NREL is a national laboratory of the U.S. Department of Energy

Office of Energy Efficiency & Renewable Energy

Operated by the Alliance for Sustainable Energy, LLC

Contract No. DE-AC36-08GO28308

Methane for Power Generation 

in Muaro Jambi: A Green 

Prosperity Model Project

K. Moriarty, M. Elchinger, G. Hill, J. Katz, 

and J. Barnett

Produced under direction of the Millennium Challenge Corporation by the 

National Renewable Energy Laboratory (NREL) under Interagency 

Agreement IAG-12-1866 and Task No WFQ9.1013. 

Work for Others Report

NREL/TP-5400-62346

July 2014
NREL is a national laboratory of the U.S. Department of Energy

Office of Energy Efficiency & Renewable Energy

Operated by the Alliance for Sustainable Energy, LLC

Contract No. DE-AC36-08GO28308

National Renewable Energy Laboratory

15013 Denver West Parkway

Golden, CO 80401

303-275-3000 • www.nrel.gov

Methane for Power Generation 

in Muaro Jambi: A Green 

Prosperity Model Project 

K. Moriarty, M. Elchinger, G. Hill, J. Katz, 

and J. Barnett

Prepared under Task No. WFQ9.1013

Work for Others Report

NREL/TP-5400-62346

July 2014
NOTICE

This manuscript has been authored by employees of the Alliance for Sustainable Energy, LLC (“Alliance”) under 

Contract No. DE-AC36-08GO28308 with the U.S. Department of Energy (“DOE”).

This report was prepared as an account of work sponsored by an agency of the United States government. 

Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, 

express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of 

any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately 

owned rights. Reference herein to any specific commercial product, process, or service by trade name, 

trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, 

or favoring by the United States government or any agency thereof. The views and opinions of authors 

expressed herein do not necessarily state or reflect those of the United States government or any agency thereof.

Cover Photos: (left to right) photo by Pat Corkery, NREL 16416, photo from SunEdison, NREL 17423, photo by Pat Corkery, NREL 

16560, photo by Dennis Schroeder, NREL 17613, photo by Dean Armstrong, NREL 17436, photo by Pat Corkery, NREL 17721.

NREL prints on paper that contains recycled content.
iii

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Contacts

For additional information about this report, please contact the primary authors:

Kristi Moriarty, kristi.moriarty@nrel.gov

Michael Elchinger, mike.elchinger@nrel.gov

Acknowledgments 

This work is sponsored by Millennium Challenge Corporation. NREL would also like to thank 

Bernard Castermans and Shinta Mulyasari of Winrock International; Lintang Walandouw of 

AES Corporation; Zul Afran of BBIP; and Mark Yancey of NEATech for their time and 

information.
iv

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Abbreviations and Acronyms

AD anaerobic digestion

AMDAL full environmental assessment 

BBIP PT. Bukit Barisan Indah Prima

BOD biological oxygen demand

CDM clean development mechanism

CER Certified Emission Reduction

CF counterfactual

CIRCLE Capacity for Indonesian Reduction of Carbon in Land Use and Energy

CO2 carbon dioxide

CO2e carbon dioxide equivalent

COD chemical oxygen demand

CPKO crude palm kernel oil

CPO crude palm oil

EFB empty fruit bunch

EPA U.S. Environmental Protection Agency

ERR economic rate of return

ESMS Environmental and Social Management System

FAS Foreign Agriculture Services

FiT feed-in tariff

FFB fresh fruit bunches

GHG greenhouse gas

GOI Government of Indonesia

GWh gigawatt-hours

H2S hydrogen sulfide
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IPB Bogor Agricultural University

ICED Indonesia Clean Energy Development (USAID Program)

IDR Indonesia rupiah

IFC International Finance Corporation

IPCC Intergovernmental Panel on Climate Change

IPP independent power producer

IRR internal rate of return

kg kilograms

km kilometers

kV kilovolts

kWh kilowatt-hours

m meters

L liters

MCA-I Millennium Challenge Account – Indonesia

MCC Millennium Challenge Corporation

MEMR Ministry of Energy and Mineral Resources

mg/L milligrams per liter

MJ megajoule

MW megawatts

MWh megawatt-hours

Nm3 Normal standard temperature and pressure meters squared of methane production

NPV net present value

NREL National Renewable Energy Lab

OLR organic loading rate

O&M operation and maintenance
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PLN Perusahaan Listrik Negara (National Electricity Corporation of Indonesia)

PPA power purchase agreement

POME palm oil mill effluent

RFP request for proposal

SPPL letter of commitment to manage the environment

UKL-UPL environmental management and monitoring plan

UNFCCC United Nations Framework Convention on Climate Change

USAID United States Agency for International Development

USDA United States Department of Agriculture

W Watt

WP with-project
vii

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Preface

This study supports the Millennium Challenge Corporation’s (MCC) Compact with Indonesia.1

NREL has contributed to the Compact in many areas, including by formulating project 

evaluation guidance, participating in stakeholder forums, and developing studies of illustrative 

projects meeting Indonesian and MCC requirements and aspirations.

Green Prosperity, the largest project of the Compact, seeks to address critical constraints to 

economic growth while supporting the Government of Indonesia’s commitment to a more 

sustainable, less carbon-intensive future. An ambitious project, Green Prosperity seeks to 

contribute to some of Indonesia’s most prominent development priorities, including increased

access to clean and reliable energy in rural areas, and improving stewardship of natural

resources.

This report is one of a series evaluating eight model Green Prosperity projects on behalf of MCC 

and the Indonesian implementing organization, Millennium Challenge Account-Indonesia 

(MCA-I). Each report reviews the potential of a project centered on a defined geographic area, or 

landscape. Ideal Green Prosperity projects will be designed to improve the economic conditions 

of the people living in the identified landscape, integrating some combination of renewable 

energy, natural resources management, and sustainable land use activities. The eight studies are 

identified in the table below.

Note that two studies, centered on Rantau Suli village and Berbak National Park, are examples of 

integrated projects strongly linking renewable energy production, natural resources management 

and sustainable land use. The other six studies are also defined in a landscape context, but focus 

more on particular project types identified in the Compact. All of the project types explored in 

the series of eight model studies can be considered by project developers and sponsors for any 

landscape, and in any combination that makes sense in local context.

Each study includes a project description; technical analysis; economic assessment; 

environmental and land use impacts; and social implications. Other potential energy or land use 

activities are also often noted. The studies are intended to serve as examples for potential project 

sponsors, who may choose to propose something similar, or who may be inspired to propose 

some other innovative project. Further, the technical, economic, environmental/land use, and 

social discussions and analyses in these studies are intended to help guide the assessment of 

proposals submitted to MCA-I for Green Prosperity funding.

This report does not constitute an endorsement of the identified projects by anyone, and does not 

give the identified projects preferential status for funding. Additional detailed analysis of formal 

proposals would be needed prior to any investment decision.

 1 Additional information about the Millennium Challenge Corporation’s Indonesia Compact is available at 

http://www.mcc.gov/pages/countries/program/indonesia-compact.
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Table P-1. The Eight Model Green Prosperity Projects

Model Project Kabupaten/Province Emphasis

Rantau Suli Integrated Project Merangin, Jambi Mini-hydropower, with 

protection of forested 

catchment area

Berbak National Park Integrated 

Project

Muaro Jambi, Jambi Forest protection and 

restoration, with off-grid solar 

photovoltaic power production

Methane Capture for Power 

Generation

Muaro Jambi, Jambi Power production from 

methane captured from palm 

oil mill effluent

Cacao Intensification Mamuju and Mamasa, 

Sulawesi Barat

Training to improve cacao 

yields, as an example of 

agricultural intensification

Karampuang Island Solar 

Photovoltaic Electricity

Mamuju, Sulawesi Barat Solar photovoltaic power for 

an island, with project options 

including connection to the 

mainland grid

Grid-tied Mini-hydropower Mamasa, Sulawesi Barat Assessment of a larger minihydropower project

Community Agroforestry Mamuju, Sulawesi Barat Forest boundary protection 

through community-based 

peripheral agroforestry

Aggregated Micro-hydropower Mamasa, Sulawesi Barat Transaction/implementation 

cost reduction through 

aggregation of small projects
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Executive Summary

This study evaluates electricity generation from the organic content of wastewater at a palm oil 

mill in Muaro Jambi, Sumatra. Green Prosperity has numerous criteria for projects including 

rural renewable energy generation and low carbon intensity. Electricity generation from palm oil 

mill effluent (POME) would provide grid-tied renewable electricity to nearby villages that 

currently depend on expensive diesel generation, and reduce greenhouse gas (GHG) emissions 

by converting a problematic waste into energy. It would indirectly meet Green Prosperity’s goal 

of increasing Indonesians’ incomes because this project would be expected to result in higher 

prices paid to local oil palm smallholders and lower electricity costs for area villagers. 

Muaro Jambi is one of four Green Prosperity starter districts selected based on the potential to 

achieve significant reductions in poverty based on economic development opportunities, 

renewable energy potential, and environmental factors such as peat land degradation. The mill is 

located in rural northwest Muaro Jambi in the village of Bukit Baling where more than half of 

villagers are either oil palm or rubber smallholders. Bukit Baling has a population of 

approximately 8,000. Electricity supply in both the Bukit Baling settlements and all of Muaro 

Jambi is estimated at 70% grid and 30% diesel generation. The population living on diesel 

generation pays considerably more for electricity, negatively impacting monthly household 

income. The diesel generators could be replaced with renewable electricity if all three palm oil 

mills in the village captured methane and generated electricity.

Sumatra and the Muaro Jambi district dedicate significant land and labor to the production of 

palm oil. Smallholders have long supplied palm oil mills, and many obtained land through a 

Government of Indonesia (GOI) Transmigration project. This project provided two hectares each 

to families moving from overpopulated areas to more rural areas of Sumatra and other islands. 

Over the past 10 years, smallholders’ contribution to oil palm land area and supply to mills has 

grown significantly compared to plantations. This is likely due to a change in GOI regulations 

that ended the requirement for mills to source fresh fruit bunches (FFB) from plantations, 

resulting in more mills and increased sales opportunities for smallholders. The mill evaluated in 

this study is interested in additional revenue from electricity sales to pay a premium to 

smallholders to encourage supply of FFB to their Muaro Jambi mills. 

Many past studies have found positive economic impacts of electricity generation at palm oil 

mills, yet the income from electricity sales at palm oil mills is estimated to be only a tiny fraction 

compared to their crude palm oil (CPO) revenue. Mills tend to view grid-connected electricity 

sales as less risky than other alternatives, such as selling directly to villages, due to both the 

redundancy of power available on transmission lines and because they receive payment from 

Perusahaan Listrik Negara (PLN), the National Electricity Corporation of Indonesia. This allows 

mills to focus on food production and markets. Very few mills have invested in POME electricity 

due to a lack of familiarity with electricity sales compared with known rapid return of investment

in palm plantations and mills, which is the business they know.

Who benefits from this project depends on what indicators are evaluated. If economics alone are 

considered, PLN would achieve the greatest benefit due to the avoidance of high generation costs 

while obtaining inexpensive renewable electricity. If only environmental benefits are evaluated, 

both the palm mill and the local communities would benefit from reductions of emissions and 
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stabilization of POME, a problematic waste that negatively impacts land and downstream 

activities in its current state. The social assessment indicates the greatest benefits are afforded to 

villagers with the opportunity to access power more often for a lower price, which will enable 

them to consider developing small businesses near their homes.

Project Overview

This project evaluates the feasibility of generating electricity from POME at an average 

Indonesian palm oil mill. The data used in this study to determine costs and estimated electricity 

generation was based on average statistics from the evaluation of POME to electricity at 

numerous palm mills by the United States Agency for International Development (USAID)

Capacity for Indonesian Reduction of Carbon in Land Use and Energy (CIRCLE) and Indonesia 

Clean Energy Programs Development (ICED) projects. 

The CIRCLE program evaluated the feasibility of POME electricity at the PT. Bukit Barisan

Indah Prima (BBIP) mill. The BBIP mill was used in this study as an illustration of a particular 

location, and to explore the economics associated with a mill’s decision to generate electricity. 

None of BBIP mill’s operational or financial data were used in this study; instead, representative 

Sumatra mill data were used in order to protect BBIP’s proprietary information. 

BBIP owns a plantation but relies on smallholders to supply FFB to both their Bukit Baling and 

nearby Batanghari Sawit Sejahtera mills. The mill is located in Bukit Baling, a village in an 

agricultural area of northwest Muaro Jambi. BBIP mill is interested in using electricity profits to 

pay a modest premium to independent smallholders to ensure their mills continue to operate at 

capacity. Villages surrounding the mill rely on diesel generation for electricity, and many of the 

population grow oil palm. Connecting nearby villages to the grid would reduce monthly 

household expenses. 

For this type of project, in many instances a mill would enter into a special-purpose vehicle 

contractual agreement with an independent power producer (IPP) who would develop, own, and 

operate the POME electricity generation plant. The IPP would enter into a power purchase 

agreement with PLN at the biomass power rate for Sumatra, as specified in the Ministry of 

Energy and Mineral Resources (MEMR) Regulation No. 4/2012. An alternate business 

arrangement is for a mill to issue a request for proposal for a design, build, and construction and 

own the resulting electricity generation equipment. The example mill is located approximately 5 

kilometers (km) from PLN’s nearest transmission lines. In most instances, the project will pay 

for transmission line; in certain instances it is possible PLN could pay for the transmission line. 

This study assumes the project pays for transmission lines for grid connection. Several villages 

are along nearby paved roads and are in PLN’s long-term plan for electrification. 

To pursue this project type, palm oil mills would require technical assistance to determine the 

feasibility of electricity sales at their mills. It is important that mills work with contractors and 

IPPs, and purchase equipment with past successful experience converting POME into electricity. 

A project of this type will require several permits and licenses and must adhere to regulations.

USAID estimates this project will take between 3 and 5 years to complete from the start of an 

initial assessment.
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Technical Assessment

Palm oil is a significant economic driver in Indonesia providing income opportunities in rural 

areas. It is the world’s leading vegetable oil in production and trade, and Indonesia is the top 

producer. Worldwide demand for vegetable oils has led to a continuous increase in oil palm 

plantation land area and palm oil production in Indonesia. The supply of FFB comes from large 

private plantations, smallholders, and state-owned plantations. Palm oil mills typically operate 

6 days per week for 20 hours/day, and totaling 300 days/year. The CPO production process is 

water-intensive, resulting in large volumes of POME, a wastewater rich in organic content that 

can be converted to electricity. 

POME is currently processed through a series of ponds to reduce environmental toxins and 

stabilize it prior to final release to land or water. This project would use a flexible membrane to 

cover an existing anaerobic pond to collect biogas—a combination of methane, carbon dioxide 

(CO2), and trace amounts of other gases. The biogas will be cleaned up to remove impurities for 

use in a reciprocating gas engine to produce electricity and deliver it to the grid.

Methane capture for electricity generation is a result of a controlled biological process called 

anaerobic digestion (AD). AD is the natural biological degradation of organic matter without 

oxygen, resulting in biogas. Biogas from POME ranges from 56% to 64% methane and 35% to 

41% CO2, whereas natural gas typically contains more than 90% methane. Biogas is capable of 

operating in nearly all devices intended for natural gas with minimal adjustments to account for 

lower energy content. In western nations, AD is a mature technology with 30 years of experience 

in wastewater treatment plants. It is imperative to control AD process parameters to ensure 

optimal biogas production and electricity generation. The most important of these parameters are 

temperature, acidity, and organic loading rate (i.e., the rate at which POME enters the covered 

anaerobic pond). The benefits of AD include generation of revenue from a waste by-product, 

renewable energy generation, GHG emission reductions, and reduced water pollution. 

Before biogas can be used to generate electricity, moisture and hydrogen sulfide (H2S) must be 

removed. Then biogas enters gas engines to generate electricity. There are a few existing 

examples of this technology type in Indonesia. USAID’s ICED organization reports that of more 

than 600 palm oil mills in the country, 25 are capturing methane and flaring for carbon credits in 

voluntary markets, but less than 10 are capturing biogas and generating electricity.2

Economic Assessment

For project funding or financing, the MCC Compact in Indonesia requires projects to 

demonstrate an increased income for Indonesians and an economic rate of return (ERR) of 10%. 

This project performs very well economically primarily because of PLN’s avoided cost of 

generation, which is roughly three times what it would pay for electricity generated by the 

project. This means that the majority of the benefit is captured by PLN. Under reference case 

assumptions, the project ERR is 40.5% with a net present value (NPV) of Indonesia rupiah (IDR) 

123 billion ($12.7 million USD).3 This analysis is conducted assuming a loan is offered at 50% 

of total capital costs at a 4.5% nominal interest rate. The main economic risk for this project is 

that there is a relatively low return for all other stakeholders beside PLN. Because the IPP returns 

 2 Data provided by ICED’s Chief of Party.

3 Conversion rate of IDR 9,700 per $1 (October 2012 rate).
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are low, there is concern that there will be tight cash flow and exposure to external risk such as 

construction delays. The IPP’s internal rate of return (IRR) is 3.9% real (8.1% nominal) under 

reference case assumptions, which is relatively low, even to incentivize a non-governmental 

organization or non-profit to participate in this project as designed.4 The small return to the IPP 

also limits the amount that it can pay to the mill owner: 10% of revenue (NPV) of IDR 4.2 

billion ($434,000 USD) in the reference case. Consequently, there is only a small share of the 

project’s total NPV available to the mill’s FFB suppliers, a target beneficiary of the project. 

