oil uses a
simple screw press technology and liquor collection system. The estimated total cost is
110,000 USD for a 9 ton/hr EFB pressing capacity. The annual ROR CPO production
from 200,000 tons FFB per year is about 4,000 tons. At 50% of the assumed CPO price
of 175 USD/ton, the annual income is 70,000 USD. The summary of the technology
application and the economic return is shown in the table below. The simple payback for
the system is less than two years. Pressing for ROR also decreases EFB moisture content
to less than 50 %. Such pre-treatment is also required to prepare the EFB for energy
conversion technologies, e.g. the central biomass power generation system. The details of
the ROR technology application are provided in Appendix I.
Table 4: List of Potential Remnant Oil Recovery Projects
No
1
2
3
4
Palm Oil Mill
PTPN V Sei Pagar

PT Sinar Siak Dian
Permai
PT Inti Indosawit
Subur Buatan 1
Remnant Oil Recovery System

Units
9 ton/hr
1
Annual CPO
tons
333
Investment
USD
108,611
IRR
%
17
Simple
Payback
6
792
217,220
22
792
217,220
25
450
108,611
24
Golder Associates
September 2006
No
Palm Oil Mill
PT Sinar Agro Raya

PTPN XIII Gunung
Meliau
PT Multi Prima
Entakai
PT Mitra Austral
Sejahtera
PT Asam Jawa
PTPN III Aek Torop
6
7
8
9
10
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05-1113-244
Remnant Oil Recovery System

NA
NA
NA
NA
NA
450
108,611
29
396
108,611
14
225
108,611
24
450
440
108,611
108,611
29
28
4
4
42. The implementation scheme for the EFB pre-treatment can be dissimilar at different
locations. The system is not intrusive as it only diverts the EFB after the thresher into the
pre-treatment system. The oil extracted from the pre-treatment plant can be channeled to
the POM and the pre treated EFB can be transported to the cluster project developer on a
revenue sharing basis. This implementation scheme will ensure that the remnant oil can
be recovered with minimal expense while the POM benefits from the revenue sharing
scheme without having to invest in additional energy generation.
43. For places such as Riau, where a biodiesel plant has been built and would need raw
material as input to the bio diesel processing, the investment in the pre-treatment will
ensure a steady flow of EFB remnant oil to the biodiesel plant. The cluster concept where
a biomass power plant is feasible for implementation, the treated EFB can be sent to the
power plant. The investment by the bio diesel plant developer will present a strategic
mitigation measure for long term fuel / raw material supply security issues.
44. The alternative implementation model is the implementation by the POM itself.
This model, when coupled with the small scale power generation into the distribution
grid, will present a better optimisation of the pressed EFB. POM that are isolated and are
required to dispose the EFB in plantations will also find that the pressed EFB is much
easier to handle and more can be transported out compared to untreated EFB. Similar
operational improvement is expected for EFB that is predestined for incineration. Some
POMs in Indonesia have already adopted this technology.
45. In conclusion, the pre treatment of EFB in POM in Indonesia is economically and
technically feasible. In places where the cluster concept is applied, investment by the
cluster developer should form a strategic fuel/raw material security measure for its
biomass power plant or biodiesel plant. POMs that are isolated should find the
pre-treatment improves their solid waste management and disposal activities for either
incineration, or application as mulch to the field.
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September 2006
2.4
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Biodiesel Plant
46. The extensive reliance on fossil fuel diesel for electric power generation in Indonesia
presents an opportunity to convert waste palm oil and lower grade CPO into biodiesel.
An 8 ton/day plant in Siak Hulu in Riau is scheduled for commissioning and commercial
operations in the second half of 200618.. The biodiesel plant can receive CPO, sludge oil
and EFB remnant oil to generate a biodiesel of consistent quality. The variety of input
raw materials does not have a significant impact on the quality of the output.
47. Biodiesel plants, a technology that is being localised and further improved, are
primed for implementation in the oil palm industry sector. Increasing demand of
environmentally benign energy alternatives and the acute shortage of diesel in the country
are economic drivers that are spurring the implementation of biodiesel plants. Apart from
declared government policies19 to establish biodiesel as a component of primary energy
supply, the recent removal of subsidies from mineral diesel prices by the government
creates a new business dimension for biodiesel as a technically and economically
competitive energy alternative.
48. Based on the experience of the implementing agency in Riau, an 8 ton/day biodiesel
plant is estimated to cost about 800,000 - 1,000,000 USD to implement. The potential
annual output for a plant operating 300 days a year is 2,400 tons. At an average price of
600 USD/ton, the annual turnover of the plant is 1,440,000 USD, making the proposition
economically attractive for investors. The details of the description and economic
analysis given in Appendix 3.
49. The implementation model of the biodiesel plant is either on a cluster basis where the
biodiesel plant services a number of POMs and the output is sold to other parties, or it is
attached to the POM. The independent model allows the optimisation of capacity and the
security of supply network. However, the implementation model of the independent
cluster concept requires a number of contracting strategies to secure the external
parameters such as utilities (steam, electricity and water), raw materials (CPO, sludge oil,
etc) and sale of the products. Since the technology hurdle is relatively low for POM to
adopt and adapt, the risk of the supply chain to the independent biodiesel plant being
disrupted due to competing demand (by the POM themselves) is significant. The multi
agreement project implementation structure may pose significant risk to the economic
viability of the plant. To mitigate these risks, the project contract structuring and the
implementation guidelines need to be in place to avoid stranded investments.
18
Source: Pilot Plant Biodiesel Riau, 2004, Research and Development Agency of Riau Province.
Source: Penyediaan dan Pemanfaatan Bahan Bakar Nabati (bio fuel) Sebagai Bahan Bakar Lain,
Presidential Instruction No 001/2006. (Preparation and Utilisation of Biofuel as Alternative Fuel),
January 2006.
19
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September 2006
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50. The alternative implementation option is the establishment of the biodiesel plant in
the POM or adjacent to the POM. Several technical optimisations can be achieved via
this implementation option. The provision of utilities such as the steam, water and
electricity may be sourced from the POM. The supply of raw material (CPO, EFB
remnant oil or sludge oil) can be conveyed rather than transported by truck, and long term
contracts between sister companies may be easier to conclude.
51. The additional advantage is the added value that the biodiesel plant brings to the
POM. Typically the POM in trying to maximise extraction rates, recover oil from fat pits
and cooling ponds. This practice may affect the quality of the food grade CPO and thus
affect the price at which the CPO can be sold. By establishing a biodiesel plant, the POM
can send the recovered oil, EFB remnant oil and its low quality CPO to the biodiesel
plant. The biodiesel plant can produce bio diesel of required quality despite the lower
quality inputs20.
52. The POM itself uses diesel in its black start activities and transportation and
machinery needs. Large POM may use up to 50 tons per month of mineral diesel.
An 8 ton/day biodiesel system will yield 200 tons per month, some of which can be
immediately used by the POM. While the mass and energy balance on a POM integrated
system may need refinements, the obvious benefits are significant for the biodiesel plant
to be part of the POM processing system. The additional product / commodity of the
POM should make the investment attractive for POMs.
53. In conclusion, the 8 ton/day biodiesel plant, although small, is a competitively priced
technology that can convert the waste oil into biodiesel for the POM to mix with its
mineral diesel as well as sell as an additional commodity.
54. With the compilation of the immediate technology potential, the first part of the
commercialisation strategy is defined. Low hanging fruits with small investment and
quantifiable attractive returns are presented for consideration. Several implementation
strategies and plans are outlined to enable the projects to proceed effectively.
55. Essentially, the analysis shows that the potential for conversion of waste to energy in
Indonesian POM is significant and commercially attractive. Some issues that relate to
future policy directions and role of the various stakeholders are also identified and
illustrate the need for a concerted effort by all stakeholders in order to attain success in
the implementation schemes.
20
Pilot Plant Biodiesel Riau , 2004, Research and Development Agency of Riau Province.
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September 2006
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2.5
Medium Term Projects
2.5.1
Biogas Capture
05-1113-244
56. The effluent treatment plants (ETP) at every POM visited use an open pond anaerobic
digestion system without solids removal or methane capture. Some of the POMs,
particularly in Sumatera, use the partly digested effluent for fertiliser applied to the
nearby plantations. This application to the plantation lands is only practiced on a pilot
scale in some plantations in Kalimantan.
57. The open pond system allows the biogas generated from anaerobic digestion activities
to be emitted into the atmosphere. The alternative technologies that are being considered
are the high rate mechanically assisted digestion system using steel tanks, floating lagoon
covers, or flexible lagoon covers to capture the biogas. The captured biogas can be
utilised as fuel in the existing boiler (by including a biogas burner) or combusted in gas
engines to produce electricity. The biogas capture system would also require removal of
suspended solids which can assist the digestion and reduce the retention time to treat the
effluent.
58. The main income to pay for the biogas capture system is revenue from sale of
certified emission reductions (CER) via a recognized clean development mechanism
(CDM). For a typical 360,000 tons FFB per year processing, the cost of the biogas system
is in the region of 1,350,000 USD. The income generated from the biogas capture is
estimated to be 343,000 USD / year, which would yield a simple payback of less than
5 years. Higher FFB processing volume plants would yield better economic results.
The assessment carried out in the various POM sampled is presented in the table below.
Details of project description and analysis are provided in Appendix I.
Table 5: Economic Assessment for the Biogas Capture System
No
1
2
3
4
5
6
7
Palm Oil Mill
PTPN V Sei Pagar

PT Sinar Siak Dian
Permai
PT Inti Indosawit
Subur Buatan 1
PT Sinar Agro Raya
PTPN XIII Gunung
Meliau
PT Multi Prima Entakai
Biogas Capture System

Investment
USD
IRR
%
Simple Payback
688,000
16
47,628
1,377,000
20
47,628
1,377,000
20
25,468
688,000
21
18,191
688,500
12
27,893
688,500
30
23,814
688,500
19
Units
600
m3/day
1
Annual CO2 eq
Tons
14,529
Golder Associates
September 2006
No
8
9
10
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Palm Oil Mill

PT Mitra Austral
Sejahtera
PT Asam Jawa
PTPN III Aek Torop
05-1113-244
Biogas Capture System

