MANILA, PHILIPPINES - The Asian Development Bank (ADB) and Agence Française de Développement are providing $100 million in loans to help Indonesia overhaul a key power distribution network in a bid to save energy and cut greenhouse gas emissions.
The ADB Board of Directors today approved a loan of $50 million for the Java-Bali Electricity Distribution Performance Improvement Project. The state-owned French development agency is providing a cofinancing loan of the same amount, which will be administered by ADB.
The project will rehabilitate the overburdened distribution network of the two islands, as well as supporting the introduction of energy efficient compact fluorescent lamps and light emitting diodes. The measures will help reduce peak power load demand and system losses, and contribute to sizeable cuts in greenhouse gas emissions. It will support PT Perusahaan Listrik Negara's (State Electricity Corporation [PLN]) plan to invest about $1.2 billion in efficiency investments in the distribution sector between 2010 and 2014.
"The project will reduce the power sector's carbon dioxide emissions by 330,000 tons per year, while the substantial energy savings and freeing up of 200 megawatts of equivalent distribution system capacity will allow the state electricity corporation to connect about 1.2 million additional customers to the Java-Bali network," said Sohail Hasnie, Principal Energy Specialist in ADB's Southeast Asia Department.
To make energy savings of 400 gigawatt-hours worth an estimated $60 million a year, the project will reconfigure electrical equipment, reconductor or replace old overhead distribution lines and voltage transformers, and introduce new switching stations and capacitors. The distribution of up to 500,000 quality compact fluorescent lamps and light emitting diodes in remote areas will help demonstrate the energy savings and greenhouse gas reduction benefits of efficient lights, which last far longer and consume much less energy than commonly used incandescent bulbs.
The project is expected to be eligible for carbon credits under the Clean Development Mechanism of the Kyoto Protocol, and carbon dioxide cuts could generate close to $200,000 a year in credits for the next 5-7 years, paving the way for potential nationwide distribution of the fluorescent lamps. The value of avoided carbon dioxide emissions as a result of the project is estimated to be around $3.5 million a year.
"Indonesia recently announced that it plans to reduce CO2 emissions by 26% by the year 2020 so PLN and ADB, together with the Government of Indonesia, view this project as a step towards meeting this goal," said Mr. Hasnie.
Indonesia's energy demand has risen sharply in recent years, but investment in new capacity has not kept pace, resulting in regular power outages in Bali and Java, and up to 90 million people - or 38% of the population - still lack access to electricity. The economy relies on costly fuel oils for over 30% of its generation needs, limiting the government's ability to fund new infrastructure, and putting Indonesia among the top 20 polluters in the world.
PLN is now planning to sharply expand the use of coal for power generation to reduce reliance on imported oil in the short term, and the project will help offset some of the new emissions. Once the conservation and efficiency benefits of the project are proven, it will be scaled up into a sector-wide initiative, funded by a multitranche financing facility.
ADB's loan, from its ordinary capital resources, has a 25-year term, including a five-year grace period, with interest determined in accordance with its LIBOR-based lending facility. The Agence Française de Développement loan has a 15-year term, including a five-year grace period, with interest set in accordance with the Euro Interbank Offered Rate. A $1 million grant from the multidonor Clean Energy Fund under the ADB-administered Clean Energy Financing Partnership will finance the distribution of the fluorescent lamps and light emitting diodes, while the state electricity corporation will provide $19 million equivalent, for a total project cost of $120 million.
PLN is the executing agency for the project, which is due for completion by May 2012.