Local electricity consumers are the other local beneficiaries of the project. These consumers 

benefit from avoided diesel cost and increased consumption, which total IDR 17 billion ($1.75 

million USD) in NPV.

Table ES-1. Economic results

Economic Results

Economic Rate of Return 40.50%

Net Present Value ($) 12,700,000 

Net Present Value (IDR million) 123,000

The project’s ERR is most sensitive to projections of PLN’s avoided cost over the project 

lifetime because PLN’s cost savings are the primary economic benefit. The reference assumption 

is that PLN’s generation cost grows at a rate comparable to recent experience: 8.3% per year in 

nominal terms. Although the NPV is sensitive to that assumption, a nominal growth rate of 1.5% 

per year—less than inflation—still leads to a project ERR of 43.1%.

Alternative project design options could make this project more viable for the IPP and mill, and 

provide more benefit to smallholders. Offering a grant of 50% of capital costs has no impact on 

project ERR but increases the IPP’s IRR to 13% (17% nominal), which could be distributed to 

the mill through lease payments and on to smallholders through FFB price premiums. A change 

to electricity policy that would allow an escalator to be negotiated in power purchase agreements 

(PPAs) would shelter the IPP’s revenue from long-term inflation, reducing the IPP’s exposure 

and the overall project risk. Including an escalator to the feed-in tariff (FiT) at the projected rate 

of long-term inflation would provide an IRR to the IPP of 15% (20% nominal). 

With the exception of changing the loan to a grant, these changes are unlikely; therefore, the 

project reference case is designed to reflect the mostly likely conditions an IPP would face in this 

situation. Note also that if the price of Certified Emission Reduction (CER) credits rebounded in 

world markets, it could provide an additional source of revenue for the operator. Because 

forward prices of CER credits are very difficult to predict, they were excluded from this analysis. 

Assuming CER credit prices rebound to IDR 97,000 ($10 USD) per ton of carbon dioxide 

equivalent (CO2e) and IDR 9.7 billion ($1,000,000 USD) certification and compliance costs, 

revenue for the IPP would significantly increase by approximately IDR 4.85 billion ($500,000 

USD) per year and improve its real IRR. 

 4 Unless otherwise noted, all percent returns are expressed in real terms. Real returns are adjusted for inflation while 

nominal returns are quoted in a given year’s dollars.
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Environmental and Spatial Land Use Assessment

This project poses more environmental risk by not doing it than by building it because POME 

electricity generation significantly reduces methane emissions at a palm mill. USAID estimates 

that methane emissions from POME in Indonesia are 16 million tons of CO2e/year [1].

The potential GHG emissions reductions from this project are 39,006 tons of CO2e. Methane 

emissions from POME can be reduced to nearly zero by covering the pond, capturing biogas, and 

converting it to electricity. The BBIP mill burns shells and fiber to supply steam and electricity 

needs, as do most mills in Indonesia, when the plant is operating. This is considered a carbonneutral activity because both the shells and fiber are waste products from an FFB of oil palm and

are continuously harvested.

This project is proposed at an existing palm oil mill and does not require any land acquisition. 

Land area for oil palm cultivation is expected to continue its upward trend in Jambi and 

throughout Indonesia due to world market demand for vegetable oils. Renewable electricity from 

POME is not expected to increase demand for oil palm land area because electricity generation 

equipment would be sized for the current capacity of a mill. If a mill with electricity generation 

from POME did expand, it would need significant capital to purchase additional biogas 

collection and electricity generation equipment, which would also result in significant downtime 

for the mill and the electricity generation plant.

The proposed project is less than 10 megawatts (MW) at an existing manufacturing facility with 

expectations of low environmental impacts. It is expected that an environmental management 

plan and an environmental monitoring plan (UKL-UPL) are required for this type of project to 

identify potential environmental risks and methods to mitigate and monitor them. The acceptance 

of a project’s UKL-UPL coincides with receipt of an environmental license. Both of these are 

required prior to obtaining a business license. 

Social Assessment

The Bukit Baling is populated by approximately 70% smallholders. The community is 75% 

migrants from Java and 25% local ethnic Melayu Jambi. Initially, migrant farmers planted rubber 

but over time, most of the settlements in the area of palm mills converted to oil palm to increase 

their household incomes. Division of labor on oil palm farms is fairly even between men and 

women. In addition to smallholders, the four palm oil companies operating in Bukit Baling are 

large employers with permanent and temporary positions at plantations and mills with daily pay 

IDR 57,000 for men and women. Other area income activities include rice paddy, duku, durian, 

and fishing/fish processing. 

Bukit Baling is approximately 70% grid-connected; however, villages near the palm mill are on 

individual- or community-based diesel generator systems. Diesel systems are typically used from 

6:00 a.m. to 6:00 p.m., limiting when women can perform household activities. The introduction 

of lower-cost PLN power in the area will provide electricity throughout the day, which will allow 

household activities to occur at various times of the day. The availability of PLN power will also 

enable local entrepreneurs to open businesses such as shops, restaurants, salons, and mechanic 

repair. These villages are unable to support roadside businesses with current diesel generation 

due to availability and cost and an inability to compete with grid-tied businesses within 15 km. A 
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potential risk is the recent introduction of community diesel generator power in nearby 

settlements. Each household made a significant investment and may be reluctant to pay for a 

connection to PLN even though monthly electricity costs are expected to be significantly lower.

Palm mill premium payments to oil palm smallholders may lead to a slight increase in 

production of FFB. It is not clear how households may use this additional income because it is 

modest and will not enable a smallholder to purchase more land. This is expected on existing 

smallholder land as they typically harvest twice a month rather than three times a month, which 

is more common on plantations. This will further increase smallholders’ yield and income. This 

project is not expected to increase FFB production because demand is driven by markets for the 

primary products crude palm oil and palm kernel oil and not far less profitable by-products of 

kernel shells and POME based electricity. 

Project Risks

This project has two technical risks: limited past experience with this project type in Indonesia 

and risk of system shutdown due to operational issues. There are only ten POME-based 

electricity projects in Indonesia and none are connected to PLN, although several gridconnection projects were in development at the time of this report. This risk can be mitigated by 

using contractors and equipment who built existing facilities and visiting those sites to ensure 

there are no major operational issues. The more significant technical risk is system shutdown,

which causes biogas production to stop. This is a known issue and can be mitigated by carefully 

controlling the flow of POME into the anaerobic pond and monitoring process parameters.

A potential financial risk to the project is that most of the value is captured by PLN while there 

are slim margins for other stakeholders. Both the mill and smallholders benefit from the project, 

but only marginally. Similarly, the IPP only receives a small financial benefit.

Some specific risks that are less likely but worth noting include policy or regulation risk that 

might impact IPP revenue. Also, changes to the mill production from changes to world market 

demand for palm oil may impact the IPP’s methane supply from POME, thus impacting the 

IPP’s ability to reliably meet its off-take obligations. Lastly, any one of the project proponents 

could opt out of the arrangement and thereby undermine the intended flow of benefit. 

An additional risk is smallholders not receiving a premium. Independent smallholders do not 

enter into contractual arrangements with plantations or mills, allowing them flexibility to sell 

wherever they choose. Presumably, smallholders would sell through a local collector to an area 

mill able to offer a premium as a result of revenue from electricity sales. The payment of 

premiums to smallholders would need to be monitored regularly. 

POME is a significant source of emissions in the palm oil process. Environmental risk is higher 

if nothing is done, because this project would significantly improve wastewater environmental 

issues at a palm oil mill. 

Conclusions

Ideal biomass energy projects are those that generate a waste product onsite with energy 

potential, such as is the case with this proposed project. There are numerous benefits from 

POME electricity at palm mills, including electrification of rural areas, renewable electricity 
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entering the grid, and reductions in emissions and POME processing wastes. Economics in this 

study indicate a modest return for an IPP, which may not achieve their corporate hurdle for 

investing in a project. However, geography may positively influence economic returns and 

investments in this type of electricity generation because PLN biogas rates for PPAs are higher 

on other provinces—such as Kalimantan, Maluku, West Nusa Tenggara, Papua, or Sulawesi—

than on Sumatra. The projected revenues the mills receive would be small but would allow them 

to pay a premium to smallholders, whose income would increase a small amount. There is no 

guarantee that smallholders will receive higher prices as they are independent and have no 

formal agreements with mills, however, the BBIP mill profiled in this study currently pays a 

premium. Compared to the specific mill project studied in Mauro Jambi, the economics of other 

similar projects may be more attractive if the POME is richer in organic content, leading to 

greater electricity potential and/or if they are located where PLN biogas rates are higher. 

This project type is more likely to benefit older or inefficiently run mills than new or efficient 

mills. A poorly operated or old mill is capable of producing more than the 1.25 MW used in the 

model; up to 2.5 MW is possible, resulting in economies of scale for the project. If a mill is new 

or highly efficient, it may produce less than 1.25 MW, making the project less feasible.

This project meets several of Green Prosperity’s target goals by increasing income through 

modest FFB price premiums to smallholders, lower monthly energy costs for villagers, lowcarbon project development, and renewable electricity generation in a rural area.
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Table of Contents

Preface ....................................................................................................................................................... vii

Executive Summary................................................................................................................................... ix

Project Overview.................................................................................................................................... x

Technical Assessment ........................................................................................................................... xi

Economic Assessment........................................................................................................................... ix

Environmental and Spatial Land Use Assessment ..............................................................................xiii

Social Assessment ............................................................................................................................... xiii

Project Risks........................................................................................................................................ xiv

Conclusions......................................................................................................................................... xiv

1 Project Overview................................................................................................................................... 1

1.1 Project Location and Natural Features.......................................................................................... 1

1.2 Current Population and Economic Activities................................................................................ 1

1.3 Project Description and Rationale................................................................................................. 2

1.4 Project Logic ................................................................................................................................. 3

1.5 Offtake or Market Plan.................................................................................................................. 6

1.6 Business Case and Financial Structure.......................................................................................... 6

1.7 Project Team ................................................................................................................................. 7

1.8 Project Site .................................................................................................................................... 8

1.9 Permits and Licenses..................................................................................................................... 9

1.10 Project Implementation Plan ......................................................................................................... 9

2 Technical Assessment....................................................................................................................... 11

2.1 Technical Approach .................................................................................................................... 11

2.2 Resource Assessment .................................................................................................................. 18

2.3 Current Baseline.......................................................................................................................... 25

2.4 Technical Feasibility ................................................................................................................... 25

2.5 Operational Feasibility ................................................................................................................ 25

2.6 Technical Risk Assessment......................................................................................................... 26

3 Economic Assessment ...................................................................................................................... 28

3.1 Overview of Results.................................................................................................................... 28

3.2 Assumptions................................................................................................................................ 29

3.3 Project Benefit Streams............................................................................................................... 31

3.4 Results......................................................................................................................................... 36

3.5 Economic Risk Assessment ........................................................................................................ 46

4 Environmental and Spatial Land Use Assessment......................................................................... 48

4.1 Environmental Impact Assessment ............................................................................................. 48

4.2 Compliance with Legal Requirements and Performance Standards ........................................... 49

4.3 Greenhouse Gas Calculations...................................................................................................... 51

4.4 Spatial Land Use Planning .......................................................................................................... 56

5 Social Assessment............................................................................................................................. 58

5.1 Community Impacts.................................................................................................................... 58

5.2 Community Participation Plan .................................................................................................... 62

5.3 Impact on Local Labor, Goods, and Services ............................................................................. 62

5.4 Social Risks................................................................................................................................. 63

6 Conclusions ........................................................................................................................................ 68

Appendix A: PLN PPA Chart.................................................................................................................... 69

Appendix B: Details of Economic Calculations and Modeling............................................................. 71

Appendix C: Other Supporting Documentation..................................................................................... 73

Appendix D: Geospatial Mapping............................................................................................................ 74

References................................................................................................................................................. 75
xvii

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List of Figures

Figure 1. Muaro Jambi land type map .......................................................................................................... 1

Figure 2. Methane capture project logic ....................................................................................................... 5

Figure 3. Project schematic......................................................................................................................... 11

Figure 4. EPA AgSTAR anaerobic digestion uses diagram ....................................................................... 12

Figure 5. Anaerobic digestion process........................................................................................................ 13

Figure 6. Example of covered pond methane capture................................................................................. 13

Figure 7. Anaerobic pond at a palm oil mill ............................................................................................... 14

Figure 8. Complete mix AD schematic....................................................................................................... 15

Figure 9. Photo of biogas genset................................................................................................................. 18

Figure 10. Indonesia palm oil statistics....................................................................................................... 19

Figure 11. IPP cash flows ........................................................................................................................... 32

Figure 12. IPP IRR relative to interest rate and leverage ratio (with 10% lease payment)......................... 34

Figure 13. IPP IRR relative to interest rate and leverage ratio (with no lease payment)............................ 35

Figure 14. Lifetime net project benefits...................................................................................................... 37

Figure 15. Sensitivity of NPV to time horizon ........................................................................................... 38

Figure 16. Beneficiary analysis (percent of project NPV).......................................................................... 39

Figure 17. Beneficiary net benefit streams ................................................................................................. 40

Figure 18. PLN benefit streams .................................................................................................................. 40

Figure 19. Sensitivity analysis results for NPV and ERR........................................................................... 42

Figure 20. ERR sensitivity to PLN generation cost.................................................................................... 43

Figure 21. Sensitivity of project ERR to generating system capacity factor .............................................. 44

Figure 22. Sensitivity of operator IRR to a hypothetical FiT escalation rate.............................................. 44

Figure 23. Sensitivity of project ERR to capital cost per Watt................................................................... 45

Figure 24. Sensitivity of project ERR to generating system capacity......................................................... 45

Figure 25. Sensitivity of project ERR to nominal PLN generation cost growth rate.................................. 46

Figure 26. Muaro Jambi land use................................................................................................................ 57
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List of Tables

Table P-1. The Eight Model Green Prosperity Projects.............................................................................viii

Table ES-1. Economic results..................................................................................................................... xii

Table 1. Estimated Timeline to Develop a Biogas Project at a Palm Oil Mill............................................ 10

Table 2. Anaerobic Digestion Operating Parameters.................................................................................. 16

Table 3. Digestate Characteristics............................................................................................................... 17

Table 4. FFB Material Balance................................................................................................................... 20

Table 5. Energy Content of Oil Palm By-Products..................................................................................... 20

Table 6. Oil Palm Land Area Ownership.................................................................................................... 21

Table 7. POME Characteristics................................................................................................................... 23

Table 8. Project Parameters ........................................................................................................................ 24

Table 9. Economic Results ......................................................................................................................... 36

Table 10. Reference Case Assumptions...................................................................................................... 37

Table 11. Distribution of Net Benefits........................................................................................................ 39

Table 12. Sensitivity analysis parameters................................................................................................... 41

Table 13. IFC Performance Standards........................................................................................................ 50

Table 14. GOI Laws & Regulations............................................................................................................ 50

Table 15. Parameters for Estimating GHG Emissions from Baseline POME Treatment (uncovered 

lagoon) ................................................................................................................................... 53

Table 16. Parameters for Estimating GHG Emissions from POME Biogas Recovery............................... 54

Table 17. Assumptions Underlying Calculations of Baseline GHG Emissions from Grid-Tied Electricity 

Generation.............................................................................................................................. 55

Table 18. GHG Emissions and Potential Reduction from POME Biogas Capture and Use in Mauro Jambi55

Table 19. Muaro Jambi Land Use Area ...................................................................................................... 57

Table 20. Bukit Baling Demographics........................................................................................................ 58

Table 21. Bukit Baling Land Inheritance System....................................................................................... 59

Table 22. Bukit Baling Agriculture Division of Labor............................................................................... 60

Table 23. Bukit Baling Access to Resources.............................................................................................. 61
1

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1 Project Overview

1.1 Project Location and Natural Features

The project area is located by the northern boundary of Muaro Jambi approximately 40 

kilometers (km) from Jambi City. The PT. Bukit Barisan Indah Prima (BBIP) mill is located at 

kilometer 46 on Jl. Lintas Timur in Bukit Baling village, Sekernan subdistrict, Muaro Jambi. The 

area is characterized by concentrated agricultural production of oil palm and rubber. There are 

many small settlements within the village boundaries, and the majority of the population is

smallholders. The Batanghari River is to the south of the palm oil mill, and water used at the mill 

comes from a creek nearby. There are many paved roads in the area; however, the roads leading 

to the mill and within the plantation are unpaved. Figure 1 shows the area is agricultural with no 

natural or timber forests nearby.

Figure 1. Muaro Jambi land type map

1.2 Current Population and Economic Activities

Bukit Baling has a population of 6,800 people living in 1,900 households across four subvillages 

and many settlements. In an interview in February 2013, the Village Chief, Mr. Saeroni,

estimates that 50% to 70% of the population works in either palm or rubber, and the remainder 

works in other agricultural activities. He stated that they are trying to introduce cow husbandry 

into oil palm land to diversify income. There are plantations of 100–150 hectares in the area, but 

the owners tend to live in Medan or Jakarta. The local government sets the wage for day laborers 

in the village at IDR 1.3 million/month for 25 days of work. The rate is the same for men and 

women. BBIP mill stated that the average revenues for an oil palm smallholders are IDR 300 

million/year, on which they pay no or minimal taxes. 

Mr. Saeroni stated that approximately 3,000 people are not connected to the grid as well as 

several schools (see Appendix D). There are three palm oil mills located in the village and if all 

BBIP Mill
2

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of them captured methane and generated electricity, they could displace diesel generators. PLN 

is also interested in replacing a Pusat Listrik Tenaga Diesel plant nearby in Tajung Jabung 

Timur. 