1
10,805
688,500
12
2
1
47,628
26,460
1,377,000
688,000
29
15
4
6
59. The biogas capture system is best implemented by a POM in collaboration with a
potential CER buyer. The implementation scheme would be enhanced if a group of
projects could be bundled. An example would be POMs owned by a group, e.g., PTPN
XIII21 who could undertake several projects at the same time to achieve an economic
bundling size.
60. The biogas capture system can be easily repeated in other POM. This design concept
can also be considered for the next generation of POMs in Indonesia. The mass balance
of the next generation POM can be reviewed with the perspective of energy efficiency
and maximisation of resources. The effluent management system can be revolutionised
into an asset management system if sufficient coordinated efforts are in place for the
implementation activities. On a long term perspective, new technologies made feasible
by the CDM and sale of CER can provide feasible returns to manage the effluent.
61. In conclusion, the biogas capture system, a technology to capture methane gas and
convert it into energy, is an option that can be made viable as a result of the income
generated from the CER sales. The implementation requires the participation of the CER
buyers or carbon funds to co-finance the project. As the project is within the POM itself
and improves the baseline waste management techniques, the implementation hurdles are
limited to commercial agreement between the POM and the carbon asset investors.
2.6
Biomass Power Plant
62. One of the energy conversion prospects in the OPI is the biomass power generation
system. The presence of various sizes of incinerators throughout Indonesias OPI
underlines the opportunity to effectively harness the energy during combustion of the
EFB. While the POMs in the PTPN group attempt to maximise the use of EFB as mulch
in the plantation, most other POMs incinerate most if not all of their EFB production.
Using relatively high efficiency technology, a biomass steam power plant can be operated
using EFB to generate electricity for POM use and export the excess power to the grid.
The benefits of a biomass power plant are numerous and fit well with the need for
additional generating capacity to meet the unserved demand load and the desire to reduce
fossil fuel generation, particularly diesel. To date, none of the proposed biomass power
21
PTPN XIII has expressed interest officially to develop its CDM potential in the group of POM in
West Kalimantan.
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September 2006
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plants using palm waste in Indonesia have passed the development stage. The potential
for power generation using solid waste biomass remains untapped.
63. Because a RE power plant demands relatively high investment, the financial security
aspects, e.g. a favourable power purchase agreement (PPA) and fuel supply agreement
(FSA), are essential to achieve financial closure. Experiences by private developers have
shown that such requirements for a favourable PPA cannot be met by PLN thus far, while
the developers claimed that FSA is readily achieved. The way forward is to establish a
model that can mitigate the downside risk with respect to the PPA.
64. PLN and its subsidiary PT Indonesia Power have initiated and owned several pilot RE
projects (wind, hybrid system, solar energy and micro hydro)22. PLN has not attempted to
develop a biomass power plant despite the recent attempts and experience by private
developers. The present study recommends that PLN incorporate a biomass power plant
as one of its RE investment initiatives. Such a PLN-led initiative would minimize or
dispense with the role of the PPA as a major security document. As PLN requires the
additional power to supply the current demand and biomass power is much more cost
competitive than diesel generated power, the investment by PLN in a biomass power
plant would be feasible and attractive. In view of governments declaration to reduce
diesel consumption23 the biomass power plant initiative would be a viable strategy with
significant potential replicability to support PLN to achieve its target. In the course of the
TA, PLN has initiated preliminary discussions with PTPN XIII to assess the possibility of
collaboration to implement a pilot biomass power plant in West Kalimantan.
65. PLNs standing as a credit worthy borrower would also address the credit issues
currently faced by small and start-up developers. ADBs current loan portfolio in
Indonesia, which includes PLN, will not require as a lengthy a due diligence process for
PLN as it would for e.g. new private sector borrowers.
66. The potential that was identified through the project team site visits included
1 x 5 MWe in Siak Hulu, Riau, 1 x 5 MWe in Gunung Meliau, West Kalimantan and
1 x 5 MWe in Kota Pinang, North Sumatera. With an average investment estimate of
2000 USD/kWe export capacity, each of the modular 5 MWe power plants will require
about 10 million USD. The operational cost for each kWh generated is estimated to be
about US 2.3 cents (IDR 218) in the base year. The average operation cost over the
21 year period is US 3.8 cents/kWh at an inflation rate of 8%. This is much lower24 than a
typical diesel plant that requires 1/3 of a litre to produce 1 kWh. The diesel operating
cost, at prevailing industrial rates of 0.6 USD/l is 0.2 USD/kWh (IDR 1900).
22
Feasibility Study for RE, PT PLN, 2005.

Presidential Regulation No 5/2006, January 2006.
24
Exchange rate USD 1 : IDR 9500.
23
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67. PLN previously enjoyed subsidised diesel. The subsidy has been removed and hence
generation cost using diesel is not sustainable now, nor the long run. It would seem
prudent to invest in RE power plants given the number and location of POM operations
with large collected indigenous biomass waste resources, which are currently being
incinerated without extracting any useful form of energy.
68. One of the main concerns of PLN with respect to a biomass power plant is the
continuous availability of biomass. The supply of fuel is a critical issue in any power
generation plant. Hence a well defined fuel procurement and management strategy need
to be established. Experience in Malaysia shows that the bankers (lenders) would want to
see a good long term contract and a well defined fuel management strategy in order to
achieve financial closure. The structure of the OPI in Indonesia, as in Malaysia, lends
itself to providing well-defined and predictable supplies.
69. The technological performance risks of a RE biomass power plant are limited. World
wide experiences in combusting biomass in boilers to produce steam provide sufficient
comfort to the expectation of technical performance. The recent experience in Malaysia
with a 14 MWe biomass power plant also proves that palm oil waste can be effectively
utilised for power generation. The biomass power plant can also attract revenues from
sale of CER. For a typical 5 MWe export block exporting power for 8,000 hours a year
replacing diesel, the potential CO2 emission reduction at a rate of 0.8 kg/kWh is
32,000 tons per year. Assuming the prevailing rate of Euro 6.00 /ton CER, the annual
potential income from CER is 192,000 Euro or 230,400 USD. Details and refinement of
analysis of the biomass power plant assessment is provided in Appendix 1 (Cluster
project definition reports).
70. With a sale price of 0.05 USD /kWh (IDR 475), the plant can generate annual
revenues of 1.989 million USD and CER sales of 0.186 million USD. The estimated
operational production cost (excluding interest) starting from 0.02.3 USD/kWh in the
base year with an inflation rate of 8% per annum, the annual cost (in the base year) to
generate 45 GWh is about 1.030 million USD. The net benefit after interest including sale
of CER is approximately 0.317 million USD. Against an investment of 10 million USD
with a debt to equity ratio of 70:30 and interest rate of 12%, the payback for the
investment is calculated to be 11 years with an IRR of 10.41%.
71. However, if the biomass power plant project is implemented by PLN, the avoided
cost of diesel can be computed as an economic benefit. The avoided cost of
0.2 USD/kWh for every kWh displaced (assuming about 5 million kWh is used by the
internal house load) by the biomass power plant will yield an additional annual savings of
about 8 million USD. The economic IRR for the project, using the same base information
as above is 80%. This means that implementation of a POM-based biomass plant by
PLN will yield an economic return within the first two years of operation.
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72. In conclusion, the biomass power plant as a source of energy is relevant and effective
if implemented by PLN where both commercial and economic benefit can be realised.
However, if the purchase price of RE is increased to about 0.08 USD/kWh (IDR 760), the
biomass projects will be commercially feasible for the private sector to implement.
The IRR of the project is estimated at 17.91 % with a payback of less than 8 years.
Details of the financial analysis are shown in Appendix 3 (Biomass Power Plant
Financial Model).
2.7
Emerging Technologies
2.7.1
Organic Diesel Generation Using Biomass
73. Emerging methods of waste management driven by the international demand for RE
is becoming commercial. One of the technologies that can be considered is the catalytic
conversion cycle (CCC), a low temperature pyrolysis technique to convert biomass to oil
that has similar properties to mineral diesel. This process provides high yields of
paraffins and olefins from the lignin and cellulose available in plant fibre without the
methylation step required for synthesizing biodiesel. For the purpose of differentiation
from biodiesel, the biomass derived diesel is referred to as organic diesel.
74. The technique of deriving oil from biomass presents an interesting option in the OPI
in Indonesia since the solid biomass produced in the POM is in excess of 35% of FFB.
The acute shortage of diesel, the increasing global price and the ability to store and
transport the product by conventional oil barge are primary drivers for this technology in
the OPI. The technology is currently able to convert between 40% - 56% of the biomass
to mineral diesel, gasoline and methane. The production capacity of individual operating
units is in the range of 500 - 670l/hr of liquid hydrocarbon products. The required
pre-treated biomass comprised of EFB is estimated at 2.5 tons/hr. This is well within the
EFB production rate from a 30 ton/hr FFB POM, which could ultimately supply
2 - 3 units.
75. The system is estimated to cost about 7.2 million USD to install with a daily
production of 20 hours per day; the annual production volume over a 300 days operation
is 4,020,000 litres. At an average buy back price of 0.6 USD/l, the annual turnover of the
plant is 2,412,000 USD. The annual production cost including the organic diesel catalyst
is estimated at 500,000 USD. Hence the annual benefit from the venture is
1,912,000 USD, giving a simple payback period of approximate 3.8 years. The detailed
analysis is shown in Appendix 3 (Organic Diesel Financial Model).
76. Financing of such technology may require extensive guarantee mechanisms both for
technological performance and product by back arrangement. Hence the implementation
structures of the biomass organic diesel plant need to take into consideration the risk
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profile of the technology. One possible implementation model is for the technology
supplier to jointly own and operate the plant. In this manner the role of the POM will be
to provide the biomass resource while the technological and commercial performance rest
with the supplier. The implementation scheme would allow the technology to be properly
demonstrated for further application in other palm oil mills. The market risk for the
organic diesel is mitigated by the supplier buy back arrangement.
77. In conclusion, the emerging technology of organic oil generation from biomass can
be effectively applied to the POM. The investment is significant; and the estimated
payback is much better than the biomass power plant. The implementation of the plant
should be led by the technology provider to minimize technical and commercial risks.
2.8
Overall Conclusion
78. There are several potential technological interventions that can be applied to the OPI
in Indonesia. Each of these technological interventions has been briefly reviewed in terms
of its technical appropriateness. The techno-economic potential for energy production in
various sites has been assessed. A detailed techno-economic assessment matching the
technology to the on-ground realities has been presented. A brief of the
commercialisation plan to maximise the use of surplus energy is presented for
consideration. A plan to apply each of the technological interventions is customised for
each mill and the options to benefit from clustering are presented in detail. Refer to the
appendices for further details.
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WASTE MANAGEMENT AND ENERGY CAPTURE PLAN
79. Energy requirements in the POM are met by two primary energy sources namely
diesel and biomass (mesocarp fibre [MF] and palm kernel shell [PKS]). The diesel is
used for daily black start activities in the POM and for operating transportation vehicles.
The biomass is used to generate steam and electricity to run the POM as well as provide
for the utilities in the POMs housing estate. The energy infrastructure in the POM is
designed to be totally self sufficient and equipped with redundancies. The biomass
energy systems comprised of boilers and back pressure turbines. The boilers are
normally low pressure boilers operated at 20 25 bar.g. The steam turbines are back
pressure steam turbines with specific steam consumption between 17 22 kg/kWh.
The capacities of the boilers and turbines are matched to the FFB processing capacity of
the POM.
80. The MF and PKS biomass is the only energy resource that has been effectively
utilised in the POM. For POMs of sizes 30 tons/hr FFB and above, there is always excess
biomass, particularly EFB. Since the energy demand of the POM is limited and it is
designed to be independent, the remaining energy potential remains dormant.
The dormant energy potential can be harnessed if the energy utilisation concept is
broadened to include the surrounding areas and are not limited to the property boundaries
of the POMs jurisdiction. The insular practices of separate energy generation and
utilization by PLN and POMs need revision, particularly in view of the rising need and
cost of electricity and electrification as well as the shortage of conventional primary
energy such as diesel.
81. By re-defining the boundaries for the energy generation and utilisation to include
demand and supply from outside of the POM jurisdiction, new technological
interventions can be applied to optimise POM energy generation and export to meet
external demand markets.
82. The redefinition of the boundaries will also mean interaction with other bodies
corporate, government agencies and authorities. The POMs redefined energy concept
from insular to integrated will affect the current practices by the utilities, particularly
PLN, which needs to be a major player in the redefinition of terms and guidelines for a
wide range of issues and decisions to drive the required integrated approaches.
83. A number of technological interventions are identified to facilitate the proposed
transition from insular to an integrated scheme. Effectively the dormant energy potential
such as biogas, energy from incinerated EFB, remnant oil in EFB, under utilised energy
capacities and derivation of biodiesel from low quality CPO and biomass can now be
commercially exploited.
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Technical Implementation Approach
49. The general implementation plan for the waste management and energy capture plan
developed based on the prevailing market conditions for effective development and
implementation of the identified activities. Specific approaches for immediate projects
are also described in accordance with the discussions held with the relevant stakeholders
of the potential projects.
3.1.1
Commercialization Strategy
50. The commercialization of the waste management and energy capture projects and its
ensuing widespread application in Indonesia can be achieved via strategies that take into
consideration the local business climate and prevailing conditions. The partnership
schemes between private and public stakeholders that were assessed suggests the
following generic strategies:i.) Electricity based waste to energy projects Implementation led by PLN
51. For electricity based waste to energy projects, the implementation should be mainly
led by PLN. This is in line with their overall mandate to supply electricity and the
current burden of reducing cost associated with diesel based generation. Projects
such as the interconnection of POM to PLN, biomass power plant and biomass
gasification plants are suitable for widespread implementation by PLN. Except for
the biomass gasification, the projects have tangible and significant commercial
benefits to PLN. Furthermore the projects can be part of PLNs RE portfolio.
52. Implementation by PLN also provides additional advantages such as the inherent
technical know how for electricity systems including the grid, intimate knowledge of
the local demand and electricity infrastructure and from a corporate point of view it
enjoys good credit standing that would ease financing of the projects.
Implementation by PLN will enable small scale CDM projects to be bundled together
and create an opportunity for the otherwise non viable CDM option. Projects such as
POM interconnection to the grid which generate between 650 to 800 tons of CO2 eq
savings will not be viable on their own merits due to the small amounts, however, if
bundled together, the opportunities to benefit from CDM are enhanced.
53. The contract structuring in the case of biomass power plant is also simplified.
The PPA role as a major security document is reduced and the economic advantages
of displacing fossil fuels become tangible. PLNs role in assisting rural electrification
and increasing the electrification rate will also help the innovative use of the
technology interventions.
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54. The PLN led implementation will also create the opportunity to structure the
implementation as a national programme. Rural electrification strategy using POM
potential waste to energy generation can be established as a programme where the
issues such as financing can be better dealt with. The benefits of having economies
of scale also makes the project attractive in terms of its financial and economic
returns. The additional potential of bundling the small CDM projects (such as POMPLN interconnection and biomass gasification system) where the benefits from sales
of CER become attractive. The financing plan for the PLN led programmes can also
attract developmental funds particularly those targeted for poverty alleviation
programmes. It is envisaged that the identified waste to energy programmes would
be formulated into a request for proposal (RFP) where bids can be secured. A well
designed programme can also benefit from Corporate Social Responsibility (CSR)
initiative where funding may be secured from large corporation/
a)
Proposed partnership model for Waste to Energy Project implement in West

