Indonesia - Green Prosperity: On Grid Renewable Energy Grant Portfolio

Indonesia Green Prosperity: On Grid Renewable Energy Grant Portfolio

Independent Performance Evaluation

ID Number DDI-IDN-MCC-GPE-ORE-2019-v01

Topic	Vocabulary	URI
Energy	MCC Sector

Performance evaluation, Compact, Indonesia, Green Prosperity Project, Environment, Grants, Natural Resource Management, Renewable Energy, On-grid, Off-grid

Name	Abbreviation	Role
Millennium Challenge Corporation	MCC	Review of Metadata
Integra Government Services International LLC		Independent Evaluator

2019 Version 1 (2019-02-28): This is the original version, to be used as the template for upcoming data reporting.

DDI-IDN-MCC-GPE-ORE-2019-v01Indonesia Compact IIn 2011, MCC entered into a Compact agreement with the Government of Indonesia, to support the government's priority of sustainable economic growth for the country, focused on green prosperity, community-based health and nutrition to reduce stunting, and procurement modernization. The Green Prosperity Project was the largest component for the flagship, consisting of four activities: 1. Participatory Land Use Planning (PLUP) Activity: The PLUP Activity focused on investment in administrative boundary setting, the updating and integration of land use inventories, and enhancing spatial plans at district and provincial levels. 2. Technical Assistace and Oversight (TAO) Activity: The TAO Activity provided technical assistance and project oversight for grants issues under the Compact. Eligible districts, project sponsors, and community groups were identified and offered assistance in their development of potential investments in sustainable and low-carbon economic growth. Technical assistance in the form of application preparation for submission to the GPF was also offered. 3. Green Prosperity (GPF) Activity: As the grant funding facility for the Compact, the GPF was responsible for the financing of low-carbon development projects and is the entity under which funding windows and later thematic portfolios was supported. 4. Green Knowledge (GK) Activity: Designed to support knowledge management and capacity building, the GK Activity provided technical assistance and support for strengthening local, provincial and national capacity to drive forward Indonesia'a nation-wide low-carbon development stategy within the context of the GP Project. Although increased penetration of renewable energy, both on and off the grid makes strong economic sense with certain technologies and in specific locations, it is failing to happen for a variety of reasons that include: - the lack of a favorable enabling environment; - project developers and consultants that are ill-trained; - financial market imperfections that are reducing effective access; and - a vertically integrated utility that has financial incentives to increase access to large scale thermal and renewable plants even when economic conditions dictate otherwise. Integra was tasked with evaluating the GPF's On-Grid RE portfolio selection of projects, the value of Technical Assistance Project Preparation (TAPP) work in terminated projects, and the results of completed projects.Energy (Energy)The GPF on-grid RE objectives appear to be consistent with, and built upon, GoI priorities. The GPF was designed to partially fund (a major share) of commercial scale, on-grid RE that was less than 10MW. Proposals accepted into the GPF had to reach a minimum of 10% Economic Rate of Return (ERR). The GPF was designed to “reduce poverty through low carbon economic growth” by (1) providing technical assistance to complete grant requirements such as the International Finance Corporation (IFC) safeguards and project preparation through a grant; (2) through the Compact, the GP also provided policy solutions to deal with barriers to RE; and (3) directly funding RE projects. The TAPP grant paid for the preparation of project documents such as engineering design and feasibility studies. While the Program Management Consultant did not provide technical assistance directly, they did so indirectly through the process of reviewing deliverables and pointing out problems such as inadequate design measures or insufficient hydrological evidence. The Compact required the GoI to undertake certain policy and operating measures. They were to adopt a feed-in tariff (FiT) for non-hydro RE that “shall provide a reasonable incentive for independent power producers to develop and sell power to…” Perusahaan Listrik Negara (the State Electricity Company, or PLN. And, “PLN shall issue the following (i) standard, transparent procedures for structuring and executing transactions involving independent power producers, (ii) a standard bankable power purchase agreement (PPA) for small-scale renewable power producers by technology type; and (iii) standardized application procedures for renewable energy project developers.” Finally, the GPF assumed that the final barrier was either the absence of funds or the cost of funds that keeps on-grid investment levels for RE plants (at or below 10 MW) from reaching optimal levels. In other words, a major impediment to increased investment was the cost or availability of funds. That was, after all, what the GPF was providing for on-grid RE. It provided direct funding (Full Grant or grants that fund an accepted project) or TAPP funding for technical preparation. “Selected projects will receive TAPP Grants that will strengthen project preparation and feasibility studies, high quality DED, and identification of risks and its mitigation. This support will also improve trust from finance institution to finance the projects, to ensure the projects can be implemented up to the construction phase.” Specifically, RE grant projects meet the GP objective of reducing reliance on fossil fuels by increasing the share of grid electricity provided by a renewable source, thereby displacing the use of GHG emitting power plants. These grants would achieve the objective of increasing productivity by: (1) reducing costs to the utility (PLN) compared to the grid average cost generation and (2) by providing long term, sustainable benefits to the community from the project’s revenues (the CBS component). The basic hypothesis behind the GP approach to on-grid RE is that a “multipronged approach” will catalyze clean energy investment. The three prongs are technical assistance, finance (grants), and policy.Integra Government Services International LLC conducted the evaluation, responsible for overall program management, quality assurance, review and approval of all staffing patterns and technical approaches and the final disposition of all matters related to the management and staffing of individual tasks. Limestone Analytics provided support to Integra for the CBA component of the evaluation. Their tasks included: estimating the project's post-compact economic rate of return (ERR) for the Evaluation Design Report; and analyzing why the Evaluator's estimate of the (ERR) differs from the MCC ERR estimate and interpret differences in relation to the CBA as part of the final report. In response to the call for proposals, 100 proposals/expressions of interest were received. There were two rounds of proposals. During the first round of call for proposals (CFP), there were 50 submissions, and in April 2015 21 of these were presented to the Investment Committee (IC). By August, the IC awarded eight full grants and eight TAPP grants. The second round of CFPs were completed in February 2016 with 50 proposals being submitted, out of which 11 full grants and one TAPP grant were awarded between April and June of 2016. Of these only four (4) grants made it to full implementation: Musim Mas POME plants in PT Sinar Agro Raya, PT indoakmur Sawit Berjaya, and PT Bahama Nusa Interindo and the Lubuk Gadang Mini Hydro Power Plant Project. The Musim Mas plants are palm oil mill effluent plants, involving anaerobic bio-digestors producing methane to generate power. The Lubuk Gadang grants is a hydro-power plant.