There are four settlements surrounding the mill that use diesel generators. The Bukit Baling 

settlements closest to the BBIP mill include Awin Jaya (Sekernan), Bukit Aempurung, Simpang 

Kiri, and Jungai Toman. Additionally, Bukit Baling is nearby with both diesel based and PLN 

power depending on the location. PLN plans to bring transmission lines to the latter three, but the 

timeline is unknown. A typical household uses electricity for refrigeration, cooking rice, running 

fans, watching television, charging phones, and lighting. The Muaro Jambi district government

office of energy stated that a 900-Watt (W) connection to the grid costs households IDR

75,000/month, whereas households relying on diesel generators pay an average of IDR 

400,000/month. There is a one-time fee of IDR 970,000 to connect a household to PLN 

transmission lines. Households, both on- and off-grid, use liquefied petroleum gas for cooking 

purposes at a cost of IDR 20,000 for 3 kilograms. 

The village chief stated that land values increase when a property is connected to the grid, which

is important to villagers. He also said that many small businesses—such as beauty salons, 

mechanic shops, and restaurants—would open as a result of grid connection. Bukit Baling has 

not yet succeeded in attracting potential large new businesses that have been interested in the 

area, including a rubber plant and large-scale chicken farms, due to a lack of grid-connected

power. 

The BBIP mill employs 105 staff, all of which live onsite. Of these staff, 11 are women who 

manage and run the laboratory and work in the front office.

1.3 Project Description and Rationale

This report evaluates the feasibility of generating electricity from wastes at an existing palm oil 

mill. According to the United States Agency for International Development (USAID), there are 

686 licensed palm oil mills in Indonesia, each of which emits biogas, a mix of methane and 

carbon dioxide (CO2), both potent greenhouse gases (GHGs) and other trace gases including 

hydrogen sulfide which must be removed prior to electricity generation.

5,6 POME is moved 

through a series of open-air ponds to reduce its organic content prior to being applied to land or 

water. The emissions coming off these open ponds are significant, and there are strong odors in 

this area of the mill. The biogas can be captured by covering an existing POME pond with a 

flexible membrane cover. Then the biogas is cleaned up to remove impurities and combusted to 

create renewable electricity. Converting POME into electricity reduces odor and results in less 

solids and liquids (digestate) than the current POME process because covering the pond 

accelerates the conversion of solids and liquids into biogas resulting in less digestate. The 

stabilized remaining liquids and solids after biogas capture result in fewer risks to land and water 

contamination than the current process. 

 5 Methane is more efficient at trapping radiation than carbon dioxide. Pound for pound, the comparative impact of CH4 on 

climate change is over 20 times greater than CO2 over a 100-year period.

(http://epa.gov/climatechange/ghgemissions/gases/ch4.html) 6 Personal communication from Bill Meade Chief of Party for the USAID Indonesia Clean Energy Development 

(ICED) project on 6/21/2013.
3

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This study is based on BBIP’s mill in Bukit Baling but uses published statistics for electricity 

generation estimates rather than confidential mill data. A previous assessment by Winrock 

International under USAID’s Capacity for Indonesian Reduction of Carbon in Land Use and 

Energy (CIRCLE) program established that BBIP mill met a long list of sustainability criteria, 

which is why this mill was selected for this study. 

Since representatives of NREL visited in February 2013, the mill has entered into a special 

purpose vehicle with an IPP for development of electricity generation from POME. BBIP intends 

to use additional revenue from electricity sales to pay a premium to smallholders because the 

majority of FFB at their two Muaro Jambi mills are sourced from smallholders. This would 

increase the incomes of area smallholders who sell to the plant. These farmers are not expected 

to enter into a formal agreement with the plant because they have expressed the desire to remain

independent, allowing them the flexibility to sell to whichever mill they prefer. However, a price 

premium at a nearby mill would certainly be considered. 

BBIP and other mills evaluated under the CIRCLE program have only expressed interest in gridconnected projects as opposed to providing electricity to others through an isolated grid. The mill 

is focused on crude palm oil production, and there may be times when a mill needs to stop 

operations to replace machinery or for other routine maintenance. Mills prefer the redundancy of 

the grid and do not want to be the sole suppliers of electricity generation in an area. It was 

suggested during various meetings in Jambi that palm oil mills do not have the legal authority to

accept payments from area villages for power if they were to set up an isolated grid. However, 

the establishment of a license to deliver electricity for public use states that an IPP may sell to 

PLN or use electricity onsite. An IPP in areas not served by PLN can sell to the regional 

government, to local government if the government is licensed for electricity sales, or to end 

users at government feed-in tariff (FiT) rates where the IPP builds transmission and distribution 

lines. BBIP’s mill is in an area where PLN is expanding and plans to grid-connect villages 

nearby. Government regulation states that PLN has first-right-of-refusal for IPPs operating in 

PLN territory. Therefore, BBIP may only use the electricity at the mill or sell it to PLN.

An alternative option for this project—evaluated by numerous past studies—is where a mill uses 

the captured biogas in its existing biomass boilers to power the mill and then sell off the shells 

that are currently used to generated process steam and electricity. While this may financially 

benefit the mill, it does not meet the goals of Green Prosperity because it would do little to

nothing to increase incomes of area villagers.

Communities, on average, pay approximately five times more for diesel-generator-based power 

than grid electricity. Grid connection also increases the value of land along a paved road. Muaro 

Jambi’s grid power is almost entirely supplied by natural gas with a new 104-megawatts (MW)

plant under construction.

1.4 Project Logic

In an international development context, a project logic visually displays an impact analysis. It is 

designed to link project interventions with intermediate outputs, longer-term outcomes and 

overall project goals. In this project logic, we examine the impacts the project will have on Green 

Prosperity goals of poverty and GHG emission reduction through rural electrification of 

households and avoided POME emissions. At the prefeasibility stage of project assessment, the 
4

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project logic is less detailed than a fully-developed project logic. As the project is developed 

further and becomes more defined, additional information that characterizes individual 

relationships in a quantitative and qualitative way can be added and serve as a guide for 

monitoring and evaluation activities. Where assumptions and risks deserve mention or require 

explanation, notes have been added as clarification (see list below). The project logic for this 

project is shown in Figure 2.

1. Assumption: Generating system built according to design plans and is able to secure all 

relevant approvals and permits to operate

2. Risk: Project performance and return depends on the generating system IPP’s ability to 

negotiate an offtake agreement with PLN

3. Assumption/Risk: Mill is paid site lease and transfers this payment through to 

smallholders in the form of price premiums

4. Assumption: PLN displaces costly and carbon intensive generating assets

5. Assumption: Incremental electricity supply enables increased consumption which 

increases consumer surplus

6. Assumption: As a result of additional power supply, consumers no longer consume 

diesel power

7. Assumption: There is sufficient new power supply to avoid kerosene lighting and enable 

new household activities at night, including additional studying for children

8. Assumption: Improved lighting in the home facilitates additional studying after dark for 

students

9. Assumption: Improved access to cheaper electricity will facilitate economic activity for 

households and small businesses (needs further research)
5

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Figure 2. Methane capture project logic
6

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1.5 Offtake or Market Plan

Depending on the business structure, either the mill or an IPP would enter into a PPA with PLN. 

Indonesia’s Ministry of Energy and Mineral Resources (MEMR) allows an IPP to enter directly 

into a PPA with PLN through a defined process under Regulation No. 14/2012. Power purchase 

prices are determined on FiTs based on location and type of energy generation as defined in

MEMR Regulation No. 4/2012. It is possible to negotiate a higher price at the start of the project 

to levelize costs; however, overall payments cannot exceed the FiT rates over the life of the 

project. The process involves multiple reviews and due diligence by a PLN Unit, Central PLN, 

and MEMR with the maximum time to obtain a PPA set at 240 days. The PPA would establish 

payment and period of performance between 15 and 30 years. A USAID diagram on the PPA

process for plants under 10 MW is available in Appendix A.

The PPA would include an agreement to construct a power plant at a specific capacity and to 

maintain availability of the power. There is no penalty if these specific requirements are not met. 

A PPA would be established prior to financing the power plant. PLN will not sign a PPA until 

10% of projects costs are in a bank account and a letter is received stating capability to provide 

equity; a project has 1 year to obtain financing after the PPA is signed. The project must obtain 

all permits and licenses within 1 year after establishing the PPA. A PPA requires that 

construction of the plant be completed within 2 years of obtaining financing. The project must 

have an insurer approved by PLN to cover equipment, construction, as well as construction and 

operational staff.

PLN’s responsibilities under a PPA include reliability of the grid network and purchase of the 

electricity generated at the palm oil mill. The transaction point is where the project ties into the 

grid, at approximately 5 km. A meter would be installed to measure electricity delivered.

1.6 Business Case and Financial Structure

Biomass energy projects generally experience greater financial stability when the feedstock is 

generated onsite. There is a long history of lumber mills successfully using wood wastes in 

biomass boilers to provide energy for processing. With POME generated at the mill, the supply 

of feedstock will be available throughout the year. The electricity generation potential of a 

specific palm oil mill will be determined based on POME samples taken at the specific mill. It is 

imperative to select contractors and equipment with experience on biogas collection and 

electricity generation at palm oil mills. Some manufacturers specifically design equipment 

capable of operating with biogas, which has lower energy content than natural gas. Project risk is 

reduced when using experienced contractors and equipment for a specific project type.

There are several potential business arrangements for POME-based electricity:

1. The mill could issue a request for proposal (RFP) for a design/build firm to construct the 

electricity project and take ownership of the project after construction.

2. The mill could enter into a special purpose vehicle with an IPP who will develop, own, 

and operate the methane capture and electricity generation. This includes the potential for 

the IPP to transfer/sell ownership to the plant after 10–15 years.
7

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3. A combination of the first two options is possible. The mill could enter into a special 

purpose vehicle with an IPP where each party owns and operates portions of the project 

and generates income from different revenue streams:

• The mill would own the electricity genset and generate income from the sale of 

electricity.

• The IPP would build and operate the biogas-capture portion of the project and 

derive income through a clean development mechanism by offsetting emissions

and selling Certified Emission Reduction (CER) credits on voluntary exchanges.

7

4. Bundled projects where an IPP combines several projects together or a joint venture with 

companies owning several palm oil mills.

The BBIP mill has entered into a special purpose vehicle with an IPP to develop, own, and 

operate the entire electricity generation project. The IPP, typically a for-profit company, will 

share profits of electricity sales with the mill. NREL met with a private third-party engaged in 

this business who stated that the profit-sharing arrangement between an IPP and mill varies with 

each project. The special purpose vehicle will guarantee supply of POME (volume for a specific 

period of performance), allow the third-party to lease land at the mill (there may be no cost), and 

establish profit sharing. 

BBIP intends to use its share of profits from electricity sales to pay a premium to smallholders to 

ensure supply of FFB to its Muaro Jambi mills. BBIP obtains well over half of its FFBs from 

smallholders and wants to encourage smallholders to sell to their mills with the price premium. 

Carbon credits sold to voluntary markets are a potential additional revenue stream. They were 

not included in the financial analysis because the price is currently too low to warrant costs to 

establish compliance. USAID’s Indonesia Renewable Energy Toolkit suggests it takes 3–5 years 

from the start of a biomass energy project until commissioning. Electricity generation is expected 

to last at least 20 years, which is achievable with periodic maintenance of both the palm oil mill

and electricity genset.

1.7 Project Team

At least 80 palm oil mills have had a pre-feasibility study on POME electricity generation and 

therefore have some familiarity with this project type. It is anticipated that most mills would 

require technical assistance to develop a project through an RFP and selection of a contractor 

and/or IPP owner operator. A palm oil mill would need to decide if it wants an IPP to own and 

operate the electricity generation or if it wants a company to build the system and transfer 

ownership to the mill. 

For technical assistance, the palm oil mill should select an entity, such as a consulting firm with 

strong experience in biogas projects, particularly a business that has brought biogas projects to 

completion. Experience in other renewable energy technologies is not considered sufficient due 

to the complex nature of bioenergy projects. The mill should work with the technical assistance 

provider to develop a clear statement of work and assign tasks and staff as well as a timetable. 

This will help minimize time requirements of mill staff. It is important that the selected business 

 7 CERs are currently too low to overcome establishment and transaction costs.
8

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have sufficient staff with relevant experience and time available to complete the project. 

Indonesian businesses or those with long-term established offices in Indonesia are more likely to 

have deeper knowledge of environmental and social issues.

If a mill decides to engage an IPP as BBIP mill has, there are a limited number of corporations 

offering this service. The mill should select an IPP with operational biogas plants, and mill staff

members should visit at least one of their existing sites. The IPP will likely have suppliers that it 

uses for the flexible membrane cover, genset, and contractors to build the system. The mill 

should evaluate the financial health of the IPP as well as its timeline and other projects under 

development to ensure that staff is capable of delivering the project on time. The staff will likely 

include a main office with engineers, financial analysts, and project managers. The IPP will 

employ and train local staff to operate the electricity generation plant.

If the palm oil mill decides to own and operate the plant, it would issue an RFP for a construction 

contract. The proposals should include all costs for equipment and building the project. The mill 

should focus on proposals from qualified contractors that have previous experience building 

operational biogas plants. It is anticipated that there are few businesses with this type of 

experience. If the project is financed with a bank, there would likely be requirements for the 

selection of an experienced contractor and quarterly reviews of construction progress. The mill 

should evaluate the proposer’s past projects and its ability to build projects on time and on 

budget. A mill should carefully consider generation engines and only consider those 

commercially used with biogas and warrantied for its use. Some engines may cost more initially 

but last longer and require less maintenance.

It is typical to engage a lawyer to ensure all codes and regulations are being followed. Most mill 

companies would have a lawyer; however, they might consider engaging a lawyer with specific 

experience in palm oil mill methane capture projects.

The team should also include an organization to train smallholders in sustainable oil palm 

production which can improve yield and increase income. BBIP owns two mills in Muaro Jambi, 

and the BBIP and BSS mills currently obtain 50% and 80% respectively of their FFB from 

smallholders. Smallholder training on optimal harvesting techniques would be a helpful 

complement to the energy generation component of this project. 

1.8 Project Site

The area is an industrial mill site located on a large site with excess land. BBIP’s small palm 

plantation is adjacent to the mill. The facility is surrounded by a fence, and a security team 

controls access to the mill. Nearly all steam and power for the palm oil mill and employees living 

onsite is generated by biomass boilers from shells and fiber left over from the production of 

crude palm oil (CPO) and crude palm kernel oil (CPKO). Since the mill does not operate on 

Sundays, a diesel generator is used to supply electricity to the palm oil mill office and employee 

housing. 

The road leading up to the mill is not paved and passes through smallholder lands and the millowned plantation. It is a short distance to a paved road, which links the mill with Jambi city. The 

mill obtains process water from a nearby creek. The POME is currently treated through a series 
9

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of large ponds (also known as lagoons), including two each of cooling ponds, anaerobic ponds, 

and aerobic ponds. The ponds take up considerably more space than the CPO processing area. 

It is anticipated that the electricity genset will be installed in the palm oil mill’s existing engine 

rooms adjacent to existing biomass boilers. At mills where there is not space in the engine room, 

a small building would be built nearby to house the genset.

PLN’s nearest grid line is approximately 5 km away across the palm oil mill’s plantation. The 

grid is 20 km away if traveling out of the mill and onto paved roads. The grid line looks like it 

was recently built and is a 20-kilovolt (kV) line.8 The plantation road may require a bit of 

upgrading prior to adding utility poles and transmission lines.

1.9 Permits and Licenses

Permits and licenses needed to install electricity generation equipment at an existing palm oil 

mill are expected to be less of a barrier than for stand-alone renewable energy generation plants. 

The palm oil mill would already have an existing license from the Indonesia Ministry of 

Agriculture. The water needed for the electricity generation process is minimal, and the mill or 

IPP should determine whether or not there are any issues with water permits. No additional land 

would be needed for this project because it would involve using an existing pond and installing 

equipment in the mill’s engine room. However, at other mills, it may be necessary to build a 

small enclosure on mill land to house the equipment. This project would not be subject to any 

forestry regulations because it is entirely within an agricultural area. 

An environment review will be required per Upaya Pengelolaan Lingkungan / Upaya 

Pemantauan Lingkungan, UKL/UPL under Law No. 23/1997, Government Regulation No. 

27/212, and Ministry of Environment Decrees No. 40/200, No. 17/2001, and No. 86/2002. The 

project must apply to MEMR for an electricity supply business permit, which is required for 

electricity generation for public use. It is possible the regional government would require permits 

or licenses. 