Kalimantan
55. A partnership model to implement a pilot scale 2 MWe biomass power plant between
PLN (the Utility) and PTPN XIII ( POM) was discussed on 14th February 2006 in PTPN
XIIIs Pontianak office facilitated by the TA consultant team. The features of the
partnership model are further described below.
a.1)
Partnership Concept
Biomass power plant (BPP) is owned by PLN
56. The biomass plant is developed and owned by PLN. The investment required to
implement the power plant will be raised by PLN. The POM provides continuous supply
of fuel for the power plant. In return, the biomass power plant will provide process steam
and electricity to the POM. The excess power is sent to the grid. For the purpose of
logistical convenience and design efficiency, the biomass power plant is proposed to be
located adjacent to the POM.
a.2)
Commercial structure
57. The commercial structure of the partnership is the sale of electricity by PLN to the
POM at industrial rate. The sale of energy by PLN will facilitate the reduction in use of
start up diesel for the POM. Since the biomass plant operates continuously, the
availability of power would be consistent. The other contractual element is the sale of
biomass fuel from the POM to the biomass power plant. The parties will enter into a long
term fuel supply agreement (FSA). In lieu of a fuel supply agreement (FSA) it may be
useful to consider a symbiotic arrangement where the biomass power plant sends process
steam back to the POM. This arrangement will increase the overall thermal efficiency by
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further using the steam from the turbine outlet for processing. The contractual structure
can be further refined once the parties are comfortable with the arrangement where the
sale of steam can be metered and invoice as energy sales.
ii.) POME biogas capture projects Implementation led by POM assisted by CER
Buyers or Carbon Funds
58. The potential for commercializing the POME biogas capture projects relies on the
sale of CER. The energy component has some commercial potential, however, the
technology required to convert the biogas into further useful energy such as electricity is
currently too expensive for consideration. The POME related projects is proposed to be
initially implemented by third parties, particularly the CER buyers or carbon funds that
are seeking the CDM projects. This implementation scheme is plausible and some active
buyers have expressed interest to pursue the development. Widespread implementation is
possible and further facilitation between the lead implementer and the POM will help to
create the opportunities. As the market develops, the implementation scheme will
respond to market demands.
59. CER buyers and carbon funds that seek CDM projects such as Asean Carbon Fund
based in Bangkok, Eco Securities based in Jakarta and the Danish CDM Facility also
based in Jakarta has expressed interest to look at the projects and seek opportunities to
implement the CDM projects. ADB has also announced in December 2005 that it is also
launching a fund to assist the realization of CDM projects in which Indonesia is one of
the identified countries. There are also other active CER buyers in Indonesia such as
Japan Carbon Fund and Canadian CDM/JI facilities which will improve the overall
demand for CDM projects.
60. The business hurdles and perceived risks are expected to be removed once a few of
the projects are implemented. It will also generate confidence in the OPI to perhaps
adopt the technology intervention as a main process line and invest in the technologies
once the market for CER sales consolidates and predictable.
iii.) CPO based projects Implementation led by POM
61. The POM can easily identify with CPO based projects as it is part of their core
business. Projects such as remnant oil recovery (ROR) and small scale biodiesel can be
commercialized by the POM themselves. The projects require relatively low investment
and the technologies are simple to operate. Some of the POM in Indonesia have already
adopted the ROR and further socialization of the TA findings will enhance the
commercialization potential of these projects. The biodiesel plant is being promoted and
local support for the technology is available to push for widespread implementation.
The small scale bio diesel plant which increases the value of the otherwise low quality
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CPO presents an interesting proposition as it also ensures that the POM can maintain high
quality CPO without losing revenues due to discharges of low quality CPO. The low
quality CPO can be used as feedstock to the bio diesel plant.
iv.) Organic Diesel Implementation led by technology providers
62. The emerging technologies of converting biomass to organic diesel are proposed to be
demonstrated and spearheaded by the technology providers. This would ensure proper
demonstration of the technology and its commercial attribute to the OPI. The organic
diesel plant will have an impact on the waste management strategies as it can multiply the
value of the solid biomass waste by converting it to diesel equivalent oils.
The implementation of the projects spearheaded by the technology provider will ensure
that the basic design performances are achieved.
3.1.2
Immediate project implementation plan for cluster projects
63. The techno-economic assessment of each technology in the previous section

(Technical and Economic Assessment) shows that energy potential in the POM can be
commercially exploited. However, large-scale energy projects require the aggregation of
raw material from several POMS EFB. Potential cluster sites were identified using
information on the distribution of POM in three selected areas, namely North Sumatera,
Riau and West Kalimantan. The selection of POMs to be visited was organised by the
local counterparts in various areas. Deliberations with the industry captains in each area
kicked off the cluster identification survey.
64. The main criteria for the cluster selection were as follows:
Availability of raw material (biomass) within economic distance;
Adequate supply of water;
Existence of energy demand and close proximity of energy infrastructure to export

the energy; and,
Socio-economic benefits to the immediate surrounding areas.
65. The availability of biomass, particularly EFB, is a key criterion to determine the
cluster. The availability criteria are further confined to the EFB that is being incinerated
by the POMs. For POMs that use the EFB as mulch in the plantation, the biomass is
considered unavailable (although the POM may be willing to convert it to energy
generation). The availability criterion is narrowed to ensure that the capacity of the
energy plant for the cluster is appropriately dimensioned against the actual site
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conditions. Raw water, which is a major input into a steam power plant, is also an
important criterion to determine the suitability of the cluster to accommodate the power
plant.
66. The energy demand in the surrounding area is also one of the major criteria. Since the
energy generated from biomass is insufficient for connection to high voltage grids, the
existence of local demand and existing infrastructure within economic distance is an
important consideration. The limitations of energy export will impact on the commercial
viability of the project. The cluster selection is also assessed from the socio-economic
impact or benefits that an energy project will bring to the area. The surrounding
inhabitants were consulted on their views on the energy project to address the local
stakeholders support.
67. One of the main issues in the cluster definition and selecting the cluster is the
diversity of ownership, which at times is competing for the same FFB in the locality.
The diversity may pose a long term risk to the project implementation and it may
generate corporate rivalry. The absence of a clear leader in the cluster is also an issue.
Each of the POMs in a cluster is independently operated and has clear objectives of
producing crude palm oil (CPO). Additional significant investment that has no direct
bearing to the core business may not be readily approved by corporate Directors and
Managers. Project development leadership by the independent private sector for biomass
power plants in North Sumatera and Riau has not yet yielded significant progress. Pilot or
demonstration projects for such schemes would by highly valuable in showing feasibility
and promoting initiative participation.
68. Favourable contractual arrangements for export of power and supply of raw materials
have a significant influence on the project financing assessment of the cluster project.
Three clusters were identified, namely Siak Hulu in Riau, Kota Pinang in North Sumatera
and Gunung Meliau in West Kalimantan. One of the three clusters, Siak Hulu cluster,
was further investigated to reinforce initial survey findings in that area while the
remaining two clusters were analysed using available desk top data and deliberation with
the main stakeholders. Further details on each of the cluster assessment are presented in
a separate project definition reports in Appendix 1 (Cluster project definition).
69. The potential of the Siak Hulu cluster is assessed using the data collected during the
field survey. The summary is provided in the table below.
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Table 6: Availability of Biomass for Cluster Project
No
POM
Size
t/h
FFB
t/yr000
PT. Inti Indo

1 Sawit Subur
60
210-240
Buatan I
PT. Sinar Agro
2
45
150-180
Raya
PT. Multi Palma
3
45
150-180
Sejahtera
PT. Sinar Siak
4
90
250-300
Dian Permai
PTPN V Sei
5
30
150-165
Pagar
PT. Meridan
6
45
150-180
Sejati Surya
Total EFB available for the Cluster Project (t/y)
EFB
Incinerated
EFB available
t/yr000
40-50
50%
-Nil50%
70%
50%
50%
20-25
0
30-40
55-65
30-36
30-40
0
15-20
39-46
15-18
15-20
104-129
Data source : Site survey in Siak Hulu.

