There are still challenges to overcome in developing successful biomass projects in Indonesia, including:

• Securing an economic biomass resource
• Accessing local project finance 
• Obtaining a robust Power Purchase Agreement
• Identifying suitable technical solutions for the feedstock 
• Securing the necessary permits 
• Social acceptance 
• Local technical capacity 
• Distance to electricity grid 
• Overcoming geographical barriers

Of these, fuel security and securing a Power Purchase Agreement (PPA) present the greatest barriers to obtaining finance.

There are a wide variety of biomass feedstocks in Indonesia, including rice husk, palm oil and oil palm residues, sugar cane ethanol and residues, tapioca, cacao, coconut, maize, groundnuts, coffee and wood. The ownership structure of each resource or residue differs, and requires close examination to determine the optimum project structure and development approach. Globally, power project developers? concerns over biomass fuel security are resulting in increased ownership down the value chain, right through to the land owner. As this trend is expected to extend to Indonesia, successful project development will require the ?right? relationships and a mutually beneficial and collaborative approach to securing fuel supply. Alternatively, where biomass project proponents do not own the feedstock, multiple biomass fuels may be used. The potential for increased capital costs associated with this approach can be offset by increasing the capacity of the plant and by allowing the lowest cost biomass to be used. Biomass fuel sustainability standards are becoming more widespread, and over time, international financiers may require such certification to finance projects. Sinclair Knight Merz (SKM) can help identify and secure the right biomass fuel solution for the plant.

The regulatory environment in Indonesia continues to be strengthened with improved grid access rules for renewable energy generators and obligations on PLN to purchase power. However, financiers, and in turn, developers, remain concerned about the long-term ability of PPAs to be serviced and the robustness of the underlying sovereign guarantees. Many developers are tackling this barrier and it is expected to be overcome by activity across the renewable energy technology portfolio and to support the GoI?s second 10,000 MW fast track program.

Obtaining local debt finance remains problematic. Economic growth accompanied by inflationary pressures keeps domestic borrowing rates high and makes the financing of renewable energy and energy efficiency projects challenging. Coupled with this, the risk premium applied to such projects results in higher borrowing costs and often stalls project development. Recognising such constraints, international agencies are supporting local banks by providing credit lines, capacity building and technical assistance. Furthermore, Indonesia?s planned US$1 billion Green Investment Fund seeks to support low-carbon development by providing financial ?top-ups? for projects for which a lender is seeking/needs additional equity. These activities will ultimately improve the risk profile of Indonesian renewable energy projects and the improved tariffs will provide greater incentives for financiers.

The outlook for biomass, biogas and energy from waste projects in Indonesia is positive as the potential of the resources to achieve economic, environmental and social policy aims aligns with the removal of regulatory and financial barriers.

SKM has been providing professional services in Indonesia for over 20 years. Our knowledge of the local operating environment combined with project management expertise, excellent engineering skills and strategic project development know-how makes SKM an ideal partner with whom to expand or broaden your project portfolio in one of Asia?s fastest growing economies.

SKM?s Carbon Fund is a new initiative designed to combat SKM?s corporate carbon emissions. We are looking for project partners wanting support from SKM in return for future carbon emissions reductions.