1.10 Project Implementation Plan

Pre-construction activities would include development of process design, electrical and civil 

engineering plans, financing, and establishing a PPA with PLN. The first stage of the 

construction process will likely involve upgrading the existing anaerobic pond to prepare for 

attachment of the flexible membrane cover. It may be necessary to construct a small room to 

house the scrubber and genset if the palm oil mill does not have space in its existing engine 

room. Major equipment required for the project includes: 

• Flexible membrane cover (for existing anaerobic pond)

• Scrubber (to remove hydrogen sulfide and other impurities in biogas)

• Chiller (to remove water/moisture from biogas)

• Flare (to release any excess biogas)

 8 Winrock International and NREL staff observed the transmission line nearest the mill. The poles appeared new 

with no weathering. 
10

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• Genset (engines and associated equipment to generate electricity)

• System control equipment (to monitor all process parameters)

• Clean Development Mechanism (CDM) instrumentation (if selling carbon credits)

• Transmission lines (to connect to grid)

• Miscellaneous equipment including pipes, pumps, electrical wiring

There are a multitude of tasks from an initial assessment of an IPP until it is in operation. USAID 

suggests it can take 3–5 years from the start of a project until commercial operations begin. A 

project may include a pre-feasibility study or some type of initial assessment. If it is decided to 

proceed with a project, it is usually necessary to conduct a full feasibility study to determine the 

likely success of a project and to meet requirements for permits and licenses. Palm oil mill

owners and operators are not typically familiar with biogas and electricity generation. If they 

intend to own the genset, they would engage a technical assistance consultant to bring them to a 

point of requesting bids for construction. Otherwise they will enter into a special purpose vehicle

with an IPP to develop and own the project. The timeline for selecting a technical assistance 

company or third party can take a few months or more than a year based on conversations with 

companies providing these services in Indonesia. Some activities, such as the PPA and 

funding/financing, may occur simultaneously. Construction timelines will vary widely depending 

on upgrades needed to the existing anaerobic pond and if any new buildings are necessary. After 

construction, there is a minimal amount of time for startup, testing, and commissioning prior to 

selling electricity to PLN.

Table 1. Estimated Timeline to Develop a Biogas Project at a Palm Oil Mill

Activity Estimated Timeline

Pre-Feasibility Study 6 months

Full Feasibility Study and Engineering Design 6 months to 1 year

Selection of Technical Assistance to Develop 

a RFP or Selection of a Third Party 3 months to 1 year

PPA with PLN 7–8 months

Funding and Financing Indeterminate (must be done within 1 year of PPA)

Construction 9 months to 1.5 years (must be done within 2 years 

of PPA)

Testing and Commissioning 1 month

Commercial Operation Date 3–5 years from start of project

Source: NREL meetings with Indonesian biogas technical assistance providers and “Renewable Energy Toolkit.” 

Second Edition. USAID ICED Project. November 27, 2012.
11

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2 Technical Assessment

2.1 Technical Approach

This study reviews the process of generating electricity from POME-wastewater generated by the 

production of CPO. The project will attach a flexible membrane cover over an existing anaerobic 

pond to collect biogas (a combination of methane, carbon dioxide and trace amounts of other 

gasses including hydrogen sulfide). The biogas will be cleaned up to remove impurities for use in 

a reciprocating gas engine to produce electricity to supply PLN’s grid (Figure 3).

Figure 3. Project schematic

Source: Illustration by Kristi Moriarty, NREL

Methane is a potent GHG that traps radiation at a greater rate than CO2. Indonesia is the seventh

largest emitter of methane in the world, with 85 million tons of CO2e emitted in 2010

[2]. Indonesia is a member of The Global Methane Initiative, a voluntary partnership led by the 

U.S. Environmental Protection Agency (EPA) to reduce global methane emissions. While rice is 

the largest source of methane emissions in Indonesia, POME is also a major source [2].

Methane capture for electricity generation is a result of a controlled biological process called 

anaerobic digestion (AD). AD is the natural biological degradation of organic matter without 

oxygen resulting in biogas. Biogas from POME ranges from 56%–64% methane and 35%–41% 

CO2 and other trace gasses including hydrogen sulfide [3]. Biogas is capable of operating in 

nearly all devices intended for natural gas with minimal adjustments to account for lower energy

content. In western nations, AD is a mature technology with 30 years of experience in 

wastewater treatment plants. It is also used as a method for livestock manure treatment. The 

benefits of AD combined with capturing the biogas include revenue from a waste by-product, 

renewable energy generation, GHG emission reductions, and reduced water pollution. 

There are several potential usage options for biogas (Figure 4). Common applications include 

heat, power, or combined heat and power. In some instances, biogas is upgraded and compressed 

for use as a transportation fuel in medium and heavy-duty vehicles. Biogas is typically used to 

power a microturbine or reciprocating engine. Combustion and steam turbines are only used in 

Cooling 

Pond #1

Cooling 

Pond #2 

Anaerobic 

Pond- Add 

Cover

Capture 

Methane

Gas Clean Up and 

Engine Room

POME 

from Mill

Aerobic 

Pond #1

Land Application

Aerobic 

Pond #2

Biogas

Electricity Sales

To PLN
12

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

very large multi-MW systems. A small portion of generated biogas is required to provide energy 

to the AD process and machinery associated with generating electricity.

Figure 4. EPA AgSTAR anaerobic digestion uses diagram

Source: Illustration from EPA AgSTAR Program

2.1.1 Technical Information

The AD degradation and conversion process occurs in four stages with different classes of 

bacteria responsible for each step. Figure 5 illustrates the bacterial process where the first two 

stages are facultative (operational with and without oxygen) and the latter two are strictly 

anaerobic. It is essential to operate within defined parameters to optimize biogas production. 
13 

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. 

Figure 5. Anaerobic digestion process 

Source: Illustration by Kristi Moriarty, NREL 

AD technologies are optimized for either low solids or high solids content and an operational 

temperature range. Indonesia’s warm climate, combined with existing anaerobic ponds at palm 

oil mills, provides an opportunity for a low-cost technology option of covering the pond with a 

flexible membrane cover to capture biogas. The flare allows combusted biogas to be released to 

the atmosphere if the genset is down for maintenance or if biogas production exceeds capacity of 

the genset. It is expected that the generation equipment will be co-located with the palm oil 

mill’s existing biomass boilers if space permits; otherwise, it would be housed nearby in a small, 

dedicated building. 

Figure 6. Example of covered pond methane capture 

Source: “Managing Manure with Biogas Recovery System.” EPA AgStar Program. Winter 2002. 

 HYDROLYSIS ACIDOGENESIS ACETOGENESIS METHANOGENESIS 

Carbohydrates

Fats

Proteins Amino Acids

Sugars

Fatty Acids

Carbon Acids

Alcohols

Hydrogen

Carbon Dioxide

Ammonia

Acetic Acid

Carbon Dioxide

Hydrogen

BIOGAS 

(methane,

carbon dioxide)
14

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Figure 7. Anaerobic pond at a palm oil mill 

Source: Photo by Kristi Moriarty, NREL

Another option deployed at some palm oil mills are complete-mix digesters consisting of a large 

above-ground steel or concrete reactor. They are a very common type of AD system often used 

in waste-water treatment facilities in western nations (Figure 8). Waste is mechanically mixed,

keeping microbes and volatile solids in suspension and providing good contact and efficient 

biogas production. Complete mix AD systems are far more costly to build but generally result in 

more biogas and therefore more electricity generation. A private owner/operator of biogas plants 

at palm oil mills in Indonesia stated that concrete reactors are rarely used due to rural location of 

mills and believes it is more difficult to operate this type of system remotely.
15

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Figure 8. Complete mix AD schematic

Source: Illustration from EPA AgSTAR [4]

2.1.2 Digester Parameters

Temperature is essential to maintaining a steady state for continuous biogas production. 

Temperatures must be maintained in order for microbes to operate and convert the POME into 

biogas. The covered pond AD system will operate in the mesophilic temperature range between 

35°C and 41°C. Temperature must be constantly monitored as a temperature reading outside the

operational range will reduce or stop biogas and electricity production. A temperature falling 

outside the acceptable range will indicate that the IPP or mill needs to conduct immediate 

maintenance to determine and fix the problem.

Residence time is the length of time for complete degradation of POME in the AD system. It is a 

function of POME characteristics, temperature, process system, and pond size. Residence time 

for a membrane-covered pond ranges from 15–30 days. Engineering design will determine the 

optimal residence time based on POME sampling and volume of the anaerobic pond. 

Organic loading rate (OLR) is the rate at which volatile solids are added to an AD system. It is 

calculated by dividing pounds of volatile solids added to the anaerobic pond daily by the pond 

volume. It is essential to standardize the OLR of volatile solids (approximately 84% of total 

solids, an average of 31,170 milligrams per liter [mg/L]) into a digester to optimize methane 

production and minimize risk of a system shutdown. This is the most important parameter to 

control because it most often leads to AD system failure. Overloading the anaerobic pond with 

POME will send the AD system into shock and lead to reduced or discontinued biogas

production. The flow rate of POME from the cooling pond into the anaerobic pond would be 

regulated by a control system. 

Retention time refers to the average time microbes are in the digester. Methanogens grow slower 

than other bacteria in an AD system. Operating parameters must be changed slowly to maintain 

methanogen populations and continue biogas production. Overloading volatile solids may result 

in high levels of ammonia, which are toxic to methanogens.
16

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Table 2. Anaerobic Digestion Operating Parameters

Parameter Range Information

Temperature 35–41°Celsius The higher end of the range is ideal for maximum 

biogas production

pH 6.5–7.5 pH

Ideal pH is natural at 7.0. Self-regulating by 

anaerobic microbes; methanogens unlikely to grow 

with a pH less than 6.5

Alkalinity 1,092 mg/L Alkalinity is self-regulating by hydrogen in waste 

converting to bicarbonate

Acidity to Alkalinity Ratio 0.3 to 0.5 This ratio is easier to measure than volatile fatty 

acids or alkalinity

Volatile Fatty Acids <106.81mg/L Higher concentrations will inhibit acetate and biogas 

production

Carbon to Nitrogen Ratio 20 to 30

Higher carbon to nitrogen ratios result in 

methanogens consuming nitrogen, which lowers

biogas production

Organic Loading Rate 3–5 kg of volatile solids/m3 of 

digester volume per day

Microbes are generally inhibited if loading rate

exceeds 6.4 kg/m3 day

Residence Time 9–95 days Varies widely based on feedstock, temperature, and 

system design

Source: Loughborough University Biomass Course [5] and EPA Region 2 NorthEast Biogas Presentation [6]

2.1.3 AD Process Co-Products

The AD process reduces biological oxygen demand (BOD) and chemical oxygen demand (COD) 

by 90%.9 This will help a palm oil mill to meet government regulations to apply the liquids and 

solids remaining after biogas capture to the land or water. The AD process produces a by-product 

commonly referred to as digestate. Digestate consists of biosolids (30%) and liquids (70%) and 

is usually applied to agricultural lands as a low-grade fertilizer [7]. The digestate will enter the 

palm oil mill’s existing aerobic ponds for further processing before it is applied to land as a soil

conditioner or released water. Typical properties of digestate are shown in Table 3. 

 9 BOD refers to how quickly a substance uses up oxygen in a body of water. COD is a measure of organic 

compounds in a substance. Both BOD and COD are very high in POME, which is why they must be treated before 

they are land- or water-applied. The AD process significantly reduces oxygen demand of POME, which makes it 

less toxic to apply to land or water after it has been processed.
17

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Table 3. Digestate Characteristics

Parameter Digestate Content

Total Solids 6%

Volatile Solids 69%

pH 7.6–8.8

Carbon to Nitrogen Ratio 1.5:1

Nitrogen 15%

Potassium 4.70%

Phosphorus 0.70%

Calcium 0.34%

Sulfur 0.30%

Magnesium 0.19%

Source: “New Markets for Digestate from Anaerobic Digestion.” WRAP. ISS001-001. August 2011. 

2.1.4 Processing Biogas and Generating Electricity

Before biogas can be used to generate electricity, moisture and hydrogen sulfide (H2S) must be 

removed. These contaminants are corrosive to equipment, and electricity generation engines

operate within defined parameters that require cleanup of biogas. H2S is removed by either 

precipitation, adsorption of activated carbon, biological treatment, or chemical absorption. If 

sulfur content is high, iron may be added to the anaerobic pond to remove sulfur with the 

digestate. Moisture can be removed by several methods including cooling, pressure, absorption, 

and adsorption. If water and H2S are not properly removed, they combine to form sulfuric acid,

which is highly corrosive. The biogas then enters a reciprocating gas engine where it burns in the 

engine cylinders and drives a crank shaft that propels an alternator resulting in electricity. Heat 

from combustion is either recovered and used or released through radiators. It is important to 

only use equipment designed for use with biogas since it has less methane than natural gas. 

There are several manufacturers offering products designed to operate with biogas. GE Energy’s 

Jenbacher genset appears to be the leader in Indonesia with 28 engines operating at biogas plants 

with 30 MW of capacity (Figure 9) [8]. Other companies offering biogas gensets include 

Caterpillar, Guascor, MAN, and MWM. All of these companies are known to have experience in 

landfill gas, which is similar to biogas. There are likely other manufacturers offering gensets for 

use with biogas. 
18

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Figure 9. Photo of biogas genset 

Source: Photo provided by GE Energy

2.1.5 Existing Systems and Costs

USAID’s Indonesia Clean Energy Development (ICED) organization reports that there are

currently 686 palm oil mills licensed by the Indonesia Ministry of Agriculture.10 Less than 25 are 

capturing and flaring biogas as a clean development mechanism. These systems are paid for by 

sales of CERs in voluntary markets. Fewer than ten mills are capturing biogas and generating 

electricity. These mills are using the electricity for internal consumption at the palm oil mill. No 

mills are selling electricity to PLN; however, several grid-tied projects are under development. 

ICED reports the cost of a biogas system to be IDR 24,153/W installed [9]. This cost includes 

engineering, construction, equipment, and contingency costs. This is an average cost and project 

bids may be higher or lower based on equipment and contractor selected for the project. The 

most expensive equipment is usually the electricity genset followed by the upgrading of the 

anaerobic pond, and the flexible membrane cover. Other costs are incurred for a scrubber and 

dewater unit to prepare biogas for electricity generation as well as a flare to release biogas during 

maintenance time for the genset. There are also costs for transmission lines as well as electrical 

and civil work. Genset engines typically require an overhaul every 8 years. The IDR 24,153

figure is higher than some information discussed by NREL with technology providers, but this 

allows for a conservative estimate in the economic model. 

2.2 Resource Assessment

2.2.1 Palm Oil Statistics

Palm oil is an important economic driver in Indonesia that provides income opportunities in rural 

areas. Worldwide demand for vegetable oils and fats has grown with the world population. Palm 

oil is the world’s leading vegetable oil in production and trade. According to United States 

 10 Data provided by ICED’s Chief of Party.
19

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Department of Agriculture (USDA) Foreign Agriculture Service (FAS), Indonesia is the leading 

producer with 52% of the world’s palm oil production, and CPO exports are the third largest 

export earner in Indonesia [10]. Indonesia and Malaysia combined production of palm oil

accounted for 86% of the 2012 world total [11]. Most palm oil is used in food products, and a 

small portion is converted to biodiesel, a renewable transportation fuel. Land area planted in 

palm and CPO production has steadily increased, and FAS anticipates more land area in future 

years (Figure 10). Approximately 400,000 new hectares of oil palm plantation land were added 

per year between 1997 and 2006 [12]. This declined to 350,000 new hectares/year for 2007 

through 2010 because less land was available for plantations, although growth will continue in 

areas that were already permitted for oil palm. 

Figure 10. Indonesia palm oil statistics 

Source: USDA FAS Production, Supply, Distribution Database; Winyono, I. Slette, J. “Indonesia Oilseeds and 

Products Annual,” March 28, 2013. Gain Report Number: ID1316. USDA FAS, 3 pp. 

The premium for certified palm oil is nearly non-existent because its sales only represent 15% of 

the market and nearly 50% of certified palm oil in 2012 failed to find a buyer and was sold to 

conventional markets [13]. CPO does not meet the criteria to be used as a biofuel feedstock for 

the United States Renewable Fuel Standard.

Smallholders and large-scale plantations see oil palm as an easy-to-grow, profitable crop. 

Seedlings are planted at a density of 110–150/hectare with 2–3 years before the first harvest [14]. 

Top productivity tends to occur between 9 and 15 years, and an economic lifetime span for an oil 

palm is 20–25 years. The FFB yield ranges from 15 to 30 tons/hectare, and Indonesian CPO

yield averages 2–4 tons/hectare [14]. The FAS is projecting 2013 Indonesia CPO yields of 3.7–

3.8 tons/hectare. Oil palm is approximately 10 times more productive on a land-use basis than 

soybeans. Additionally, oil palm is not a genetically modified organism, which makes it suitable 

for use in natural food products, a growing market in Europe and North America. Table 4 shows 

the average breakout of CPO, POME, and other components for each 100 kilograms (kg) of FFB. 

0

2,000

4,000

6,000

8,000

10,000

12,000

0

5,000

10,000

15,000

20,000

25,000

30,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Thousand Hectares

Thousand Tons

Palm Oil Hectares and Production

Oil, Palm

Planted

Harvested
20

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Table 4. FFB Material Balance11

FFB Material Balance

(kg/100 kg of FFB)

Crude Palm Oil 21

Empty Fruit Bunch 23

Kernel 6

Fiber 13

Shell 7

POME 50

Source: “Preliminary Feasibility Study on the Palm Oil Waste-Fired Power Generation Systems and CDM Project 

for Rural Electrification in Sumatra, Indonesia”. Engineering and Consulting Firms Association, Japan. March 2009; 

Table 2–3. Accessed June 25, 2013: http://www.ecfa.or.jp/japanese/act-pf_jka/H21/ntt-gp.pdf

Palm oil mills typically operate 6 days per week for 20 hours/day and 300 days/year. FFB are 

delivered by trucks with 10 tons capacity, although plasmas tend to deliver on flatbed trucks. 