Note: The biomass availability in Meridan Sejati Surya and Multi Palma are assumed as the sites were not
surveyed by the team.
70.
The annual amount of EFB available in the Siak Hulu cluster that is available for
the proposed biomass power plant is between 104,000 - 129,000 tons/yr. This represents
the EFB that is currently incinerated in the cluster. The availability of the raw material
determines the size (capacity) that is feasible for the biomass power plant.
The conservative estimate of the 100,000 tons per year can produce between 5 7 MWe
of electricity. Based on the capacity estimate, a budgetary quotation was sought from
suppliers of such a plant. The total plant cost, including soft cost and incidentals is about
2 million USD/MWe, e.g. for the plant size of 5 MWe (export) in the Siak Hulu cluster,
the estimated total cost is estimated at 10 million USD.
71.
With a sale price of 0.05 USD /kWh (IDR 475), the plant can generate annual
revenue of 1.989 million USD and CER sales of 0.186 million USD. The estimated
operational
production
cost
(excluding
interest)
starting
from
0.02.3 USD/kWh in the base year with an inflation rate of 8% per annum, the annual cost
(in the base year) to generate 45 GWh is about 1.030 million USD. The net benefit after
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interest including sale of CER is approximately 0.317 million USD. Against an

investment of10 million USD with a debt to equity ratio of 70:30 and interest rate of
12%, the payback for the investment is calculated to be 11 years with an IRR of 10.41%.
72.
However, if the biomass power plant project is implemented by PLN, the
avoided cost of fossil fuel generation can be computed as an economic benefit.
The avoided cost of 0.01 USD/kWh25 for every kWh of fossil fuel energy is displaced
(assuming about 5 million kWh is used by the internal house load) by the biomass power
plant will yield an additional annual savings of about 4 million USD. The economic IRR
for the project, using the same base assumptions is 40%. This means that implementation
of a POM-based biomass plant by PLN will yield an economic return within the first
three years of operation.
73.
The maximum GHG displacement rate is estimated to be about 0.8 kg/kWh26.
The calculated potential of CER is 29,326,000 kg or 29,326 ton CO2 per annum.
Assuming a rate of 6.00 Euro/ton CO2 , the annual income from the sale of CER is about
211,150 USD/year (at an exchange rate of 1.2 from Euro to USD).
74.
The biomass power plant for the Siak Hulu cluster would require additional
income to improve the financial performance. At present, additional income would only
be derived from increases in the RE power tariff to the buyer. The recent announcement
in the Ministerial Decree of Energy and Mineral Resources No 002/2006 provided an
important signal to the price of RE electricity. The Ministerial Decree mandates PLN to
purchase the RE power at a price that is compared to its generation cost in the province.
Typically, this is higher than the prices currently offered. Published prices for the regions
in 2004 (before the removal of the diesel subsidy) showed that the provincial electricity
production cost (BPP) in Riau is 926.7 IDR/kWh27 or 0.10 USD/kWh. Assuming a 50%
increase due to the impact of removal of the diesel subsidy in 2005, the BPP in Riau is
15 US cents/kWh. Using this new assumption, and the new PPA price is 0.12 USD/kWh,
the project financial performance is revised upwards to 29% IRR with a payback of
4 years.
25
The avoided cost is estimated using pre-subsidy removal provincial production cost and a multiplier of
1.5. Generation mix in Riau and North Sumatera includes gas and hydro and coal.
26
The GHG displacement rate for fossil fuel energy in Riau and North Sumatera are lower since their
generation mixes include gas and hydro and coal.
27
Source: RUPTL 2005-2014 PT. PLN Persero Wilayah Riau The published price in 2005 of Riau.
(Electricity Supply Preparation Plan 2005, issued by PT. PLN (Persero) of Riau Province).
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Implementation Option
Siak Hulu Cluster Project
75. The potential site for the Siak Hulu cluster project is the research and development
centre of the Riau Province called PURIBANGTEK, located in the Siak Hulu area,
Kabupaten Kampar, Riau. The site is close to the source of water and the objective is to
demonstrate technologies for Riaus commodities, particularly palm oil. The provincial
government of Riau, particularly the research and development department has expressed
support for the bio-energy project and is willing to accommodate the project at the
current research and development site. The site currently has an 8 t/day biodiesel plant
that is expected to be operational by the 2nd half of 2006. The area required by the power
plant can be made available. The site sits at the edge of the cluster as shown in the map
below.
Figure 1: Location of Siak Hulu Cluster
1.
2.
3.
4.
5.
6.
PT Multi Palma Sejahtera POM (45 t FFB/h) non plantation

PT Sinar Agro Raya POM (45 t FFB/h) non plantation
PT Inti Indo Sawit Subur Buatan I (60 t FFB/h)
PT Sinar Siak Dian Permai POM (90 t FFB/h)
PT Meridan Sejati Surya POM (45 FFB/h)
PTPN V Sei Pagar (30 t FFB/h)
Palm oil mill

Biodiesel plant
Biomass power plant
6
5
Km22
Km25 Km34
Km40
Riau Siak Hulu Cluster
Km50
3
Km60
0 mi
10
76. The local developments in the Siak Hulu area facilitate the general approach of the
cluster based projects. The forward looking approach of the provincial government to
establish a technology research centre for Riaus commodities fits in well with the
objective of demonstrating a full scale commercial biomass power plant.
The organisational support by the Riau authorities showed the desire to showcase the
technology and support its proliferation throughout the province. The local support to the
implementation of the project will increase the implementation probability of the waste to
energy projects and thereafter replicate the initiatives. Several clarification meetings
were held with the Riau governors office and its investment arm, PD Sarana
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Pembangunan Riau. The agricultural department (Dinas Perkebunan) were also

supportive of the idea to aggregate the waste material particularly EFB for power
generation for the Siak Hulu Cluster. The agricultural department will conduct meetings
with the POM in the vicinity of the biomass power plant project to facilitate the
agreement on the continued supply of biomass fuel to the power plant.
77. All the potential areas visited expressed the need for additional energy infrastructure,
particularly electricity power generation plants. In all the visits, the local energy
authority, Dinas Pertambangan Energi, actively participated in the discussions and
contributed positive ideas as how the projects may be positioned in the overall energy
development plan in the respective provinces. Stakeholders input from the Waste
Management Framework workshops suggest that interest is high to adopt the
technologies, particularly those that can generate electricity. Most of the stakeholders
identified the need for proper coordination between the various parties to facilitate the
project implementation.
78. According to the Riau Local PLN Office (in Pekanbaru), the reticulation network of
the 20 kV distribution system is available and the demand of the surrounding areas can be
served by the proposed biomass power plant. The distribution networks in Riau province,
particularly in the Siak Hulu area, are regularly improved by PLN.
3.1.4
Implementation Structure
79. The implementation of the project in the Siak Hulu area will demonstrate the one of
the likely model that could be emulated by other clusters. A public-private partnership is
proposed to lead the development and implementation activities.
80. Riau provincial government has a development arm called PD. Sarana Pembangunan
Riau (PD. Sarana). The organisation is tasked with assisting the development of
infrastructure in Riau and is organised as a private company which has been active in
several initiatives. Discussions with the representative of PD. Sarana indicate their
willingness to undertake the project development and implementation activities. PD.
Sarana can collaborate with the POMs in the surrounding area of the cluster to establish
the fuel/raw material network for the power plant. This implementation option was
further deliberated at the Governors office where the agricultural department will
facilitate discussions with the respective POM to identify common grounds and address
the supply of EFB to the proposed site.
81. One model that was considered is the installation of EFB pre-treatment equipment in
the various POMs where the proceeds from the remnant oil recovery are shared with the
POM as well as used to compensate for the cost of transportation of the fuel to the
biomass power plant. Alternatively, the remnant oil can be used for biodiesel production
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which is adjacent to the power plant location. Optimisation of the fuel strategy and the
enhancement of its supply security is a mandatory initiative that can influence a banks
willingness to finance the proposal. A clear contracting arrangement between PD. Sarana
and the POMs will ensure that the supply of EFB is sustainable, particularly throughout
the period of the loan repayment. PD. Sarana as lead developer will be the borrower of
the loan, which may be of interest to ADB. Details of the financing plan will be discussed
separately.
82. The alternative option is for PLN to implement the biomass project. This particular
aspect of the implementation is strategic since PLN has the monopoly of electricity
distribution as well as being the company that is incurring losses in the supply of power
to its customer using diesel generators. The implementation option by PLN also brings
in the economic benefit of avoidance of diesel fossil fuel cost by generating electricity
using biomass.
83. The rough estimate of the economic benefit of avoiding fossil fuel generation in Riau
brought about by the biomass power plant is 0.1 USD/kWh x 40,000,000 kWh =
4 million USD/year. Since the removal of diesel subsidies, the cost of generation is now
burdened on PLN. The implementation of the biomass power plant will partly address
this high cost of generation incurred by PLN.
84. PLN, which is one of the target beneficiaries of ADBs loan scenario to Indonesia,
could facilitate financial closure of the biomass project. The credit risk of PLN and the
government approvals in line with the national policy to reduce the consumption of fossil
fuel (Bahan Bakar Minyak - BBM) is expected to be less time consuming compared to a
new entity or a provincial government body. The power plant technology, which is of
utility class, requires the disciplines of a utility to operate. PLNs expertise in running
steam power plants will be essential to ensure a smooth operation of the assets, and
minimising the risk of non-performance.
85. The third alternative is to seek foreign investors as part of the implementation team.
The prospect for foreign investment for the cluster project would be increased if the
financial and economic parameters are improved in accordance with the prevailing risks
associated with the project. For the biomass power plant it may seem remote to expect an
international investment into an under performing project. The current fundamentals such
as the power purchase agreement and the price for RE is weak and would require
strengthening in order to attract investment.
86. Assuming that the fundamentals are improved, the investment potential for
immediately identifiable projects is about 62 million USD, while the untapped potential
in other clusters may be multiples of 62 million USD. For the bio-energy project to have
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a reasonable chance of being successful, the implementation structures need to mitigate

