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The proposed 240 MW Rantau Dedap Geothermal Development Project (Phase 1) is an ideal opportunity for ADB and Clean Technology Fund (CTF) to play an instrumental role in developing the next generation of greenfield geothermal projects in Indonesia through the pilot-testing of an innovative, early stage financing product. The project is located southwest of Palembang in South Sumatera, Indonesia. Phase 1 constitutes the initial geothermal resource exploration, involving the drilling of wells to better ascertain steam reservoir characteristics and capacity. A separate Phase 2 project will follow to complete further drilling of steam production and injection wells and power plant construction. Phase 2 will be financed through a traditional limited-recourse, long-term project financing structure.

The project has been prioritized under PLN's long-term power development plan and the second 10,000 MW accelerated development program launched by the Government of Indonesia in 2010 (Fast Track Program 2). Phase 1 development has commenced under the framework of a 35-year geothermal mining license (IUP), a 30-year Power Purchase Agreement (PPA) with PLN and an approximately 20-year guarantee from the Ministry of Finance, as stipulated under a Business Viability Guarantee Letter (BVGL) signed in 2012. Overall, the project benefits from strong contractual arrangements with creditworthy parties including the Government of Indonesia, rated BB+ by Standard & Poor's (S&P) and Baa3 by Moody's, and PLN, rated BB by S&P and Baa3 by Moody's.

The project is aligned with ADB''s country partnership strategy for Indonesia for 2012- 2014. It supports the strategy''s second pillar of environmental sustainability through climate change mitigation, which prioritizes projects designed to promote renewable energy and energy efficiency. The project also supports the government's long-term objective under the endorsed CTF investment plan for Indonesia to deploy CTF resources to leverage commercial financing of geothermal projects. The CTF plan complements recent ADB technical assistance to Ministry of Energy and Mineral Resource (MEMR) and PLN for renewable energy development (including geothermal resources) through its public sector operations, as well as other ADB initiatives to review and revise geothermal tariff incentive schemes and improve government geothermal risk mitigation mechanisms.

The project is consistent with ADB's Energy Policy, which emphasizes investment in energy efficiency, renewable energy, and wider access to energy. Though ADB reached its internal goal of $2 billion per annum in clean energy in 2011, the project helps sustain that level of investment in 2014 and further bolster the private sector role in catalyzing additional resources in the renewable energy sector.