FFB are continuously processed with shells and fiber burned in biomass boilers to provide 

energy to the mill with an average requirement of 0.42 tons of steam and 17 kilowatt-hours 

(kWh)/ton of CPO [15]. Table 5 shows the energy and moisture contents of fibers and shells 

used to supply energy to a palm oil mill. At most mills, there is an excess of shells beyond what 

is needed for energy, and they are sold for feed and other purposes at a rate of approximately 

IDR 388,000/ton.12 Empty fruit bunches (EFBs) are rarely used to generate energy due to high 

moisture content, low energy value, and high ash content. EFBs are collected in piles and 

returned to oil palm land as a form of fertilizer. The POME is processed through a series of 

ponds and applied to land or water after it is stable. 

Table 5. Energy Content of Oil Palm By-Products

Component Lower Heating Value

(kilojoules/kg) Moisture Content

EFB 5,000 63%

Fiber 11,000 40%

Shells 15,000 15%

Source: Chavananand, K. “Palm Oil Industry Potential for

CDM project in Thailand,” Palm Oil Crushing Association. Bangkok Thailand. February 19, 2010.

As of 2010, Jambi accounted for 494,000 hectares of oil palm and 1.3 million tons of CPO 

production ranking fifth behind other areas of Sumatra and one province in Borneo [16]. There 

are approximately 28 palm oil mills in Muaro Jambi. Of these, six do not own any plantation 

land and purchase all FFB from plasmas and smallholders. This increases competition for FFB in 

the area.

There are three categories of oil palm suppliers: state-owned plantations, private plantations, and 

smallholders. Some smallholders form cooperative agreements known as plasmas with 

plantations and/or palm oil mills. Land area for oil palm has continued to expand, but ownership 

 11 The data in the table exceeds 100 because water is added in the process. 12 Shell price based on NREL site visits.
21

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has changed over the past 10 years. Smallholders have gained market share while private and 

state-owned lands have declined proportionately (Table 6). Some of the growth in smallholder 

contribution is likely due to the arrival of more mills as a result of the government lifting 

regulations requiring mills to own plantation land. A company can own up to 100,000 throughout 

Indonesia but only 20,000 in a single province (those limits are increased to 200,000 and 40,000 

hectares for Papua).13

Table 6. Oil Palm Land Area Ownership

Ownership 2000 2010

Hectaresa % Hectaresa %

Private Enterprise 2,400,000 58% 4,400,000 54%

Smallholder 1,100,000 28% 3,100,000 38%

State 600,000 14% 600,000 8%

a-hectares are approximate based on source graph; % are real.

Source: “Palm Oil Plantation Industry Landscape, Regulatory, and Financial Overview 2012 Update.” PwC 

Indonesia

The key environmental issues for oil palm are deforestation, biodiversity loss, peat degradation, 

climate change, and land conflicts. Of particular concern is the expansion of oil palm into peat 

lands, which results in fires and water issues; this is occurring in Muaro Jambi based on NREL

site visits. It is not clear if improving yield on existing land leads leading to better incomes 

makes it more or less likely for smallholders to expand into peat lands. 

2.2.2 Smallholders

Smallholders typically sell their FFBs to local collectors who tend to deliver to mills nearby due 

to the time-sensitive quality of palm oil. FFB must be used with 24 hours of harvest because

quality deteriorates quickly. The speed with which FFB must be delivered and used may impact 

smallholders’ competitiveness in obtaining the highest price. The condition of the roads where 

smallholders are working may also impact the ability to deliver FFB to the highest paying mill. 

The roads in the area of the BBIP mill and surrounding villages are upgraded and, in many areas,

paved. There are three privately owned mills in the Bukit Baling village. 

Smallholders are either independent or part of a plasma, an organized group of oil palm farmers. 

A plasma is a group of organized small oil palm land owners who collect and sell FFB to a 

specific mill or it is an agreement with a mill where the company plants on smallholder land and 

the smallholder later harvests and supplies FFB to the mill company for a contractual price. This 

arrangement can be problematic since it obligates smallholders to grow oil palm and may prevent 

them from growing other crops on their lands. Many farmers own two hectares as a result of the

GOI Transmigration program that moved poor families from densely populated areas to rural 

areas. Other smallholders have five hectares and tend to grow oil palm and rubber on two 

hectares each while their home and subsistence garden are on the remaining hectare.

There is a significant gap between smallholder yields and those of large private plantations and 

state-owned plantations. In 2008, smallholder yields were 35% and 40% lower than private and 

 13 The Ministry of Agriculture Regulation No. 26/Permentan/OT.140/2/2007 and State Minister of 

Agriculture/National Land Agency, No. 2/1999.
22

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state-owned plantations, respectively [17]. Yayasan Setara, a Jambi-based, non-governmental 

organization working with oil palm smallholders, stated that smallholders typically harvest two 

times per month, which leads to lower yields than plasmas or large plantations that harvest three 

times per month. Oil palms harvested three times per month produce better quality CPO. It is 

possible that low yields are also due to expansion into land with low soil fertility. Other factors 

leading to low yields include lack of adequate labor, limited or inaccurate application of 

fertilizer, and low-quality planting materials. The yield issue must be addressed in order to 

increase smallholder income and reduce expansion into peat lands and other environmentally 

sensitive areas. 

Challenges for smallholders include access to credit for establishing the crop and ongoing costs 

for planting materials and inputs. Oil palm smallholders are not provided with subsidized 

fertilizer. Smallholders of all crop types in Indonesia rarely have a certificate of land ownership 

that could be used to guarantee a loan. While CPO prices have been depressed recently, 

production costs have increased, particularly fertilizer. 

The International Finance Corporation (IFC) of the World Bank Group has developed a Strategy 

for Engagement in the Oil Palm Sector. This effort included a study on Indonesia oil palm 

smallholders seeking to engage private industry, improve benefits of smallholder communities, 

and grow the adoption of sustainable practices. The study involved 641 farmers in Riau, South 

Sumatra, and West Sumatra; of these, 413 farmers were independent smallholders [18]. Findings 

of the study include the following:

• Issues with harvesting, which typically occurs at a rate lower than private- or state-owned 

plantations

• Issues with planting materials, including a lack of knowledge of high-yield seedlings

• Good access to inputs, including fertilizer, but insufficient funds to purchase them

• Approximately 27% of farmers have had training/extension advice

• Many farmers have land certificates

• Few farmers were aware of certification or Roundtable for Sustainable Palm Oil 

• Approximately 47% of farmers do not have bank accounts

• Few farmers have direct contact with mills; they sell to a local collector

o Smallholders selling directly to mills generally receive a 20% price premium

Yayasan Setara is a Roundtable on Sustainable Palm Oil member focused on smallholder 

sustainable oil palm production. It works with smallholders through many types of training and 

tends to work with the same communities over several years. It also mitigates land disputes 

between communities, government, and plantations. Yayasan Setara research projects food 

shortages within 3 years in Jambi as subsistence land area is converted to oil palm or rubber

leaving less land for subsistence farming. Jambi’s population is growing at a rate of 2.5% per 

year with Indonesian moving from other provinces and contributes 1.2% to Indonesia’s gross 

domestic product (29% of this is from agriculture). Smallholders in the area surrounding the 

BBIP mill would benefit from the type of training Yayasan Setara provides. 
23

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2.2.3 POME

The milling process to extract palm oil and palm kernel oil generates a significant amount of 

wastewater. This waste is referred to as POME. Palm oil mills use 5–7.5 tons of water to produce 

1 ton of palm oil [18]. Steps in the milling process resulting in POME include sterilization of 

FFBs (36% of POME), separation of wastewater and crude palm oil (60%), and hydrocyclone 

wastes from separating out palm kernel and shells (4%) [19]. All these wastes are delivered to a 

series of ponds. The first two ponds are cooling ponds to reduce the temperature of the POME to 

begin the stabilization process. These ponds also have oil recovery systems to capture some of 

the palm oil lost in the process. The POME then enters anaerobic ponds where the AD process 

occurs and emits methane and CO2 to the atmosphere. After AD, the POME enters aerobic 

ponds for the final stages before applying the remaining solids and liquids to land or, in some 

instances, water. 

The potential for electricity from AD of organic matter is a function of BOD, COD, and total 

suspended solids. All three measure biodegradable pollutants in wastewater. A higher BOD and

COD will result in more biogas and electricity. The BOD and COD range is large among palm 

oil mills depending on the efficiency of their CPO extraction process. A new palm oil mill with 

high-efficiency extraction equipment will result in a lower-than-average COD, which will result

in low electricity potential. In contrast, an inefficiently run or older mill may result in a higher

COD and higher electricity potential. The AD process reduces BOD, COD, and total suspended 

solids up to 95%. Table 7 shows ranges and averages for POME components and the Indonesian 

standard for release after processing in ponds.

Table 7. POME Characteristics

Parameter Range Average Standard

All units are milligrams/litre except pH

BOD 8,200–35,000 21,280 50

COD 15,103–65,100 34,740 100

Total Suspended Solids 1,330–50,700 31,170 150

Ammonia (NH3-N) 12–126 41 20

Oil and Fat 190–14,270 3,075 15

pH 3.3–4.6 4.0 6-9

Source: “Renewable Energy Toolkit.” Second Edition. USAID ICED Project. November 27, 2012.

The volume of POME produced for each ton of FFB varies for each mill based on the efficiency 

of CPO extraction and amount of water used. USAID’s CIRCLE program conducted many 

feasibility studies of electricity generation from POME at palm oil mills. Based on its 

experience, USAID developed averages for several palm oil mill capacities (30, 45, and 60 

tons/hour). The BBIP mill has a capacity for 45 tons/hour. This study uses averages shown in 

Table 8 rather than BBIP’s confidential operational data. The assumption based on average data 

is that a 45-ton/day palm oil mill is capable of producing 1.25 MW or approximately 9,000 

megawatt-hours (MWh)/year. A project should collect POME samples over several days and 

times and measure characteristics (see Table ) in order to calculate and size energy generation 

equipment for a particular mill. 
24

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Table 8. Project Parameters

Measure Units Average for 45 ton/day Palm 

Mill

Annual FFB tons/year 270,000

Daily throughput tons/day 900

Effluent rate % 65

Daily water flow m3 585

COD (average) mg/L 55,000

Conversion to methane Nm3 CH4/kg COD 0.3

COD conversion % 84

Methane production (estimate) Nm3 CH4/day 8,108

Methane content (estimate) % 56

Biogas flow hourly m3/h 603

Methane energy value MJ/m3 35

Average generation efficiency % 38

Generation capacity MW 1.25

Availability factor % 90

Electricity sold to grid MWh/year 9,137

Source: “Renewable Energy Toolkit.” Second Edition. USAID ICED Project. November 27, 2012.

Sumatra has great electricity and emissions reductions potential from converting POME into 

electricity. ICED estimates 420 mills in Sumatra could produce 470 MW of electricity and avoid 

emissions of 9.1 million tons of CO2e [20]. This would require an investment of more than IDR 

9.7 trillion. 

2.2.4 Impacts of Project on Palm Oil Production

POME electricity is an unlikely driver for more FFB production. Oil palm land area and crude 

palm oil production are expected to rise in Indonesia as a result of growing world populations 

and economies. Additionally, oil palm is not a genetically modified organism, making it more 

desirable in certain areas of the world. FFB demand is driven by economics of primary products 

CPO and CPKO. The profits from POME electricity are considered very modest and simply an 

improvement to overall economics of a mill. The reasons this project is not expected to impact 

demand for FFB are as follows:

1. Increased demand for FFB is a result of increased demand for palm oil, not increased 

demand for far-less-profitable, low-volume by-products.

2. Oil palm land area and palm oil production are a function of world demand. 

3. Premium payments to smallholders from palm mill electricity profits are modest.

4. POME electricity system is sized for current palm mill size and capacity.

5. This project is proposed at an existing palm oil mill and does not require any land 

acquisition.
25

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2.3 Current Baseline

The baseline case assumes that the mill continues business as usual and area villages use diesel 

generators for electricity. This means continuous production of CPO and POME, emitting 

methane and CO2 to the atmosphere in the current open pond configuration. This is a loss of 

benefit because the POME waste stream can be converted into renewable electricity. The 

settlements surrounding the palm oil mill will continue to spend more per month on electricity 

than other villages in Muaro Jambi connected to the grid. The PLN long-term plan intends to 

bring transmission lines to some settlements near the mill, but the timeline for connection is 

unknown. It is expected that the area will remain in an agricultural area with oil palm and rubber 

as the primary crops. Overall, it is anticipated that more land area will be converted to oil palm in 

Jambi due to increased worldwide demand for vegetable oil.

2.4 Technical Feasibility

Electricity generation equipment would be sized based on POME sampling at each candidate 

mill. In this project, electricity generation from a 45-ton/hour facility is estimated at 1.25 MW. 

However, a particular mill’s potential may be higher or lower depending on the age of the mill, 

extraction efficiency of palm oil, and general mill operations. Older or inefficiently run mills 

inefficient at extracting the maximum amount of palm oil will have POME rich in organic wastes 

capable of producing more than the 1.25 MW used in the model; up to 2.5 MW is possible,

resulting in economies of scale for the project. If a mill is new or highly efficient, it may produce 

less than 1.25 MW, making the project less feasible.

If a mill continues operation as usual and the flow of POME is carefully controlled into the 

covered anaerobic pond, it is anticipated that the genset will operate at capacity. If the mill 

produces more POME or if COD increases, some biogas would be flared because the genset 

cannot produce more power than it is rated for. If the palm oil mill upgrades extraction 

equipment, POME COD values may decrease, resulting in less power output than anticipated.

The PPA with PLN would state the expected electricity delivery and the mill would need to 

consider this when making any changes to the CPO extraction process. 

2.5 Operational Feasibility

2.5.1 Operation and Maintenance Requirements

Staff would need to be on-site 24 hours a day to operate and monitor equipment, biogas, and 

electricity production. Continuous monitoring of the anaerobic pond and operational parameters 

would be required to ensure electricity is generated at capacity. System monitoring requirements

include pH, temperature, and organic loading rate, because these parameters can indicate an issue 

with biogas production. The jobs created by this project would include both operational, 

maintenance, and laboratory positions. Routine maintenance would include repairing pipes, 

fittings, valves, electrical wires, and any leaks in the anaerobic pond. Any extensive work 

required for the membrane cover or electricity genset would need to be serviced by a contractor 

approved by the vendor. An overhaul of the genset engines is anticipated every eight years and 

the manufacturer would specify what work is required and who can perform it.

NREL met with an IPP that captures biogas and flares it with profits realized from CER sales in 

voluntary markets. The IPP remotely controls process parameters and send local staff when there 

is an issue. Generating electricity is more complex and requires staff on-site. If the mill enters 
26

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into an agreement with an IPP, it would electronically monitor process parameters remotely as 

well as employ staff on-site. 

2.5.2 Operation and Maintenance Personnel

The work of employees in biomass energy is nearly identical to that required of workers who 

operate or maintain equipment from other fuel sources such as coal or natural gas. Winrock 

International suggested this type of project would require 10–12 full-time staff members. There 

would be at least one manager responsible for overseeing other staff and setting work flow and 

priorities. Operational staff would be needed to operate the genset and monitor control. Lab 

personnel would be required to collect and analyze POME samples to identify any potential 

issues. An electrician would be needed to ensure operation of the genset and other electrical 

wiring. All staff would be responsible for overall site management. 

Bukit Baling’s village chief and BBIP’s mill manager stated staff for these positions will be 

filled with local villagers and that these skill sets are available in the local population. Staff will 

either live onsite or nearby. All BBIP laboratory staff and management personnel are women,

and it is expected that laboratory staff for the POME electricity project will also be women. 

2.6 Technical Risk Assessment

2.6.1 Mitigation Plan for Identified Risks

There are two technical risks for this project: limited past experience with this project type in 

Indonesia and risk of system shutdown due to operational issues. There are only ten POMEbased electricity projects and none are connected to PLN, although several under development 

plan to grid-connect. Using contractors and equipment from the previous ten projects and visiting 

those sites to ensure there are no major operational issues would mitigate this risk.

The most significant technical risk is system shutdown where biogas production stops. This has 

occurred in AD systems when the organic loading rate (i.e., delivery of POME) to the anaerobic 

pond is too high. Methanogens, responsible for converting POME into biogas, die off and must 

be re-established in order to generate biogas and electricity. This is why it would be important 

for staff to monitor operational parameters for performance because a sudden change can 

indicate an issue that must be addressed immediately to sustain biogas production. 

There is a risk of under- or over-estimating power production potential during project 

development. Electricity generation is calculated based on organic matter measured in POME 

samples that must be taken at various days and times to quantify potential. It is also possible that 

changes in the palm mill process, such as improved extraction equipment or expansion, could 

result in less or more electricity. If there is less electricity than anticipated, the mill or IPP may 

need to renegotiate the PPA with PLN and it would negatively impact the economics of the plant 

and increase the payback period. If more POME and therefore more biogas are produced, the 

mill would either flare the excess biogas or need to evaluate the economics of expanding the 

anaerobic digestion pond, cover, and adding more electricity generation engines. Another 

potential issue is a supply disruption of FFB to a mill leading to lower use of mill capacity (20 

hours per day, 6 days per week, or 300 days per year). This would result in lower POME 

production and therefore lower biogas and electricity production. This is a risk of any energy 

plant depending on an agricultural commodity.
27

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

There are also the impacts of delays in construction and budget issues that can negatively impact 

a project before it starts generating electricity. This is a potential issue for any large construction 

project.