the prevailing risks that are generated through the current implementation barriers.
3.2
Detailed Financial and Economic Analysis
87. The financial model for the Siak Hulu cluster project is fundamentally based on the
power generation from biomass (EFB) and is located at the R&D demonstration centre of
the Riau Province. The project is designed as a modular concept and is based on the
Malaysian experience in building a 14 MWe biomass power plant in Kunak, Sabah.
The technical performance parameters are known to be achievable.
3.2.1
Technical Design
88. The proposed power plant is a 7.4 MVA or 5.92 MWe power plant comprised of a
main plant and equipment for a steam power plant. The steam boiler is a Danstoker
24.8 t/h, 68 bar, 450 0C with inclined vibrating grate capable of combusting pre-treated
EFB of moisture content 40 % and wood at less than 25 mm3 size complete with front
end EFB fuel treatment and handling plant and back end de-ashing system28. The power
generating unit is a Shinko 7.4 MVA (5.92 MWe) at power factor 0.8 capable of handling
a maximum of 25,000 kg/hr of steam at 450 C and 50 bar.g pressure. The fully
condensing system is equipped with water cooled cross flow cooling tower with total
circulation of 1,600 m3/hr with guaranteed evaporation and drift loss not exceeding 2 %
of circulation water. The specific steam consumption of the turbine is about 4.22 kg/kWh.
Other plant parameters such as control system, raw water intake, civil and structural and
other soft costs such as financing, interest during construction and miscellaneous on site
expenses are included in the estimate.
89. The total cost estimate of 10 million USD is sufficient to implement the project,
including a 1 km 20 kV interconnection to the local grid. These are, , budgetary prices in
2005 that may escalate according to prevailing market conditions in Indonesia at the time
of implementation.
3.2.2
Technical Assumptions
90. The power system is capable of operating continuously for 8,000 hours/year and that
there are enough qualified and competent personnel to run the power plant. The supply of
fuel from the POMs to the power plant is consistent and sufficient and the quality of fuel
in terms of moisture content and calorific value are within the expected tolerances.
28
The ash disposal system is assumed to replicate the current EFB ash disposal techniques where it is used
as fertilizers.
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Financial Assumption
91. The capital cost does not vary excessively beyond the 10 million USD total costs for
5 MWe export capacity. This is a major assumption, as the price movements are currently
unpredictable. The tax structures, such as import duties for RE equipment, are included in
the price.
3.2.4
Cost of Biomass Fuel
92. The cost of biomass fuel is equivalent to the average cost of transportation from the
POM to the power plant. The EFB is pre-treated at the POMs. This is currently calculated
at 2.16 USD/ton delivered. The details of the calculations are provided in Volume II,
Appendix I: Project Definition Reports.
3.2.5
Borrowing
93. The amount of borrowings for the base case is set at 70 % at a discounted interest rate
of 12 % with a repayment period of 7 years. The current base lending rate in Indonesian
commercial banks is 12 % and commercial loans are normally above 15 % interest rate.
3.2.6
Operational Cost
94. The plant undergoes annual maintenance, and every five years a major overhaul
would be scheduled. The assumption on the cost is an annual 2 % of capital cost and an
additional 5 % recurring cost every five years. Technical service agreement for the
power plant is assumed to be an option rather than a requirement.
3.2.7
Tax Structure and Fiscal Allowances
95. The tax structure for corporate tax is assumed at 30 %. No fiscal allowances are
available at the moment. The project will bear the corporate taxes in accordance with the
prevailing tax laws and regulations.
3.2.8
Income Stream
96. The project main income stream is from the sale of electricity and sale of carbon
credits. The sale of electricity is assumed over a 21 year period and the sale of CER is
also throughout the commercial life of the plant. The mandated PPA duration is 10 years
and this project is assumed to be able to extend its PPA terms beyond the initial 10 years.
The foregoing assumptions are based on international practices and may not be directly
applicable to Indonesian RE plants. The CDM mechanism is assumed to survive the 2012
termination date and CDM incomes continue to be generated after 2012. All the excess
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power is sold to the grid. Other utilities in the power plant such as treated water process,
heat, steam, etc., are not income generating.
3.2.9
Exchange Rates
97. The exchange rates used are RM 3.70 to a USD, IDR 9500 to a USD and USD 1.20
to a Euro. As the prices of capital goods are quoted in foreign currencies and the income
is in Indonesian Rupiah, the mismatch may create currency risks in the project.
The Indonesian and Malaysian currencies have appreciated against the USD and this may
have some impact on the cost estimates of the project.
98. The inflation rate is assumed to be at 8% per annum and is applied to the variable cost
of the project annually. The sale tariff to PLN is also assumed to be escalated once in
two years at the same inflation rate.
3.2.10 Financial Performance
99. The financial performance of the biomass power plant is sensitive to the following
key parameters:
i.
Sale price of electricity to utility; (PLN)
ii.
Cost of fund; and,
iii.
Cost of biomass plant.
100. At the prevailing contracted rate of IDR 450/kWh, the biomass merchant power
plant is NOT feasible. The level of viability begins at about IDR 800/kWh and improves
thereafter. This new level of price needs to be compared to the cost of generation using
market price diesel to ascertain the reasonableness for Indonesia to adopt a biomass
power plant implementation strategy. Without a RE tariff level that is competitive and
can attract investment, it will be difficult to implement biomass projects in Indonesia.
101. The financing options for the biomass power plant are influenced by the
implementation strategy that is to be deployed. Two distinct implementation plans are
merchant RE plant and PLN RE plant. The merchant plant model refers to a biomass
power plant that is implemented by other than PLN and requires the extended
documentation of Power Purchase Agreement as the main security document. The PLN
biomass power plant model refers to a project that is implemented by PLN. Details of the
two models are further described in the implementation schemes.
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Financing Plan for PLN Biomass Power Plant
102. Implementation of the biomass power plant by PLN will reduce the intermediate
security document of the power purchase agreement (PPA). The final outcome of the
sales can be immediately attributed to the displacement of fossil fuel based generation;
hence the reliance of economic evaluation based on average estimated generation cost
avoidance.
103.
The financing plan for this implementation scheme is as follows:

No
Investment
USD
Biomass Power Plant

Pre Operating Expenses
Working Capital (6 months)
Total
Source of financing
10,000,000
200,000
500,000
10,700,000
1. Finance from equity distribution
30
2. Debt financing
70
The debt financing features necessary to facilitate the project is as follows:

Interest rate
Loan tenure
Grace period :
12 %
7 years
1 year
104. With the financing plan as above, the economic rate of return (EIRR) for the
project is 40 % and the payback period is within the first 3 years of operation. The debt
financing features for the PT. PLN implementation scheme will facilitate multiple
implementation throughout the country, subject to the associated parameters for a good
project is fulfilled. The financing strategy addresses the short term financial performance
and unlocks the long term economic potential of the biomass power plant. This is
particularly so because most of the clusters potential are located in areas where diesel
based electricity generation is dominant.
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The Financing of a State Enterprise
105. The financing strategy exposes PLN to additional debt. Being a state owned
enterprise the risk of the additional debt exposure may not be approved is high. Given
that implementation of RE projects is a desired outcome of the governments policy, it is
therefore necessary to facilitate the financing scheme for such projects.
3.3.2
Financing Plan Using 100 % Equity
106. The alternative financing plan to use 100 % equity funding from PLN does not
provide the comfort that the projects will actually proceed towards implementation. This
is because RE is becoming a priority item in PLN as it has the responsibility to the entire
spectrum of electricity services that includes large scale generation, transmission and
distribution. The penetration rate of RE will be shifted as the competition for capital is
great.
3.3.3
Co-financing from Carbon Funds
107. The potential of the projects being co-financed by carbon funds is a new
possibility that need to be explored. Carbon funds have the immediate interest of
securing Carbon Emission Reduction (CER) certificates. Since this project yields a
significant amount of CER due to its displacement of diesel fuel, the prospect of
co-financing using proceeds or investment from carbon funds is good. There are several
active carbon funds that are seeking CDM projects in the country. Eco-Securities who
has an office in Indonesia and active in the region. Ecofys of Canada is also seeking
investment opportunities in CDM projects. Other carbon funds that has expressed
interest are the EC-ASEAN carbon fund based in Bangkok and Canada landfill gas
(Appendix 4).
108. ADB has also launched the carbon market special initiate announced in December
2005 in Montreal which can fill the financing gaps by leveraging debt financing from
ADB. This financing instrument is due for implementation in the first half of 2006 which
is opportune for the biomass project.
3.4
Financing Plan for Merchant Plant
109. The merchant plant refers to a project that is implemented for sale of energy to
PLN. The model of the equity ownership in the merchant plant is further described in the
partnership schemes.
However, the underlying concept is that the project
proponent/developer needs to rely on the income for electricity sales to achieve the
commercial objectives of the plant.
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The Financing Strategy
110. A project financing option is considered in this strategy. The project finance
option will rely on mainly the future income to be generated from the sales of electricity
to PLN. The project finance approach also limits the recourse to the lenders in the event
of non performance.
3.4.2
Financing Plan
111.
The financing plan for this implementation scheme is as follows:

No
Investment
USD
Biomass Power Plant

Pre Operating Expenses
Working Capital (6 months)
Total
Source of financing
10,000,000
500,000
500,000
11,000,000
1. Finance from equity distribution
30
2. Debt financing
70
Debt financing
The debt financing features necessary to facilitate the project is as follows:
Interest rate
12%
Loan tenure
7 years
Grace period :
1 year
112. The pre-operating expenses is expected to be high due to the additional

development expenses to secure the various instrument and security documents such as
the PPA, FSA, EPC, O & M and corporate advisory services to structure the project.
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113. Assuming that the sales to PT. PLN is based on 0.8 BPP estimated at
USD 0.12 / kWh, the financial performance of the project is as follows:
1. Internal rate of return 29%
2. Shareholder IRR
36.30%
3. Payback period
4 years
114. Debt financing features of the merchant plant model will require a different level
of security arrangement to insure the high level of debt component. The proposed level
of debt financing is 70 % which essentially covers almost all the capital expenditures for
the power plant. In this financing plan, the project developer provides equity finance for
the land and other soft costs such as working capital, consultancy and pre-operating
expenses.
115. A similar approach toward carbon financing instruments is proposed. Where the
carbon financing instrument is considered, the equity investment can increase
accordingly to reflect the commitment of the carbon funds. These are however still in the
development stages and have not been widespread as a successful financial instrument in
implementing projects that are capital intensive in a third world country. The advantage
of high debt financing is the limited requirement of equity which is already scarce in
Indonesia. With appropriate securitization measures, the high debt project financing
approach may be a reasonable financing plan to activate and proliferate biomass RE
projects in Indonesia. This aspect of financing plan may also interest foreign direct
investment where the expertise of implementing projects can be effectively deployed.
The main disadvantage of the approach is the heavy dependence on single customer as
the source of repayment of the loan. Effectively the project belongs to the lenders for a
long period of time before it can generate reasonable return to the shareholders.
3.5
Risk Profile
116.
The risk profile of the biomass power plant covers the following areas:

Permits and Approval
Construction
Operations
o Technical skill sets
o Availability and adequacy to biomass fuel
o Price of biomass fuel
o Technical performance risks
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117. The project when implemented on a commercial basis will face the risk of
concluding a reasonable Power Purchase Agreement.
Several feedbacks from
stakeholders indicate that the conclusion to a reasonable PPA is difficult. Extended
negotiation period may stall and/or frustrate the project implementation activities. A PPA
based on the new rules is yet to be tested by project developers. Issues such as the basis
of calculations for provincial production cost (BPP) with determine the final price.
In order to reduce ambiguity it is suggested that the calculation for BPP is done by a third
party and endorsed by the government authorities as the basis for PPA negotiations.
i.) Permits and Approvals
118. The biomass power plant implementation will undergo several permitting and
approvals. It is expected that some major permits such as environmental compliance
which originate from central approving authorities while local issues such as land use
(spatial planning guidelines) will be dealt by the local authorities. Extensive delays in
permitting and approvals will also frustrate the implementation of the project. It is
suggested that consideration be given to address the RE project on a one-stop-centre basis
where the various permitting and approving departments are represented and can guide
the decisions accordingly.
ii.) Construction Risks
119. The construction risks are mainly associated with the logistical capabilities of the
areas such as ports and the availability of construction materials and labor. This is not
seen as a major concern as the POM has been built in the area and such logistical and
other construction related issues would have been dealt with accordingly.
iii.) Operational Risks
120. There are several operations-related risks. These are the availability of required
skills set, availability and adequacy of biomass fuel, price of biomass fuel and technical
performance risks.
iv.) Availability of Skills Sets
121. The high pressure automated biomass power plant requires a different set of
operators that are computer literate as well as technically qualified and competent.
Unlike the biomass power plant in the POM, where the operators manually operate the
boiler and turbines, the proposed biomass power plant is fully automated and operators
need to be able to interpret operating signals that are sent to the control rooms.
The power plant is synchronously connected to the local grid. The synchronous
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connection demands a good understanding of system performance and to communicate

with the grid dispatch. As a mitigation measure, the plant operations and maintenance
can be contracted out for the initial years until the local operators are proficient in the
operations of the plant.
v.) Availability and Adequacy of Biomass Fuel
122. Another major concern is the availability and adequacy of biomass fuel to
continuously operate the power plant. This major risk is dealt with when the power plant
sizing is done. For the purpose of this technology intervention demonstration, a modular
5 MWe biomass power plant is proposed. The power plant will consume biomass that is
currently incinerated.
vi.) Price of Biomass Fuel
123. The implementation of the biomass power plant creates a new demand for the
previously problematic waste. The natural tendency is for the price of the waste will
increase with demand. However, the market price of the biomass fuel will stabilize to a
reasonable level as the market consolidates.
vii.)
Technical Performance Risks
124. The technical performance risk of power plant is another factor for consideration.
However, the risk can be technically mitigated and performance of such plants elsewhere
and experience gathered will reduce the risks. This technology, being considered
matured, does not bear significant performance risks.
3.6
Socio-Economic Assessment
3.6.1
Poverty Assessement in Riau
125. In the year 2004, Riau provincial government through the Badan Penelitian dan
Pengembangan Propinsi Riau (Provincial Development and Research Agency) has
established a documentation of the poor households and inhabitants for the Riau
province.
126.
The Agency used the same eight criteria as Biro Pusat Statistik (BPS). These are:
Frequency of meals a minimum of two times a day;
Protein content of the food consumption;
The choice to have different clothes for different occasions;
The ownership of assets;

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Floor area per-capita;
The type of floor;
Access to of clean water; and
Septic tank ownership.
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127. In general, the spread of the poor-households and inhabitants is relatively even,
Only Pekanbaru City knows a percentage of poor households below 15%, where the
percentage of their poor inhabitants are 10.91. However, Indra Hulu district, Indragiri
Hilir, and Kuantan Senggigi need more attention for the percentage of their poor
inhabitants is relatively high. Please refer to the table below for detailed information.
128. The area of Kampar district is approximately 10,983.46 km2. There are
20 definite sub-districts (Kecamatan) and eight prepared / planned sub-districts. Based
on data from the Central Berau of Statistics (BPS) in last 2003, the total population is
525.113 inhabitants. In the year 2004, the population increased to 544.543 inhabitants,
and in the mid-year 2005 increase into 550,896 inhabitants.
129. In general, poor inhabitants mostly live in the isolated areas, where there is lack of
infrastructural support. In Kampar district, according to the data of the Local
Development and Planning Agency (BAPPEDA) of Riau Province, the poor-inhabitants
are spread over some sub-districts, such as Kampar Kiri Hilir, Kampar Kiri Hulu,
Kecamatan XIII Koto Kampar, and Kampar Kiri.
130. In Kampar district, the level of economic growth in the last two years is 3.70%
and the average population density of 89/km is 50 inhabitants. Most of the inhabitants
are working in the agribusiness sector. In the year 2003, 60.65% of inhabitants are work
in the agribusiness sector, 2.81% in the processed industry sector, 8.36% in the trading
sector, 2.09% in transportation sector, and 12.65% of the inhabitants work in another
sector. As for the poverty issues, Kampar district has a similar distribution pattern as
Riau Province. The spread of the poor households and inhabitants is relatively even, with
the exception of some sub-districts where the poor population percentages are above
35%. These are Kampar Kiri Hulu sub-district (66.18%), XIII Koto Kampar sub-district
(51.85%), and Kampar Kiri Hilir sub-district (38.89%).
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Table 7: Population Density and Sub-totals in Kampar District

Sub-district
Sub-total
Area (km2)
Density
(pop./km2)
Bangkinang
56.030
253,81
220
Bangkinang Barat
Kampar
Kampar Kiri
Kampar Kiri Hilir
Kampar Kiri Hulu
Siak Hulu
Tambang
Tapung
Tapung Hilir
Tapung Hulu
Tapung Kiri
XIII Koto Kampar
27.250
82.878
888
8.216
9.970
50.323
30.028
42.331
32.332
26.765
17.851
1.752
520,99
402,23
45,90
439,45
800,00
1.242,97
572,70
392,23
403,51
765,38
724,18
27,71
52
206
19
18
12
40
52
107
80
34
24
63
131. According to data collected from Data collection of Poor-Inhabitants/Households,

Riau Province 2004:
9.43 % of the poor households are using PLN as their source of electricity for
lighting.
71.06% of the poor households are using candles / flash-light as their source of
electricity for lighting.
Approximately 10% of the poor-households are using Non-PLN as their source

of electricity for lighting.
Approximately 5% of the poor-households are using kerosene pressure lantern as

their source of electricity for lighting.
132. Local communities nearby to the power plant location are Hang Tuah Village
(comprises of 1,160 households) and Sialang Kubang Village (comprises 800 to
900 households). Those villages are administratively located within Siak Hulu
Sub-District, Kampar District. One hundred percent of these two villages are electrified,
served by PLN since 1998. The average connected capacity is 900 Watt per house, with
only some houses with 1,300 Watt. They use this electricity for (particularly) lighting
and other household apparatus (TV, refrigerator, ironing). 11 households are using
electricity for their poultry farm. The average household expenditure for the electricity is
Rp. 60,000/month.
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133. Most of households in local communities use kerosene stoves for cooking, some
of them (about 100 households) use LPG, while no more than 1% use firewood. Average
kerosene consumption per household (family with 3 children) is 25-30 l/month with the
price (for this time being) Rp. 1,200,- (subsidized price) or Rp. 1,700-2,000/l (market
price).
134. The implementation of the biomass power plant project will create new economic
activities in the immediate area. During the construction phase, the business potential of
supply of equipment, services and labor will be the main economic activity that is
anticipated to last over 24 months. For the power plant, new permanent employment to
operate and maintain the power plant will be created. It is anticipated that between 30
50 new jobs will be created. During the operation phase of the power plant, biomass
delivery service will be created. This delivery service will transfer about 100,000 tons of
material a year. This will create several employment opportunities in the immediate
locality. Besides the transportation of biomass fuel, it is expected that other forms of
biomass supply chain such as waste wood may also develop.
Perception toward the biomass power-plant project plan

135. Based on the field visit and survey in the Kampar district, below recorded some
responses and perception, towards the power-plant project from local stakeholders.
A statement from Hang Tuah village government was as follows: I think that is better if
we can use the POM waste for energy source. In general, it will be a benefit to the local
community, what we used to throw out as waste, we can use it in the future said
Hang Tuahs Village Head.
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136. A similar response from the Lubuk Agung village: I think this is good. But
people will compare it with the existing PLN. If the new energy is cheaper than the
existing one, of course they will accept it said Lubuk Agungs Village Head and this
was affirmed by the Village Secretary. Due to the fact that some of empty fruit bunch
(EFB) is distributed free from the plant to local people, they also comment there will be
no problems if the EFB are used in energy generation.
137. The local Petapahan village people perception towards the project (the idea to
convert POM waste to energy) is positive. The statement of the Head of Government
Section of Petapahan Village on this subject was: I think that is good. We agree on this
idea as far as it produces benefits to the local people, working opportunities for example,
and cheaper fuel compared to the existing kerosene price.
3.6.2
Poverty Eradication
138. For Kampar district, there are two interesting phenomena related to the poverty
and income per capita:
The trend of income per capita of Kampar district inhabitants is increasing. Based
on the BPS data, the income per-capita in 2003 was Rp. 3.5 million. This number
increased in 2004 to Rp. 3.8 million.
In the meantime, the number of poor inhabitants is still high. From BPS data, in
the year 2005, from 550,896 inhabitants of Kampar district, approximately
20.50% of the inhabitants is poor.
139. We can see from these observations that the distribution of income is not
well-spread in Riau province, in general, and in Kampar district, especially. The cause
might be due to the big gap of education level and lack of infrastructure access, especially
in rural areas.
140. However, compared to the number of poor inhabitants at the national level, the
poverty issue at Riau province and especially in Kampar district is not too significant.
In 2005, approximately 30% of Indonesians are poor.
141. So, by establishing and investing the biomass power plant, the development of
local economy can be accelerated and the poverty eradication can be done
simultaneously, especially through larger opportunity to access adequate information,
such as market information, education, appropriate technology, gender mainstreaming,
agribusiness development, and knowledge.
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142. The figure above shows that the low income can affect the literacy level to be
low, the level of health will also become low, and then the environmental condition will
also be poor. This condition is happened because people lack opportunity and supporting
programs from the local major stakeholders, such as local government and local
companies or private sectors, due to the lack of capacity of civil society organizations and
traditional institutions. The lack of support from local stakeholders is caused by the lack
of access to rural electrification and better access to information, especially for RE.
143. Wider opportunities or access to rural electrification using the appropriate RE can
enhance and increase the opportunity for the local stakeholder to have a better
information and arrangements on how to develop the appropriates local development
program to increase their income, and have a better education, health, and clean and
pleasant environment for them.
3.6.3
Gender issues
144. The initial assessment in the areas indicated that men are predominantly involved
in the major economic activities while the women folk are mainly in control of domestic
management. This scenario is not expected to change the employment opportunities for
the female employees in the biomass power plant will be limited to the administrative
section and non-critical positions such as laboratories and general upkeep.
3.6.4
Indigenous People
145. The biomass power plant is proposed to be located in the vicinity of developed
areas to facilitate evaluation of power. Hence, the impact or benefits of the power plant
to the indigenous people are limited. In the interviews conducted, most of the immediate
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September 2006
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neighbors of the proposed power plant are happy at the prospect of new projects in the
area. Details of the socio-economic assessment is included in Appendix VI.
3.7
Conclusion of the Cluster Project in Siak Hulu
146. The POM cluster in Siak Hulu is identified as a cluster that is viable to implement
a sustainable plan for waste management and energy capture. The merchant plant
implementation structure and partnership model assumes PLN as a buyer of electricity
produced by the biomass power plant. However, PLN has shown interest in
implementing biomass power plant in its discussion in Pontianak with PTPN XIII who
owns a number of POMS. The partnership model with PLN, although not explored
extensively in the Siak Hulu project, should also be considered as an alternative scheme.
The Siak Hulu cluster biomass power plant project would benefit from the enhanced
economic performance of the biomass power plant if implemented by PGN.
147. The plans for waste management and energy capture for the Siak Hulu cluster
comprised of the following:
Utilize EFB destined for incineration;
Remnant oil recovery from EFB pre treatment;
Use of remnant oil to produce biodiesel at the Riau R&D centre;
Use of pre treated EFB as the main fuel source in a central biomass power plant;
and,
Use of PKS to generate electricity in biomass gasifier.
148. The waste management plan will assist Riau Provincial Government in supplying
electricity to the various communities and partially contribute to the reduction of mineral
diesel demand in the area, particularly via the sales of energy to the local grid.
The implementation of the project will create a generic plan which can be replicated in
other potential cluster sites such as those in North Sumatera and West Kalimantan.
3.7.1
Financial Analysis
149. The cluster project financial analysis indicated that the biomass power plant
would be viable if the price of electricity sold from the plant is at least 0.08 USD/kWh.
The total investment of 10 million USD can be partly leveraged using loan facility.
The financing plan will include equity to the amount of about 30 %.
Golder Associates
September 2006
3.7.2
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Economic Analysis
150. The bigger impact of the cluster based power generation projects is the reduction
in diesel-generated electricity, which is estimated to cost about USD 0.20/kWh. With the
incorporation of the avoided cost in the economic analysis, the biomass power plant
becomes economically viable. The details of the financial analysis are shown in the
cluster report in Appendix 3.
3.7.3
Socio-economic Assessment
151. The socio-economic assessment of the intended projects are summarized as

follows:
ii
iii
iv
vi
vii
Poverty profile of
primary project
beneficiaries
Willingness to Pay
Work and business

opportunities
Economic spin-offs
Clean and Renewable

Energy
Reduced costs of energy
Increased penetration of
energy in rural areas
The primary project beneficiary is the population of Kampar