2.6.2 Monitoring and Evaluation Plan

The mill and/or IPP have an interest in properly designing, building, and operating the plant 

because there is a significant capital investment, and profits are only available if electricity is 

sold to PLN. The mill would need to ensure POME is continuously supplied in order to collect 

biogas. The operations of the plant are continuously monitored, and both routine and substantial

maintenance would be required over the life of the project. The monitoring and evaluation of the 

energy plant would be established in the contract between an IPP and a palm oil mill. 

Ensuring that the palm oil mill uses electricity revenues to provide a premium to smallholders 

would be more challenging to monitor. Smallholders are not under contract to supply any 

specific mill. In many instances, smallholders sell to a local collector who delivers FFBs to a 

mill. It would be necessary to survey area oil palm smallholders on their FFB prices because 

there are no contracts between smallholders, local collectors, and palm mills. This would

determine if smallholders selling to mills with POME electricity generation are receiving a 

premium over those selling to mills that do not sell electricity. It is recommended to hire a local,

non-governmental organization or organization to provide this type of survey on a defined

schedule. 
28

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3 Economic Assessment

An economic assessment evaluating the outcome of this project was performed and presents both 

the net present value (NPV) and economic rate of return (ERR) as well as detailed economic 

figures that highlight relevant elements of the analysis. The method for evaluating the impact of 

this project proposal involves comparing the cash flows of a counterfactual scenario (also 

referred to as the “base case” or “business-as-usual”) to the cash flows if the project proceeds 

(the “with-project” or case).14 Evaluating the project in this way ensures that the project delivers 

incremental returns that meet the required 10% ERR hurdle rate.

This economic assessment considers the project’s impact on the local economy instead of 

considering its impact only on the generating system owner (i.e., the mill or an IPP). Expanding 

the project boundary allows a better understanding of how the value created by the project is 

distributed among stakeholders. This has a dual purpose: to demonstrate that the Green 

Prosperity goal of poverty alleviation is met and to ensure that funding is provided to projects 

that otherwise would not attract a private investor. 

Cash and value flows for both the counterfactual and with-project (WP) cases are based, 

wherever possible, on data collected in site visits or on comparable projects in Indonesia if sitespecific data are not available. In many cases, the most appropriate benefit stream is cost 

avoidance. This applies to both grid-connected and off-grid projects. Cost avoidance can refer to 

a reduction in the cost to generate electricity, reduction in electricity expense to consumers, or a 

reduction in the cost of a service, such as lighting by fuel-switching. In addition, electricity can 

enable new value creation by powering small businesses and increasing productivity, improving 

health conditions, and providing for better education opportunities. 

A full explanation of methods for calculating counterfactual and WP benefit streams is 

forthcoming in a separate comprehensive document detailing the electrification economic model, 

which would describe methods, model structure, and procedures for its use in evaluating similar 

projects. 

3.1 Overview of Results

This project performs well economically, primarily because of PLN’s avoided cost of generation, 

which is roughly three times what it would pay for electricity generated by the project. This 

means that the majority of the benefit is captured by PLN. Under reference case assumptions, the 

project ERR is 40.5% with an NPV of IDR 123 billion. This analysis is conducted assuming a 

loan is offered at 50% of total capital costs at a 4.5% nominal interest rate. The main economic 

risk for this project is that there is relatively low return for all other stakeholders beside PLN. 

Because the IPP returns are low, there is concern that there will be tight cash flow and exposure 

to external risk such as construction delays. The IPP’s internal rate of return (IRR) is 3.9% real 

(8.1% nominal) under reference case assumptions, which is relatively low even to incentivize a

non-governmental organization or non-profit to participate in this project as designed. 15 The 

small return to the IPP also limits the amount that it can pay to the mill owner: 10% of revenue 

 14 The counterfactual is what would happen in the project area if the project was not built. 15 Unless otherwise noted, all percent returns are expressed in real terms. Real returns are adjusted for inflation, 

while nominal returns are quoted in a given year’s dollars.
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(NPV of IDR 4.2 billion) in the reference case. Consequently, there is only a small share of the 

project’s total NPV available to the mill’s FFB suppliers, a target beneficiary of the project. 

Local electricity consumers are the other local beneficiaries of the project. These consumers 

benefit from avoided diesel cost and increased consumption, which total IDR 17 billion in NPV. 

The project’s ERR is most sensitive to projections of PLN’s avoided cost over the project 

lifetime because PLN’s cost savings are the primary economic benefit. The reference assumption 

is that PLN’s generation cost grows at a rate comparable to recent experience: 8.3% per year in 

nominal terms. Historical data were used to calculate this growth rate, though data about future 

operating costs would be better for estimating future changes in generation cost. These data were 

not readily available, and although the NPV is sensitive to that assumption, a nominal growth 

rate of 1.5% per year—less than inflation—still leads to a project ERR of 31%. 

Alternative project design options could make this project more viable for the IPP and mill, and 

provide more benefit to smallholders. Offering a grant of 50% of capital costs has no impact on 

project ERR but increases the IPP’s IRR to 13% (17% nominal), which could be distributed to 

the mill through lease payments and on to smallholders through FFB price premiums. A change 

to electricity policy that would allow an escalator to be negotiated in PPAs would shelter the 

IPP’s revenue from long-term inflation, reducing the IPP’s exposure and the overall project risk. 

Including an escalator to the FiT at the projected rate of long-term inflation would provide an 

IRR to the IPP of 15% (20% nominal). 

With the exception of changing the loan to a grant, these changes are unlikely, and therefore the 

project reference case is designed to reflect the mostly likely conditions an IPP would face in this 

situation. If the price of CER credits rebounded in world markets, it could provide an additional 

source of revenue for the operator. Because forward prices of CER credits are very difficult to 

predict, they were excluded from this analysis. Assuming CER credit prices rebound to IDR 

97,000 per ton of CO2e and IDR 9.7 billion certification and compliance costs, revenue for the 

IPP would significantly increase by about IDR 4.85 billion/year and improve its real IRR.

16

3.2 Assumptions

3.2.1 Baseline Case

The base case for this project is that POME ponds are uncovered and unutilized for energy 

production. Therefore, no value is created from the wastewater of palm oil processing. The 

values derived in the counterfactual case consider the economic impacts of the quantity of 

electricity that would be produced by the IPP in the WP case, along with the respective 

stakeholders including local electricity consumers and PLN. For PLN specifically, for all units of 

electricity that PLN purchases in the WP case, it would have incurred generation costs per unit 

and in both cases accrues revenue for each unit sold at the retail price of electricity. At a selling 

price of IDR 614/kWh, PLN accrues an average of IDR 5.044 billion/year in revenue from 

electricity sales. It would have incurred an average of IDR 19.4 billion/year in generation costs at 

IDR 2,922/kWh [21]. PLN’s generation cost offset is determined by the generation cost of the 

 16By comparison, the U.S. Government’s estimates for social cost of carbon range from $12 to $129 (in 2007$), 

which if included in the project returns would have a significant economic impact. See “Technical Support

Document: - Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis – Under Executive 

Order 12866” U.S. Government, May 2013, pp 2.
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asset displaced. Since a POME electricity generation plant can produce electricity throughout the 

day, the avoided generation cost will be the weighted average of generation costs for all 

generating assets. All told, PLN loses an average of IDR 217 million/year in the counterfactual 

case on the kilowatt-hours produced by the IPP. 

Local electricity consumers, by contrast, benefit by saving money on the kilowatt-hours they 

consume in the counterfactual case and benefit from new connection value and additional 

electricity consumption. There are five villages near the mill, for which diesel generators supply 

60% of citizens. These generators burn 100 liters of diesel/day at IDR 7,000/liter (L), and 

produce 3 kWh/L for a total annual generation of 550,000 kWh. Consuming this amount of 

electricity costs these villages IDR 1.28 billion annually. Each of these villages would be 

connected in the project and would therefore avoid the cost of diesel generation in exchange for 

grid-connection expense, and benefit from additional incremental consumption.

The economic analysis for the counterfactual case focuses on the economic impacts that the IPP 

generating system has relative to PLN, the palm mill, local smallholder farmers, and local 

electricity consumers. The total net present lifecycle costs of the counterfactual are IDR 226 

billion. 

The prefeasibility study team that performed a site visit did not learn of any planned capacity 

additions in the area by PLN. Because of relative regional supply constraint, it is likely that PLN 

would enter into PPAs with IPPs offering power to the grid.

This mill sources the majority of its FFB supply from local smallholders with the balance 

coming from its own plantation, compared to other mills that can supply their entire feedstock 

from their own plantations. The current price paid per ton of FFB is IDR 1,420,000.17 The mill 

representatives expressed concern that the local smallholders are mobile enough to obtain better 

prices, so they are interested in this arrangement to ensure their supply of FFB.

3.2.2 Proposed Project

The generation system is sized for biogas production from POME produced by the co-located 

palm oil mill. The mill has a throughput of 45 tons/hour of FFB, which can support a 1.25 MW 

capacity generator. A plant size of 1.25 MW and 90% capacity factor was modeled for this 

project and subjected to a sensitivity analysis to account for possible output variation. Because 

there is a series of POME ponds and a timing delay for organic decomposition, there is a buffer 

against volatility of biogas production. Therefore, this plant would have high capacity utilization 

and can be dispatched to the grid at any time. 

The generating system organization was modeled as an IPP operator.18 This arrangement helps 

ensure that the FiT revenue is reliably paid to smallholders as a transfer for the life of the project. 

The mill operates and produces POME in the course of its operations while the IPP generates and 

sells electricity to PLN in exchange for FiT payments. In total, 10% of IPP FiT revenue is paid 

 17 FFBs are a commodity; prices change and are very localized. This price is as of March 2013. 18 Most projects like these are developed by foreign non-government organizations. A recent Presidential Decree 

(Nos. 77/2007 and 111/2007) regarding Lines of Business Closed and Open with Requirements for Investment 

stipulate that foreign investors can have up to a 95% shareholding in a plantation company, including palm 

plantation companies. The remaining 5% shares must be allocated to an Indonesian shareholder.
31

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

annually to the mill, and the mill pays 90% of its lease revenue out to its smallholders to secure 

access to FFB.19 The assumption is that 50% of this mill’s FFB supply comes from local 

independent smallholders, so there is an incentivize supply by offering a price premium. 

Five local villages near the mill that are currently supplied by diesel will be connected to the 

PLN grid by extending distribution lines to these villages from the transmission line that 

connects the IPP to PLN’s grid. These villages would then receive electricity all day and would 

have higher electricity reliability.

3.2.3 Alternatives Considered

There are few possibilities for altering the fundamental structure of this project. Similarly, the 

organizational design presented here is the most probable arrangement, primarily because palm 

oil mills are in the very profitable business of processing palm oil. They lack the expertise 

needed for interconnection with the grid, and the financial incentives associated with electricity 

generation are insufficient to induce them to get into the business. Furthermore, existing POME 

electricity projects have a similar organizational structure where an IPP operates the generation 

system and interacts as an intermediary with PLN and the mill. The structure as designed 

properly aligns incentives and allocates risk between the appropriate parties. 

There are, however, some possibilities for changing the specific financial mechanisms whereby 

value is transferred between stakeholders, but the flows of money still accrue to the same parties. 

For example, instead of designing IPP lease payments to the mill as a percentage of revenue, this 

stream of payments could be a specified dollar amount with a negotiated escalation rate. 

Similarly, the arrangement between the mill and smallholders could be paid some other way 

beside through premiums for FFBs. Regardless; value is transferred between the same 

stakeholders in each possible case. A discussion of alternative financing arrangements and the 

distributional impacts is presented below.

3.3 Project Benefit Streams

There is one distinct driver of value creation in this project and several transfer payments with 

beneficial distributional effects. Value in this project comes from the generation of electricity 

from a freely available fuel source. With that electricity, several stakeholders benefit by avoiding 

cost (PLN and local diesel electricity consumers) and by creating new economic value from 

increased electricity consumption. PLN’s avoided generation cost for its generation is offset by 

the POME electricity project, which uses a freely available and renewable fuel source. This value 

alone is worth IDR 114 billion in NPV. Avoided cost from local diesel generation and the value 

from additional electricity consumption account for IDR 1.7 billion in NPV. Transfer payments 

include FiT payments from PLN to the IPP; lease payments from the IPP to the mill; and 

premium payments for FFB from the mill to smallholders. The economic results for individual 

beneficiaries closely align with separate benefit streams so each are presented below with full 

project results to follow. 

 19 The 10% is assumed; companies were not willing to discuss confidential business agreements with mills.
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3.3.1 IPP Production

Construction for this type and size of plant takes 18 months, so the second year produces only 

half of a normal year. There is no degradation factor modeled because POME ponds would 

produce biogas reliably as long as the mill is still operating. Onsite energy use was modeled at 

7.7%, a figure that was calculated from comparably sized projects in Indonesia [9]. Electricity 

generated totals 9.855 gigawatt-hours (GWh) annually, and after factoring in parasitic load and 

line losses, the annual average electricity sold to the PLN is 9.096 GWh annually. The calculated 

levelized cost of electricity (LCOE) is well below both PLN’s generation cost FiT. Factoring on 

lease payments, the LCOE is IDR 389 per kWh while the LCOE is IDR 324 per kWh excluding 

lease payments. 

3.3.2 IPP Operating Cash Flows

The only source of revenue for the IPP is from FiT payments for electricity sold to PLN. There is 

a national policy on FiT amounts per kilowatt-hour for renewable energy technologies and 

location, which for biogas in Sumatra is IDR 975/kWh.

20 There are no escalation rates built into 

PPAs with PLN, so the real IPP revenue is adversely affected by high long-term inflation. The 

NPV of IPP revenue is IDR 42 billion. Operating expenses for the IPP include operation and 

maintenance costs and lease payments to the mill. There are no fuel costs because the biogas 

from POME ponds is freely available as part of the lease agreement. Operation and maintenance 

(O&M) is modeled as 10% of total capital costs annually, or an NPV of IDR 21 billion [22].

21

Lease payments to the mill are modeled as 10% of annual revenues, or an NPV of IDR 4.21 

billion. The NPV of cash flows from operations for the IPP is IDR 17 billion. Figure 11 shows 

the real IPP net cash flows over the life of the project. The negative real IPP operating cash flows 

for the second year in Figure 11 result from a full year of O&M expenses with only a half-year 

of revenue. 

Figure 11. IPP cash flows

 20 04 Year 2012. About Purchase Price of Electricity by PT PLN (Persero) from Power Plant Using Renewable 

Energy on Small and Medium Scale or Excess Power. Minister of Energy and Mineral Resources of the Republic of 

Indonesia, Article 3.

21 The PFS team found references to projects that use 5% for O&M costs. 10% was used to account for generator 

overhaul and to add conservatism to the operating expenses. 
33

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3.3.3 IPP Investing Cash Flows 

Capital costs for a project of this size and configuration are priced at IDR 24,153/W for a total of 

IDR 31 billion. This model includes the capital costs for extending transmission lines 5 km to 

connect to the grid at IDR 210 million/km. The analysis assumes that the project would operate 

for the full life of the equipment (20 years) and that there would be no salvage value remaining at 

the end of that period.

3.3.4 IPP Financing Cash Flows

The current project design calls for 50% leverage with a loan from the Millennium Challenge 

Account – Indonesia (MCA-I) lending window at 4.5% nominal interest and a 10-year term from 

cash disbursement, which gives MCA-I a very small positive real return at an assumed target 

inflation level of 4%. It also provides low cost of debt for the IPP compared to what it is likely 

from other lenders.22 The cash from debt is disbursed before construction, and interest accrues 

through construction (in this case, 18 months). The IPP capitalizes the interest during 

construction by beginning payments only when the IPP begins to earn revenue. 

The economic results under these assumptions provoke questions about financing terms. The 

lender would balance the loan amount with the interest rate offered in order to deliver an 

acceptable return for the IPP along with transfer value for local smallholders through the lease 

payment. If the IPP were to finance the project entirely with equity and have no transfer 

payments, it would earn a real return of 5.8%. On the other end of the spectrum, if 90% of 

project capital costs were grant-funded, the IPP real return would be 62%%. By contrast, with 

the proposed 10% lease payment, the all-equity return would be 2.8%, while the 90% grant 

return would be 54%. There is clearly a tradeoff between the loan terms offered (interest rate and 

amount or leverage) and the IPP return and benefit to smallholders. 

Figure 12 shows the tradeoff between interest rate and leverage level to IPP real returns, 

including the proposed 10% lease transfer payments. At 4% long-term projected inflation and an 

interest rate of 7%, the IPP is indifferent to any amount of leverage. Whereas at lower interest 

rates, the IPP would prefer more leverage because it would enable a higher IRR on its investment 

relative to inflation. This figure has important implications for the MCA-I finance window when 

setting nominal interest rates. It shows the precise maximum interest rate it could charge before 

an IPP would seek financing from other sources or fund the project on its own, assuming the IPP 

holds the same economic assumptions as this analysis. If the IPP developed the project on its 

own, it would earn a 2.85% IRR; at 50% leverage and 4.5% interest rate (using reference case 

assumptions), it earns 3.89%. 