district where 71% still use candles/flashlight for their source
of lighting and only 9.4% are connected to the PLN grid
The willingness to pay for electricity is currently pegged to
their current cost of production, i.e. unsubsidised diesel.
The general perception is positive and that the availability of
energy is more important and would be welcomed as long as
it compares and competitive to the current cost of their
electricity production.
The intended projects will generate local work and business
opportunities, particularly during the construction phase and
some permanent employment during the operations and
maintenance phase. It is a welcomed economic activities
The projects will generate several economic spin offs such as
bio fuel market, bio fuel logistics and support services for the
repair and maintenance of the system.
The availability of clean energy to the rural folks will
enhance their living standards and generate other related
benefits and economic activities that requires the consistent
availability of electrical energy
The waste to energy projects will in turn reduce the cost of
energy as the indigenous and renewable resources can
compete with unsubsidised diesel as its main source of fuel is
less expensive.
The projects identified in this TA has the potential of
increasing the penetration rate of energy availability in rural
areas, thus providing the impetus for growth and socioeconomic upliftment
Golder Associates
September 2006
viii
ix
Gender issues
Indigenous people
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The impact of the project on the current gender activities is

insignificant. The male dominated workforce is expected to
continue in the new projects and the female roles in the
project will be limited to the administrative desk top work
that is created.
The projects are mainly located within or close to the POM
which has already been developed. The immediate benefit or
impact to the indigenous people are not foreseen as most of
the communities surrounding the projects sites surveyed does
not comprise those from the indigenous groups
152. There cluster projects will enhance the socio-economic activities in the immediate
vicinity of the project and will have continued effect by creating spin-offs activities that
supports the operations and maintenance of the project. Besides the economic activities,
the potential of increased electrification rate will also benefit the local communities,
particularly those that are deprived of electricity due to limitation of resources. Details of
the socio-economic assessment in further elaborated in Appendix VI.
3.7.4
Clean Development Mechanism (CDM)
153. The cluster project is a viable CDM project. The annual potential of the project is
about 25, 859 tons/yr and can generate revenue to supplement the income of the project.
A copy of the project idea notes (PIN) is shown in Appendix 4.
3.8
Technical Implementation Plan
154. The proposed implementation model that is optimal to consider is a PLN-led

implementation where the utility will integrate biomass as one of its RE initiatives.
PD. Sarana Pembangunan Riau, a provincial government entity, may be a local partner to
jointly develop and own the plant.
155. The current approach by the Riau provincial authorities is to implement the
project jointly with the POM owners in the nearby locality. This partnership model will
proceed to require all the necessary documentation and agreement that many project
developers to date has failed to pursue beyond project initiation activities. It may be more
efficient to get PLN to be involved in the technology demonstration project at the
Siak Hulu cluster.
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September 2006
3.9
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Project Structuring and Refinements of Technical Implementation Plan
156. The findings of the TA indicate the potential of improved waste management
practices in palm oil mills via the application of several technological interventions.
The proposed technologies were evaluated and found to be generally viable, both
technically and economically. A number of implementation regimes were considered to
adopt the technological interventions. These implementation regimes took into
consideration the prevailing market demands and the project structure in the provinces.
The commercialization strategy that embeds the implementation regimes are different for
the technological intervention that is being considered.
157. The estimated investment to demonstrate each of the technological interventions
is summarized in Table 6. The total amount required for such demonstration of waste to
energy interventions is 20.3 million USD. To implement all the identified potential
projects in the various POMs that were surveyed, the estimated total investment
requirement is about 62 million USD.
Table 8: Summary of Investment Estimate for
Technology Intervention Programmes
No
Technology Intervention
Programmes
Potential
Modules
Investment/Module
Potential
Investment
USD
1
2
3
4
Interconnection to PLN Grid

Biomass Power Generation
Remnant Oil Recovery
Conversion of EFB Remnant
Oil into Biodiesel
8
2
12
4
USD
270,000
10,000,000
220,000
1,000,000
5
6
Biogas Capture
Biomass Gasification to
Generate Electricity
Organic
Diesel
from
Biomass
13
7
1,350,000
210,000
17,550,000
1,470,000
7,290,000
14,580,000
20,340,000
62,400,000
Total
3.10
2,160,000
20,000,000
2,640,000
4,000,000
Long Term Sustainability Plan
158. With integration of waste management and energy capture into overall provincial
energy planning the POM waste to energy projects can be a meaningful contributor to the
achievement of the National Energy Policy objectives. The inherent potential is
attractive and the presently available technologies are already feasible to harness the
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September 2006
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potential. The plan to sustain the implementation requires the coordination of policy
makers and provincial governments to provide the necessary facilities and framework.
Integration of the POM waste to energy projects into the overall provincial energy
development plan will require the close coordination between the agricultural department
(Dinas Perkebunan), the energy department (Dinas Pertambangan Energi) and PLN to
map out the implementation schemes. The POM waste to energy projects can also be
the backbone of rural electrification schemes in areas where POM plantations are
dominant both existing and planned. These two initiatives will create a conducive
environment to sustain the implementation of the POM waste to energy projects and will
have a multiplying effect to Indonesia. Over the long term, the portfolio of economically
viable technology intervention would have increased and further reinforce the
sustainability of the programme.
159. Addressing the role of POM as part of the energy generation infrastructure will
also bring about the awareness on the useful energy contents and potential of the waste
generated by the POM. The strategy will convert the waste streams into valuable assets
with potential of generating reasonable income both from domestic demand as well as
international income from sales of CER. The potential for attracting foreign direct
investment in waste management and energy capture projects is real and it is timely to
provide the necessary facilitation to convert some of these FDI potential into real
investments and projects.
160. Given the commercialization strategy that also support the need of the country,
particularly the reduction of fossil fuel consumption and the increment of electrification
rate, the integrated approach to seek international development support should be
considered. Such ideas such as bundling the small CER potential particularly in the rural
areas by having it done by a single entity has merits and should be explored further.
The governments declared intentions in the Ministerial Decree of Energy and Mineral
Resources, Presidential Decree and Presidential Instructions of 2006 will be useful in
formalizing the coordination activities between the major stakeholders, particularly the
agricultural department, the energy department and the utility (PLN). Each of these
parties is important stakeholders that can facilitate the implementation of the
governments policy objectives by developing the necessary programmes that can harness
the potential that has been identified in this report.
161. The supreme coordinating role, if necessary can be assumed by the Committee for
Acceleration of Infrastructure Policy Development (KKPPI29), which oversees the entire
major initiatives, defined the governments policies. The coordination role is also
mentioned in the above President Instructions of 2006.
29
Komite Kebijakan Percepatan Pembangunan Infrastruktur.

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September 2006
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162. The initial coordinating role prior to the possible assumption of activities by the
KKPPI can be done via a task force of active members in the steering committee such as
BPPT, IOPRI, GAPKI and others led by DGEEU. The interim facilitation especially to
match makes the potential investors from the CER buyers and the carbon fund to the
projects is important. Pro tem clearing house would be useful to make sure that the
interest generated by the TA activities can be followed through towards accomplishment.
The present local team that was assembled can be tasked to provide intervening support
as facilitators of the clearing house. Much of the works to structure the technology
intervention are now well understood by the domestic experts and they can act as the
temporary bridge between the many stakeholders that showed interest to pursue the
implementation of the projects.
3.11
Assessing the Need for Further ADB Support for the Development of
Sustainable Waste to Energy Programmes
163. Some of the identified projects have the immediate potential to be implemented.
The project developers or proponents are identified and for the cluster project has
expressed their interest to look into the implementation of the projects. The long terms
sustainability of the waste to energy projects from the POM has vast potential to become
the backbone of rural electrification initiatives in Indonesia. The high cost of rural
electricity production, which is normally isolated systems with diesel generators, can be
displaced using excess power from the POM. The implementation of such widespread
rural electrification initiatives requires some support in the initial stages, particularly to
prove the technical, commercial and economic viability to the investing organizations and
to prepare the guidelines to effectively tap the inherent potential on a nationwide basis.
The implementation of most of the technologies is likely subject to the resolution of some
of the manageable risks. One of the interventions that needed is for ADB to provide from
the provision of competitively priced debt for the implementation of the programmes.
164. The concept proposal for the support is summarized into two major category
namely:i.) Short term support project implementation PPTA and debt financing
165. The proposal for the short term ADB support concentrates at the implementation
of the cluster projects where the partners in the partnership models are already in place
and identified. ADB support identified here is to maintain the sustainability aspect of the
waste management and energy capture projects in the POM industry. The underlying
concept is to translate the identified project ideas and technology interventions into real
projects that can be emulated in the POM.
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September 2006
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ii.) Medium term support development of rural electrification support mechanisms

166. The medium term support is to reinforce the implementation mechanisms by
addressing multi stakeholder issues to effectively integrate the POM energy potential into
the local grid network. The main objective is to encourage the rapid implementation of
rural electrification projects via the project concepts identified and the technology
intervention that has been evaluated in this report. The support is mainly to develop
guidelines for the multi stakeholder implementation activities and perhaps set up
provincial level one stop centre that would be able to sustain the continuous
implementation of the template projects.
167.
The proposed concept is further described in Appendix V.
iii.) Financing requirements

168. The financing requirements from ADB are to provide the debt component.
The ADB carbon fund which was announced in December 2005 may be a useful
instrument to finance some of the CDM project and realized the GHG emissions
reduction. The estimated total potential for the identified waste to energy projects is
USD 62 million. However, in the short term, there are several immediate projects that
can be implemented. These projects require an estimated USD 20 million of financing.
The biogas project may have co-financing potential from interested carbon funds.
Incremental support from ADB would accelerate the adoption of the technologies in the
OPI.
3.12
Implementation Framework and Action Plan
169. The action plans is structured to implement the recommendation of the reports.
The implementation framework is to facilitate the follow up activities of the identified
waste management and energy conversion projects in the oil palm industry. The main
organizations identified in this framework and their roles in the implementation are
summarized as follows:
No
1
Organization
DGEEU
Roles in the implementation framework

To act as the coordinator of the project implementation
activities for waste to energy projects;
To facilitate the establishment of waste management and
energy conversion programmes identified in the TA;
To facilitate implement the potential waste management
and energy conversion projects; and,
To socialize the TA results in the other areas in
Indonesias OPI.
Golder Associates
September 2006
No
2
Organization
PLN
Provincial projects
key stakeholders
BPPT
GAPKI
CER Buyer
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Roles in the implementation framework