 22 Meetings with local Indonesian banks and their partners in June 2013 indicated commercial rates are higher.
34

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Figure 12. IPP IRR relative to interest rate and leverage ratio (with 10% lease payment)

By contrast, Figure 13 shows the same tradeoffs and returns for the IPP with no lease payments 

to the mill. In this case, IPP real returns are higher and it would be indifferent to any leverage 

amount at 10% interest rate. So, even under a project design where all the revenues go to the IPP, 

the highest reasonable interest rate that can be charged is 10%, which would deliver a 5.8% real 

return for the IPP. If there is concern over attracting sponsors and the MCA-I finance window 

wanted to accommodate competitive returns, it would have to offer more debt at lower rates and 

risk compromising some of the benefit to the local smallholders. For example, assuming that 

10% of revenues are paid to the mill as a transfer payment for smallholders, according to Figure 

12, to deliver a real return for the IPP above of 10%, MCA-I would have to offer 100% of the 

capital costs in debt at an interest rate lower than 3.5%. Changing some assumptions about 

operating costs and unit production of the IPP would impact the returns, but using these 

reference case assumptions, there are few financing levers available to achieve the desired 

project outcomes.
35

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

.

Figure 13. IPP IRR relative to interest rate and leverage ratio (with no lease payment)

3.3.5 PLN Net Benefits

PLN is required to purchase electricity from renewable energy IPPs and to pay a FiT per 

kilowatt-hour. The FiT paid depends both on technology and location. The FiT for a biogas 

project connected to the grid through medium voltage lines is IDR 975/kWh. The regional FiT 

multiplier for Jambi is 1.0, so for each kilowatt-hour sold, the IPP would receive IDR 975.

23

In Jambi, PLN supplies energy to the grid from various sources including hydro (2.97 GWh), 

diesel (55.76 GWh), rented diesel (46.75 GWh) and purchased power, which is believed to be 

entirely natural gas (403.53 GWh) [21]. PLN’s generation cost is different for each technology, 

but since there would be high capacity utilization for this project, which implies that it is 

baseload power that can be dispatched at any time to the grid. This analysis uses the weighted 

average of all power generation types IDR 2,922/kWh as a proxy for PLN’s avoided cost. The 

economic model considers only the amount of electricity that would be generated by the POME 

electricity project. In the counterfactual case, PLN would incur the generation cost per unit for 

the quantity of that electricity minus any local consumption, which is valued at avoided cost and 

incremental value per kilowatt-hour; in the WP case, PLN pays the FiT for all unit purchases and 

avoids the generation cost for all non-local kilowatt-hours. PLN’s revenue does not change 

between the two cases since it would still be selling the kilowatt-hours to other customers. 

Therefore, the incremental value to PLN is the difference between generation cost and FiT, times

the non-local kilowatt-hours purchased by PLN. Separate nominal growth rates for generation 

 23 04 Year 2012. About Purchase Price of Electricity by PT PLN (Persero) from Power Plant Using Renewable 

Energy on Small and Medium Scale or Excess Power. Minister of Energy and Mineral Resources of the Republic of 

Indonesia, Article 3.
36

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cost and FiT are applied, which has a significant impact on long-term real values in the analysis. 

Under reference case assumptions, incremental benefit to PLN of supplying electricity to its grid 

by purchasing from this IPP is IDR 114 billion in NPV.

3.3.6 Other Beneficiary Net Benefits

Other value flows between stakeholders include lease payments to the mill, premium payments 

from the mill to smallholders, and financial cash flows between the IPP and the MCA-I finance 

window. The lease arrangement and finance payments are described above in the IPP cash flows 

sections. 

The price premium paid by the mill to smallholders is designed to secure reliable supply for half 

of the mill’s FFB supply. The FFB premium is calculated by paying 90% of the mill’s lease 

revenue out to local smallholders per unit purchased by the mill; 10% of lease revenue is taken 

by the mill to cover transaction costs. The NPV of lease revenue is IDR 4.21 billion. An average 

of 45 tons/hour mill consumes 270,000 tons of FFB/year, which means local smallholders supply 

135,000 tons to the mill annually at IDR 1.420 million. The amount available to pay as premium 

changes over time, depending on revenue growth or decline. The NPV of premium payments to 

smallholders is IDR 3.79 billion. After collecting lease revenue and paying premiums to 

smallholders, the net benefit to the mill is IDR 421 million. The benefit available to pay as 

premiums to smallholders is small, which implies that the premium per FFB is unlikely to 

achieve the mill’s desired impact of securing its FFB supply through price support.

Finally, the five newly grid-connected villages near the mill benefit by offsetting diesel 

generation costs and by enabling additional incremental consumption. For the 550,000 annual 

counterfactual kilowatt-hours, local consumers pay a lower retail electricity rate of IDR 

614/kWh compared to IDR 2,333/kWh for diesel. For all incremental kilowatt-hours, the local 

consumers also realize IDR 1,720/kWh (which is the conservative avoided cost estimate of the 

difference in diesel and grid-based electricity). Since these customers already consume electricity 

(although it is supply-constrained), they would not realize the World Bank lighting benefit per 

kilowatt-hour since this is based in part on cost avoidance from switching from kerosene. 

3.4 Results

3.4.1 Economic Analysis

This project performs very well economically through its significant reduction of PLN 

generating costs. This project performs very well economically through its significant reduction 

of PLN generating costs. Table 9 shows economic results for the project, with reference case 

assumptions presented in Table 10. Additional economic modeling data are available in 

Appendix B and C. 

Table 9. Economic Results

Economic Results

ERR (%) 40.5%

NPV (million IDR) 123,000 

NPV ($) $12,700,000 
37

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Table 10. Reference Case Assumptions

Descriptor Value (IDR or %) Value ($)

Installed Capacity (kW) 1,250

Capital Cost (IDR/Watt) 24,153 $2.49 

Total Installed Capital Cost 31,241,245,900 $3,220,747 

Capacity Factor (%) 90%

Annual O&M Costs (IDR) 3,019,125,000 $311,250 

Capital Physical Lifetime (years) 20

Salvage Value % of Capital Costs 0%

First Year Production (% of full production) 50%

Degradation Annual Rate of Production (%) 0%

PLN FiT Payment (IDR/kWh) 975 $0.101

PLN Sale Price (IDR/kWh) 614 $0.063

PLN Cost of Generation (IDR) 2,922 $0.301

Share of Production Purchased by PLN (%) 100%

Figure 14 shows the counterfactual and WP annual net benefits with incremental benefits 

displayed in green bars. The project ERR and NPV are calculated on the incremental net project 

cash flows. The CF cash flows decline significantly over time because PLN’s generation cost 

increases faster than inflation, exposing it to long-term cost increases. In the WP case, the PPA 

has a fixed price, which allows PLN to hedge against long-term cost growth.

Figure 14. Lifetime net project benefits
38

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Figure 15 shows the project NPV over different time periods. This display is useful for showing 

when the project pays back on a discounted basis. In this case, the project-discounted payback 

occurs in the fourth year.

Figure 15. Sensitivity of NPV to time horizon

3.4.2 Beneficiary Analysis 

The value from this project is transferred in various ways to the primary stakeholders 

participating in this project, namely, the IPP, mill, and smallholders. Even after making 

significant FiT payments for electricity sold to the grid, PLN captures the majority of total 

benefits. 

Table 11 and Figure 16 show the economic impact of this project on various stakeholders. The 

ERR shown represents the real return to each stakeholder. Likewise, the NPV values are 

calculated at the social discount rate of 10%. So even though an NPV is negative, it may still 

perform positively relative to a given stakeholder’s specific discount rate (although the real 

return would be below 10%). No ERR is presented for PLN, the mill, or smallholders because 

there is no contribution of capital from these stakeholders. The respective NPV values provide a 

glimpse of how well these beneficiaries fare in this project design.
39

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Table 11. Distribution of Net Benefits

Beneficiary Analysis Return24 NPV (Million IDR) NPV ($) % of Project NPV

Operator 3.89% (6,200) ($641,000) -5.0%

PLN 154.60% 110,000 $11,700,000 92.3%

MCA-I Finance Window 0.48% (5,200) ($536,000) -4.2%

Mill n/a 420 $43,400 0.3%

Local Electricity Consumers n/a 17,000 $1,730,000 13.6%

Smallholders n/a 3,800 $390,000 3.1%

Figure 16. Beneficiary analysis (percent of project NPV)

Figure 17 displays the incremental benefit to each stakeholder over time. The MCA-I finance 

window and IPP split the capital cost in half, so their first-year cash flows are negative. In years 

three through ten, the interest and principle payments are positive for the finance window and 

reduce net income for the IPP. In year ten, however, the IPP’s cash flows jump by IDR 1.52 

billion.

 24 ERR undefined since all cash flows have the same sign
40

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Figure 17. Beneficiary net benefit streams

PLN’s value flows include revenue for all of the kilowatt-hours it sells, generation cost 

avoidance for units it does not have to generate (the difference between the light blue and red 

line), FiT payments made to the IPP, and connection revenue from new connections in the five 

villages. PLN’s benefit streams are shown in Figure 18.

Figure 18. PLN benefit streams

3.4.3 Sensitivity Analysis

The sensitivity analysis revealed that there were a few highly sensitive inputs. Where possible, 

values were researched and collected in site visits to minimize the uncertainty range or eliminate 

variables as sensitivity parameters. Table 12 shows the sensitivity analysis parameters, their 
41

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default values, and their uncertainty distributions. A full discussion of sources and values will be 

contained in forthcoming electrification model documentation.

Table 12. Sensitivity analysis parameters

Descriptor Value IDR Distribution Upper Lower

National Inflation Rate (%) 4.00% Triangular 5% 3%

Capital Cost per Watt ($/W) $2.49 24,153 Triangular $3.00 $2.00 

O&M cost (% of installed capital cost) 10% Triangular 11% 9%

Capacity Factor (%) 90% Triangular 95% 80%

Parasitic Load (%) 7.7% Triangular 8% 5%

CF Long Term Consumption Growth Rate (% per 

year) 0.5% Triangular 0.75% 0.25%

CF Diesel Electricity Cost ($/kWh) $0.241 2,333.333 Triangular $0.400 $0.200 

CF Diesel Electricity Nominal Price Growth (% per 

year) 4.0% Triangular 4.5% 3.5%

WP Electricity Consumption Growth Rate (% per 

year) 1.0% Triangular 1.5% 0.5%

Incremental consumption value per kWh $0.177 1,719.55 Triangular $0.200 $0.060 

Local HH growth rate (% per year) 2.5% Triangular 3.0% 2.0%

CF Long Term Consumption Growth Rate (% per 

year) 0.5% Triangular 0.75% 0.25%

Percent Purchased from Smallholders (%) 50% Triangular 60% 40%

Current FFB price ($/ton) $146.39 1,420,000 Triangular $160 $130

Nominal FFB Price growth (% per year) 4.00% Triangular 5.0% 3.0%

Mill share of lease revenue (% per year) 10.00% Triangular 12.0% 8.0%

Nominal Interest Rate (%) 4.50% Triangular 6% 3%

Nominal PLN Price Growth (% per year) 3.30% Triangular 4.00% 3.00%

PLN cost of generation ($/kWh) $0.301 2,922 Triangular $0.362 $0.075

Nominal PLN Gen Cost Growth (% per year) 8.3% Triangular 8.5% 5%

Figure 19 show the results for NPV and ERR of a 10,000-trial Monte Carlo simulation using the 

sensitivity parameters and uncertainty distributions described above in Table 12 (additional 

charts in Appendix C). The analysis shows that this project would deliver a positive NPV and an 

ERR above 10% with 100% certainty. As expected, the highly sensitive variables are capital cost 

per Watt, the capacity factor, PLN’s generation cost per kilowatt-hour, and PLN’s generation 

cost growth. 
42

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Figure 19. Sensitivity analysis results for NPV and ERR
43

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PLN’s generation cost per kilowatt-hour was constrained in the sensitivity analysis because it is a 

distinct value obtained from PLN reports [21]. Figure 20 shows the sensitivity of the project ERR 

to only the generation cost per kilowatt-hour with all else equal. This figure shows how 

important this value is to the economic outcome of the project. However, even at very low 

values, the project still meets the 10% hurdle. The project return is lower than 10% at generation 

costs below $0.07 per kWh. 

Figure 20. ERR sensitivity to PLN generation cost 

Figure 21 through Figure 25 show the sensitivity of project ERR by isolating specific variables 

(capacity factor, FiT escalation rate if there were a policy change, capital cost per Watt, capacity, 

and nominal growth rate of PLN’s generation cost). It is important to note that even with 

extremely conservative assumptions for each isolated variable, the project ERR consistently 

exceeds the 10% hurdle. Isolating these particular variables for single-dimension sensitivity 

analysis enables the reader to observe how sensitive the project ERR is to a particular variable 

and over what ranges. For example, the project ERR is highly sensitive to the generating system 

capacity size at low values, but less so at higher values. The directional impact can also be 

observed by isolating these variables. The rest of variables have mostly linear relationships with 

project ERR.
44

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Figure 21. Sensitivity of project ERR to generating system capacity factor

Figure 22. Sensitivity of operator IRR to a hypothetical FiT escalation rate
45

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Figure 23. Sensitivity of project ERR to capital cost per Watt

Figure 24. Sensitivity of project ERR to generating system capacity
46

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Figure 25. Sensitivity of project ERR to nominal PLN generation cost growth rate

3.5 Economic Risk Assessment

This report presents results for the best estimate of each of the input variables.

25 Changes in 

these parameters may strongly affect overall economic performance.

The sensitivity analysis presented above reveals the variables that would have significant impact 

on the economic outcome of the project. Perhaps the biggest risk to the project is that most of the 

value is captured by PLN while there are slim margins for other stakeholders. Both the mill and 

smallholders are made better off by the project, but only marginally. Similarly, the IPP does not 

perform very well (3.89% ERR). 

Because two major actors in this project structure have a limited upside determined by the 

system electricity production and FiT rate, and because the benefit captured is then divided 

among other beneficiaries, there is little incentive for either proponent to enter into this 

arrangement from an economic perspective alone. Additionally, tight margins imply insolvency 

risk for the life of the project, which means that disruptive events like construction delays can 

inhibit the IPP’s ability to meet its obligations.

Some specific risks that are less likely but worth noting include policy or regulation risk that 

might impact IPP revenue. Changes to the mill production from changes to world market 

demand for palm oil may impact the IPP’s biogas supply from POME, inhibiting the IPP’s 

ability to meet its PPA reliably. Lastly, any one of the project proponents could opt out of the 

arrangement and thereby undermine the intended flow of benefit.

The most significant changes to the project design would be to negotiate an escalation rate into 

the PPA with PLN, and increasing generation system output (a possibility as each mill’s energy 

potential varies based on POME characteristics). There would still be a limited upside for the 

 25 Please contact the authors for additional information about results for various alternatives or input variable ranges considered.
47

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IPP, but it would provide a much-needed cushion for its obligations. Finally, although it wasn’t 

considered here, if CER credit prices increase in world markets, this project could generate an 

additional revenue stream.
48

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4 Environmental and Spatial Land Use Assessment

As noted previously, all Green Prosperity program project investments must meet certain 

technical, economic, environmental, and social expectations expressed in MCC’s Compact with 

Indonesia. Specific to environmental impacts, the Green Prosperity program is focused on 

promoting the productive use of low-pollution renewable energy, the management of watersheds, 

forests and other natural resources, and the sustainable use of lands for agriculture and other 

purposes.

This project focuses on developing a renewable source of power at the BBIP palm oil mill by 

covering a palm oil pond and collecting methane, which will be combusted to generate

electricity. Overall, the project appears to be consistent with the Green Prosperity program’s 

environmental goals. This chapter provides a preliminary assessment of environmental impacts 

of this project, which would be further detailed in a full feasibility study.

Below, potential environmental impacts of the project are discussed, followed by consideration 

of applicable Indonesian environmental laws and regulations, the GHG emissions impact of the 

project, and spatial land use considerations.

4.1 Environmental Impact Assessment

Any project activity in Indonesia requires full disclosure of possible environmental impacts at 

the earliest stages of project development, and also must ensure that these impacts are addressed 

by being avoided or mitigated to the greatest extent possible, or that some form of compensation 

is given to those affected.

In this case, BBIP was selected for evaluation under USDAID’s CIRCLE program, which 

evaluated approximately 100 mills for methane capture. BBIP scored well, meeting 

environmental standards and promising positive impacts on the environment. The effects could 

be multiplied if this type of project were replicated throughout Indonesia. Its largest 

environmental benefit is the reduction of unmitigated methane emissions through the capture and 

combustion of methane emitted from POME ponds. The current open-air ponds release 

significant volumes of methane gas, which is pound-for-pound 21 times more impactful as a 

GHG than CO2.

A preliminary list of positive environmental impacts of this project are as follows:

• GHG emission reductions, in the form of captured methane (a quantitative estimate of 

these reductions is given in Section 4.3)

• An increase in renewably generated electricity contributing to Indonesia’s 2025 

renewable energy target of 15% renewable power, magnified if the project were to be 

replicated at many other palm oil mills26

• A decrease in health issues related to poor air quality from a reduction in diesel power 

generation in the local villages

 26 http://www.icafrica.org/fileadmin/documents/Knowledge/GIZ/Legal Frameworks for Renewable Energy.pdf
49

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Potential negative environmental impacts are as follows:

• Construction-phase environmental disturbances, which might include heavy construction 

equipment impacting roads and air quality, and temporary POME wastewater flow 

disruptions

• Longer-term impacts of added infrastructure (roads, power line connections to PLN, and 

local villages)

If this project or one similar to it were to move toward a full feasibility study, these impacts 

would need to be studied, with the likely extent of their impacts explored and mitigations 

identified where possible.