To lead in the implementation of the electricity based
waste to energy projects such as the POM-PLN
interconnection, Biomass power plant and the biomass
gasification.
To participate in rural electrification
schemes. To provide inputs in the integration of waste to
energy projects into the regional energy planning.
Dinas perkebunan to establish integrated waste
management guidelines for the POM is the provinces
Dinas pertambangan energi - to integrate OPI waste to
energy projects into the energy planning of the provinces
POM/Project developer - to implement the identified
project.
To undertake the facilitation of the CDM related activities
of the waste management and energy conversion projects.
To distribute and socialize the findings in the TA to its
members throughout Indonesia
To participate as purchaser of CER or as investors in the
potential CDM projects
3.12.1 Action Plan
i.
Establish Task Force in DGEEU
170. The task force in DGEEU is to mainly to facilitate and coordinate the follow up
activities in the project implementation. The existing platform in DGEEU can take the
role of the task force by expanding its current role as well as integrating some of the
identified roles in its current activities such as the rural electrification aspects of the waste
to energy projects.
ii. Establish implementation understanding with PLN
171. Implementation by PLN is identified as a key commercialisation strategy for the
waste management and energy conversion projects particularly those that are related to
electricity. The Task Force need to establish implementation understanding with PLN
and assist PLN in accessing the other stakeholders of the projects.
Interconnection of POM to PLN grid
172. To facilitate the implementation of the projects that has been identified.
A nationwide programme can be formulated based on the experience in the first few
projects. The implementation of the project will require the participation of the local
authorities, particularly Dinas Perkebunan and Dinas Pertambangan Energi to assist in the
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September 2006
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systematic identification of POMs that has the potential of interconnection to the PLN
grid.
Biomass power plant
173. The Task Force is to establish implementation understanding with PLN,

particularly to mediate with the key stakeholders in the project. Issues such as cost of
EFB, steam and electricity is to be mediated to ensure the successful implementation of
the projects.
Rural electrification
174. The Task Force is to establish the implementation understanding and participation
of PLN in rural electrification that can benefit from the technology interventions that has
been identified in the TA
iii.
General project implementation strategy
175. The Task Force shall also develop a general project implementation strategy to
address the increased interest by the OPI to implement the technology intervention based
on the commercialisation strategies for the technology interventions.
iv.
Coordination of key stakeholders
176. The Task Force is to coordinate the resolution of project implementation issues
with key stakeholders such as the agricultural department (Dinas Perkebunan), the
energy and mines department (Dinas Pertambangan dan Energi), environmental
department (Dinas Lingkungan), the selected POM and the POM association
(GAPKI)
Dinas Perkebunan
177.
To provide information on the distribution of POM
178. To assist in implementing the waste management framework as identified in

the TA.
179. To assist in the formulation of long term strategies for waste management in
the POM in its respective areas.
180.
To facilitate the issues on land use and spatial planning for the various projects.
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September 2006
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Dinas Pertambangan dan Energi
181. To integrate the POM waste management and energy conversion potential as part
of the provincial energy planning.
Dinas Lingkungan
182. To provide inputs on environmental aspects such as permitting and approval of

the projects.
POM
183.
To participate in the project implementation.
GAPKI
184. To promote the findings and recommendations of the project to its members and
inform of the implementation initiatives.
v.
Issues to consider in the coordination meetings
Supply of sustainable and competitively priced biomass waste in cluster projects;
Land issues and spatial planning guidelines for the projects; and,
Identification of the data gaps.
3.12.2 Implementation of Siak Hulu Project
i. Coordinate with main stakeholders for Siak Hulu Cluster Project (PLN, PD Sarana
Pembangunan Riau, Dinas Perkebunan, Balitbangda, POM)
ii. Facilitate the resolution of implementation issues
Primary commercial arrangement between the parties;
The borrower of the ADB loan;
Participation of CER buyer in the project investment; and,
Participation of CSR of companies in Riau.
Golder Associates
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3.12.3 Implementation of Gunung Meliau Project
i. Coordinate with main stakeholders for Gunung Meliau Project (PLN, PTPN XIII,
Dinas Pertambangan dan Energi)
ii. Facilitate the resolution of implementation issues
Prices of biomass to the Biomass Power Plant; and,
Prices of energy (steam and electricity) to the POM.
iii. Prepare request for funding proposal for submission to ADB for the identified
projects by PLN
iv. Prepare request for PPTA for the implementation of the Siak Hulu and
Gunung Meliau Cluster projects.
v. Prepare request for ADB Technical Assistance for the preparation of guidelines for
integration of POM into the provincials energy planning
3.12.4 Socialization of TA Results to Other Areas Not Covered by the TA
i. Prepare socialization strategy

ii. Distribution of findings to other areas (via GAPKI and Dinas Perkebunan)
iii. Appoint BPPT as the response unit for clarifications
3.12.5 Facilitate the Implementation of CDM Projects
i. Prepare the CDM implementation strategy
Appoint BPPT (CDM facilitator unit) to manage the supporting activities;
Bundling of small scale projects in POM-PLN interconnections and biogas rural

electrification; and,
Facilitation services for the implementation of CDM projects such as Biomass Power
Plant and the Biogas methane capture system.
ii. CDM proposed facilitation process
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September 2006
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Prepare solicitation;
Solicit Expression of Interest (EOI) from POM;
Prepare Project Idea Note on CDM potential;
Invite potential buyers of CER;
Receive Expressions of Interest;
Float CDM project Idea Note to those that expressed interest;
CER Buyer express interest on selected projects;
Invite for proposals;
Evaluate proposals;
Select and recommend the appropriate option;
Execute Letter of Intent between POM and CER Buyer; and,
Implement project.
Golder Associates
05-1113-244
September 2006
4.0
SUMMARY
4.1
Overall Conclusions
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185. The waste management of the OPI in Indonesia can be improved by establishing
two primary activities, namely the dewatering of EFB and capturing of the biogas from
the anaerobic digestion. The proposed framework can fit into the current environmental
regulations and are technically and economically feasible for widespread consideration.
186. Seven potential technology interventions for waste management and energy
capture were evaluated as technically and commercially attractive. Although two of the
technology interventions are emerging and have valid outstanding issues to address, the
potential is significant and was duly considered.
187. The long term plan for the OPI waste management and energy capture relies on
the coordination of the various parties to address integration of the POM as part of the
provincial energy system. Guidelines of POM development by the agricultural
department and the energy planning by the energy department as well as infrastructure
planning by PLN will enable the waste of the POM to be converted and distributed as
clean energy in the immediate localities. There are immediate cluster projects in
Siak Hulu, Riau and Gunung Meliau, West Kalimantan that can help to demonstrate the
technology interventions as well as the commercial attractiveness for further replication.
188. The improved waste management practices have the potential to improve the local
environment by reducing the GHG emissions. Sequestration of methane and reduction in
use of fossil fuel, particularly diesel are the main tangible environmental benefits while
reduced particulate emissions and proper water course discharges are also expected when
the waste management improvement are adopted. The social aspect is mainly the
additional economic activities that are generated by the projects, the potential of
improved electrification rates, and rural electrification using the POM waste management
and energy capture initiatives as backbones. No significant impact on gender or
indigenous people due to the identified projects is foreseen.
189. The waste management and energy capture initiatives has a good long term
potential for Indonesia. Assistance from ADB to realize the application of the technology
and adoption of the commercialization strategies country wide is necessary. The short
term support is to demonstrate the technology interventions in Siak Hulu and Gunung
Meliau and the long term support is to help establish the framework to integrate the POM
waste to energy potential as part of the provincial energy development plans.
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September 2006
4.2
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Recommendations
190. In accordance with the policy initiatives of Presidential Decree No.5/2006,

Presidential Instruction No.1/2006 and Ministerial Decree of Energy and Mineral
Resources No. 002/2006, it is recommended that a task force led by the Implementing
and Executing Agencies of the TA provide the continued support of the succeeding
activities, particularly in the intervening period to sustain the implementation drive
generated by the TA. The support is to ensure that the execution momentum of candidate
projects in Siak Hulu, Riau and Gunung Meliau, West Kalimantan clusters as well its
associated CDM aspects is maintained. The support activities will include among others
1) socialisation of TA results in other provinces which has a thriving OPI (and is not
covered by the TA) and 2) facilitation and mediation for CDM project between the CER
buyer and the POM. It is further recommended that the accumulated experience and
intimate knowledge of the waste management and energy capture projects and
programmes within the domestic consultants be gainfully mobilized to reinforce the
supporting roles of the IA and EA.
191. It is recommended that the commercialization strategy identified in the TA is
endorsed and adopted as the basic technical implementation approaches to the waste
management and energy conversion projects. The strategy identifies the following:
i.
In light of the economic advantages and technical expediency for

electricity based projects, it is recommended that PLN considers taking the
leading role in the development and implementation of projects such as
the interconnection of POM to the distribution grid, biomass power plants
and waste to energy projects for rural electrification.
ii.
To capitalize on the potential of foreign direct investment in CDM

projects, such as biogas capture, it is recommended that a task force of
relevant members of the steering committee such as BPPT (CDM unit),
IOPRI, GAPKI, and others who are active in Indonesia CDM landscape be
tasked with the facilitation and further development of the CDM aspects
of the identified projects; and
192. To support and realize the immediate economic, social and environmental
potential and create a sustained implementation of waste management and energy capture
projects in Indonesia OPI, it is recommended that ADB considers further assistance as
follows:
Golder Associates
September 2006
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05-1113-244
i. A short term support of project preparatory technical assistance to provide

essential engineering and financial expertise for the development and
execution of the waste management and energy capture cluster projects
identified in Siak Hulu, Riau and Gunung Meliau, West Kalimantan.
ii. In conjunction with (a), it is further recommended that ADB considers
supporting the debt component of the financing plan of the identified
projects in Siak Hulu, Riau and Gunung Meliau, West Kalimantan
iii. For projects with significant CDM potential, it is recommended that ADB
considers the project for its soon-to-be-launched CDM facilities that has
been designed to assist project implementation and identified Indonesia as
one of the recipient.
iv. In the effort to activate the sustainability aspect of the programme, it is
recommended that ADB considers supporting the development of practical
integration guidelines for incorporation of POM waste management and
energy capture as part of the provincial energy services.
v. Extension of the current ADB contract to support the EA and IA in
development of strategy implementation plan to address institutional and
structural requirement.
Golder Associates

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Golder Associates Ltd.

500 4260 Still Creek Drive

Asian Development Bank

September 29, 2006

PALM OIL MILL WASTE MANAGEMENT FRAMEWORK ........................ 1

TECHNICAL AND ECONOMIC ASSESSMENT ........................................ 6

WASTE MANAGEMENT AND ENERGY CAPTURE PLAN .................... 22

Technical Implementation Approach .....................................................23

3.4.1 The Financing Strategy..............................................................38

Asian Development Bank

A measure of the pressure levels in boilers

Regional Research and Development Department

Agency of Assessment and Application of Technology

Province wide production cost for electricity

Central Bureau of Statistics

Clean Development Mechanism

Certified Emission Reduction

Combined Heat and Power

Carbon Dioxide a GHG gas

Crude Palm Oil

Directorate General of Electricity and Energy Utilization

Provincial Agriculture Agency

Empty Fruit Bunch

Environmental Impact Assessment

Engineering, Procurement and Construction

Euro Dollar. Currency of Europe

Electricity Management Unit

Effluent Treatment Plant

Fresh Fruit Bunch

Fuel Supply Agreement

Association of Palm Oil Planters of Indonesia

Geographic Information Systems

Provincial Electricity Production cost for calculating RE tariff

Human Resources Development

Indonesian Rupiah Currency of Indonesia

Indonesian Oil Palm Research Institute

Internal Rate of Return

Independent Power Project

International Technology Specialist

Locality comprising of several districts

Agricultural Community Industrial Area

Kilo watt (electric)

Kilo watt hour electrical energy unit

Ministry of Energy and Mineral Resources

Oil Palm Industry

Project Design Document

Local Government Authority

Local Energy Authority

State Owned Gas Company

Project Idea Note

Palm Kernel Shells

Small palm plantation holdings (~2.0 ha) of local third party

State Owned Electricity Enterprise

Palm Oil Mill

Palm Oil Mill Effluent

Palm Oil Research Centre (IOPRI)

Power Purchase Agreement

Small Scale Power Generation Decree to Support RE

Project Steering Committee

Project Team Leader

Perusahaan Gas Negara (State Owned Gas Corporation)

Perusahaan Listrik Negara (State Owned Electricity Corporation)

State Owned Plantation Enterprises