4.2 Compliance with Legal Requirements and Performance 

Standards

Initiating any project in Indonesia will require permits and/or licenses from the Government of 

Indonesia. This includes an environmental permit for projects with potential for environmental 

impacts. An environmental permit is issued following approval of an Analisis Mengenai Dampak 

Lingkungan (AMDAL) or Upaya Pengelolaan Lingkungan Hidup dan Upaya Pemantauan 

Lingkungan Hidup (UKL-UPL) document. An AMDAL is a full environmental assessment, 

required for projects that are considered to have potentially significant impacts, while a UKLUPL is an environmental management and monitoring plan for projects that are not expected to 

cause significant impacts. Small-scale activities may be required to prepare a Surat Pernyataan 

Kesanggupan Pengelolaan Dan Pemantauan Lingkungan Hidup (SPPL), which acts as a letter of 

commitment to manage the environment. The type of environmental document required is 

governed by the Regulation of the Minister for Environment No. 5 Year 2012 on Types of 

Projects and/or Activities that Require an AMDAL.

27

The environmental permit and approval of AMDAL or UKL-UPL documents for Green 

Prosperity projects is likely to be the authority of the provincial or district-level government, 

depending on the size and location of the project. The national government only issues 

environmental permits for projects that cross provincial boundaries or are strategic in nature.

MCC also requires that Green Prosperity projects adhere to the IFC Performance Standards. 

These standards support a process to ensure that any project is exercising due diligence of 

environmental and social risks from start to finish. Table 13 is a list of the IFC Performance 

Standards related to environmental impacts.

28

 27 http://www.lexology.com/library/detail.aspx?g=ef8a4775-49a1-445a-aae3-56c8f759f93c

28 Other IFC Performance Standards not cited here address: Performance Standard 2: Labor and Working Conditions; 

Performance Standard 4: Community Health, Safety, and Security; Performance Standard 5: Land Acquisition and Involuntary 

Resettlement; Performance Standard 7: Indigenous Peoples; and Performance Standard 8: Cultural Heritage.
50

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Table 13. IFC Performance Standards

IFC Performance Standard Description

Performance Standard 1: 

Assessment and Management of 

Environmental and Social Risks

Describes the importance of identifying environmental and social 

risks and impacts, and managing environmental and social risks 

throughout the life of a project. This standard applies to all 

projects.

Performance Standard 3: Resource 

Efficiency and Pollution Prevention

Recognizes that increased industrial activity and urbanization often 

generate higher levels of air, water, and land pollution, and that 

there are efficiency opportunities.

Performance Standard 5: Land 

Acquisition and Involuntary 

Resettlement

Recognizes that project-related land acquisition and restrictions on 

land use can have adverse impacts on communities and persons 

that use this land. Involuntary resettlement refers both to physical 

displacement (relocation or loss of shelter) and to economic 

displacement. For this particular project there will be no land 

acquisition.

Performance Standard 6:

Biodiversity Conservation and 

Sustainable Management of Living 

Natural Resources

Promotes the protection of biodiversity and the sustainable 

management and use of natural resources.

4.2.1 Relevant Indonesian Laws

The Government of Indonesia has many laws that could pertain to the proposed project activity. 

Selected laws are listed Table 14.

Table 14. GOI Laws & Regulations

Green 

Prosperity

Application

GOI Laws & Regulations

Green Prosperity 

as a whole

Act No. 32, 2004 on Regional Autonomy 

Act No.7, 2004 on Water Resources

Act No. 32, 2009 on Environmental Protection & Management

Act No. 14, 2008 on Public Information Disclosure

Act No.39, 1999 on Human Rights 

Act No.41, 1999 Forestry

Act No.18, 2004 Plantation

Act No. 5, 1990 on Conservation of Biological Resources & Ecosystems

Ministry of Forestry 5-year Strategic Plan (RENSTRA) 2009 – 2014 with a program 

focus on Community-based Watershed Management

Ministry of Forestry Decree, P.7/Menhut-II/2011 re Public Information Service of 

Forestry Sector, 02 February 2011

Ministry of Forestry Decree on Information Transparency, 27 February 2006

Government Regulation 6 of 2007 on Forestry

Ministry of Forestry (2000), General Framework and Criteria & Standards for Forest 

and Land Rehabilitation. Directorate for Land Rehabilitation and Soil Conservation, 

Directorate General for Land Rehabilitation and Social Forestry, Jakarta, 2000

Presidential Instruction (INPRES) No.1 of 2000 on Gender Mainstreaming

Participatory 

land-use planning

Law 26 of 2007 on Spatial Planning, specifically Article 48, (1), (a), on 

Empowerment of Local People through Spatial Planning

Ministry of Home Affairs Guidelines 27 and 28 of 2006 on village boundary-setting

Spatial Planning Act 26 of 2007 and Spatial Planning Act 27 of 2007 for Coastal 

Regions and Small Islands

Government Regulation 15 of 2010 on Spatial Planning Implementation
51

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Green 

Prosperity

Application

GOI Laws & Regulations

Green Prosperity

Facility

Act No.30 Year 2009 on Electricity

Ministerial Regulation of Agrarian Minister / Head of National Land Agency No. 2, 

1993 on Procedures to Obtain Location Permit and Land Use Rights for Investing 

Corporations Investing 

Ministerial Regulation of Agrarian Minister / Head of National Land Agency No. 2, 

1999 on Issuance of Location Permit for National and Foreign Direct Investments

Presidential Regulation No. 5 Year 2006 on National Energy Policy

Presidential Regulation No. 61 Year 2011 on National Action Plan on Greenhouse 

Gas Emission Reduction

Source: Draft Environmental and Social Management System Tier 2, I. Marifa and S. Feld, Aug 2013

As projects of this type move toward implementation, MCA-I’s Environmental Social 

Management System should be consulted to ensure awareness of and adherence to all relevant 

requirements of Indonesian law and MCC corporate practice.

4.2.2 Application to the Proposed Project

For the project under consideration, since it is an electricity generation project with capacity less 

than 10 MW, the UKL-UPL is the only required environmental document.29 The UKL is an

environmental management effort, and the UPL is an environmental monitoring effort providing 

an overview of potential environmental impacts with a focus on management and monitoring 

efforts by the project owner. The UKL-UPL is provided to the appropriate authority, which may 

be a Minister of Environmental Affairs, Governor, or Regent, and notice of the application must 

be announced in the media within five days after submission. 

The UKL-UPL is an important milestone in the project’s development because when it is 

approved, the Environmental License is issued. An Environmental License is a new requirement 

under Indonesian law GR 27/2012 and it restates requirements and obligations for a project as 

described in the UKL-UPL. The Environmental License will also detail any other Environmental 

Licenses required by the project. Requirements to maintain the Environmental License include 

compliance with the terms of the permit, a compliance report twice annually, and a guarantee of 

funds for environmental mitigation. Approval of the UKL-UPL and issuance of the 

Environmental License are prerequisites to obtaining a business license.

4.3 Greenhouse Gas Calculations

Electricity generation from POME in Mauro Jambi will affect GHG emissions through two 

primary mechanisms. First, recovering biogas from lagoons will reduce waste-related emissions 

(particularly methane). Second, generating electricity from captured biogas will reduce 

combustion emissions from grid-connected electricity generation. This section provides a 

preliminary estimation of the GHG emissions reduction associated with each of these impacts.

 29 See Indonesian Law No. 23/1997 on Environmental Management, Government Regulation No. 27/2012, and Ministry of 

Environment Decrees No. 40/2000, No. 17/2001, and No. 86/2002
52

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4.3.1 Emissions Reduction from Methane Capture

GHG emissions result from numerous points along the palm oil production chain, including oil 

palm cultivation, FFB processing and transportation, machinery use in palm oil mills, biomass 

decomposition, POME, and others [23]. Since biogas capture and use will not result in any 

changes in the capacity of the palm oil mill, the only GHG impacts considered in this analysis 

are those associated with POME. Similarly, although wastewater treatment involves several 

components, this analysis considers only the GHG emission impacts associated with recovering 

biogas from anaerobic lagoons, reflecting the assumption that all other wastewater treatment 

processes—and their resulting GHG emissions—would be unchanged by the addition of biogas 

capture and combustion equipment. Additional assumptions applied to this analysis include the 

following:

• The existing lagoon is anaerobic, has an ambient temperature above 15 degrees Celsius 

during part of the year, and has an average annual depth greater than 2 m. The depth of 

the lagoon can be confirmed via engineering design documents or direct measurement.

• The wastewater treatment systems will continue to operate with the same quality of feed 

inflow, volume (retention time), and temperature in the baseline scenario as in the project 

scenario. Therefore, the methane generation potential is unaltered by the project. 

• The biogas capture and utilization system will have negligible impact on methane 

emissions associated with sludge treatment, decay of the final sludge generated by the 

treatment systems, and the quantity of degradable organic carbon in wastewater 

discharged into the sea/river/lake relative to the baseline scenario. Emissions from these 

portions of the wastewater treatment process are not quantified in this analysis. 

Annual methane emissions from the uncovered lagoon (BEww,lagoon) are quantified using the 

following equation, which is adapted from the United Nations Framework Convention on 

Climate Change (UNFCCC) approved small-scale CDM methodology for methane recovery in 

wastewater treatment (AMS-III.H) [24]:

BEww,lagoon = Qww,lagoon × CODinflow,lagoon × ηCOD,BL × MCFww,lagoon,BL × Bo,ww × UFBL ×

GWPCH4

Table 15 shows the definition of each parameter in the equation above. Direct measurement of

these parameters at the BBIP mill was not possible during the pre-feasibility assessment, so 

parameter values have been assumed based on the sources indicated in Table 15. 
53

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Table 15. Parameters for Estimating GHG Emissions from Baseline POME Treatment (uncovered 

lagoon)

Parameter Definition Value Unit Source [Error! Bookmark 

not defined.]

Qww,lagoon

Volume of wastewater 

treated in the anaerobic 

lagoon

213,671.25 m3

/year

ICED Indonesia 

Renewable Energy 

Toolkit (estimate for a 

45tph mill)

CODinflow,lagoon

Chemical oxygen demand 

of wastewater inflow to the 

anaerobic lagoon

0.05 tons/m3

ICED Indonesia 

Renewable Energy 

Toolkit

ηCOD,BL,i

COD removal efficiency of 

the anaerobic lagoon 0.98 (unitless)

Assumed efficiency 

based on values reported 

in CDM project 

development 

documentation for similar 

systems in Indonesia30

MCFww,lagoon,BL

Methane correction factor 

for the anaerobic lagoon

0.8 (unitless)

IPCC default value for 

anaerobic deep lagoons 

(depth greater than 

2 m)31

Bo,ww

Methane producing 

capacity of the wastewater 0.25 kg CH4/kg COD IPCC default value32

UFBL

Model correction factor to 

account for model 

uncertainties

0.89 (unitless) AMS-III.H default value

GWPCH4

Global warming potential 

for methane 21 (unitless)

BEww,lagoon

Baseline emissions from 

uncovered anaerobic 

lagoon

39,136 tCO2e/yr Calculated

The proposed biogas recovery system (i.e., a flexible membrane covering the anaerobic lagoon) 

will eliminate most of the methane emissions associated with the uncovered lagoon; however, 

this system is associated with two types of inefficiencies: (1) fugitive methane emissions from 

biogas release in capture systems (PEfugitive); and (2) methane emissions due to incomplete 

flaring (PEflaring). Fugitive emission are estimated using an equation:

PEfugitive = (1 − CFEww) × Qww × Bo,ww × UFPJ × CODremoved,PJ × MCFww,lagoon,PJ

× GWPCH4

According to AMS-III.H, emissions from incomplete flaring can be calculated using the equation 

for baseline wastewater emissions (BEww,lagoon, shown above) but without consideration of the 

 30 Project development documentation for CDM projects is available at 

http://cdm.unfccc.int/Projects/projsearch.html. 31 As reported in UNFCCC. (2010). Indicative simplified baseline and monitoring methodologies for selected smallscale CDM project activity categories. III.H./Version 16, Sectoral Scope: 13. EB 58. Retrieved 4 Sept 2013 from 

http://cdm.unfccc.int/filestorage/8/R/I/8RIV5MZ4AG7YE9UQJ6HSL3NTFXD1C0/EB58_repan22_AMSIII.H_ver16.pdf?t=Um98bXNvNnBhfDBiKG3LnN-XSiXb2E1TjBld. 32 Ibid.
54

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global warming potential for methane. Using this approach, emissions from incomplete flaring 

associated with the methane recovery system equal 1,864 tons of CO2e per year.

33

Table 16. Parameters for Estimating GHG Emissions from POME Biogas Recovery

Parameter Definition Value Unit Source

CFEww

Capture efficiency of the biogas 

recovery equipment in the 

wastewater treatment system

0.9 (unitless) AMS-III.H default value

Qww,lagoon

Volume of wastewater treated 

in the anaerobic lagoon 213,671.25 m3

/year

ICED Indonesia 

Renewable Energy 

Toolkit (estimate for a 

45tph mill)

CODremoved,PJ

Chemical oxygen demand 

removed by the anaerobic 

lagoon equipped with biogas 

recovery

0.05 t/m3

ICED Indonesia 

Renewable Energy 

Toolkit (assumes no 

change from baseline 

value)

MCFww,lagoon,P

J

Methane correction factor for 

the anaerobic lagoon equipped 

with biogas recovery

0.8 (unitless)

IPCC default value for 

anaerobic deep lagoons 

(depth greater than 2 m)

Bo,ww

Methane producing capacity of 

the wastewater 0.25

kg 

CH4/kg 

COD

IPCC default value

UFPJ

Model correction factor to 

account for model uncertainties 1.12 (unitless) AMS-III.H default value

GWPCH4

Global warming potential for 

methane 21 (unitless)

PEfugitive

Fugitive emissions from 

biogas release in capture 

systems

5,026 tCO2e Calculated

PEflaring

Emissions due to incomplete 

flaring of captured biogas 1,864 tCO2e Calculated

Based on the above calculation, the total emissions reduction associated with biogas recovery 

relative to uncovered anaerobic lagoons is approximately 32,247 tons of CO2e per year. The 

recovery system reduces emissions relative to uncovered lagoons by 82%.

4.3.2 Emissions Reduction from Grid-Tied Electricity Generation

The electricity generated from the captured POME biogas will be grid-tied; thus, the baseline 

scenario is that the electricity delivered to the grid by the proposed system would have otherwise 

been generated by existing grid-connected power plants and by the addition of new generation 

sources to the grid. According to the UNFCCC, approved small-scale CDM methodology for 

grid-connected renewable electricity generation (AMS-I.D), baseline emissions are the product 

of the megawatt-hours of electricity produced by the renewable energy generating unit (i.e., the 

biogas digester) multiplied by the combined margin emission factor for the grid. The combined 

 33 Since anaerobic digestion does not directly involve flaring, this calculation likely overestimates GHG emissions 

associated with inefficiencies in biogas recovery. However, the calculation is used in this analysis to provide a 

conservative estimate for GHG emissions that occur from flaring under certain outstanding circumstances, for 

instance, if a generation unit has been temporarily shut down for maintenance but methane continues to be captured, 

or if more biogas is produced than the generator can process and the excess is flared.
55

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margin accounts for both the operating margin and build margin [25]. The combined margin for 

Sumatra is 0.743 tons of CO2e/MWh [26]. Table 17 summarizes the inputs used to calculate 

baseline GHG emissions associated with grid-tied electricity generation.

Table 17. Assumptions Underlying Calculations of Baseline GHG Emissions from Grid-Tied 

Electricity Generation

Measure Value

Total annual electricity production from biogas (MWh) 9,855,0

Parasitic load/other site uses (MWh) 758.8

Net annual electricity delivered to grid (MWh) 9,096.20

Annual baseline emissions (tCO2e) 6,758

Although the combustion of recovered POME biogas results in CO2 emissions, these emissions

are considered biogenic under Intergovernmental Panel on Climate Change (IPCC) accounting

methodologies [27]. The electricity generated from the biogas system is therefore carbon-neutral. 

Thus, generating electricity from captured methane will reduce combustion emissions associated 

by the grid by 6,758 tons of CO2e annually.

4.3.3 Summary

Table 18 summarizes the preliminary estimate of the GHG emissions associated with POME 

biogas capture and its utilization to generate electricity. This analysis indicates that, relative to 

the baseline scenario, this system can reduce GHG emissions by approximately 39,000 tons of 

CO2e/year. 

Table 18. GHG Emissions and Potential Reduction from POME Biogas Capture and Use in Mauro 

Jambi

Emissions Reductions from Methane Capture

Annual baseline emissions from POME lagoons (no biogas capture) 

(tCO2e) 39,136 

Emissions associated with fugitive emissions from biogas capture system 

(tCO2e) 5,026

Emissions associated with incomplete flaring of captured biogas (tCO2e) 1,864 

Subtotal: absolute emissions reduction (tCO2e) 32,247 

Emissions Reductions from Electricity Generation

Base case emissions (based combined emission margin for Sumatra grid) 

(tCO2e) 6,758 

Emissions associated with electricity generation using captured biogas 

(tCO2e) 0

Subtotal: absolute emissions reduction (tCO2e) 6,758 

Total emissions reduction from methane capture and use (tCO2e) 39,006 

These calculations account only for the emissions reductions associated with capturing biogas 

from the anaerobic lagoons and using that biogas to generate grid-tied electricity. Secondary 

emissions impacts for this project have not been estimated and might include effects such as a 

reduction in emissions associated with reduced transportation of diesel fuel to villages that will 

become grid-connected because of this project; an increase emissions associated with the 

transportation, construction, and installation of the biogas capture and utilization systems; and an 
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increase in emissions associated with termination of the project at the end of its life (such as 

waste emissions). These secondary effects are assumed to have relatively small emissions 

implications relative to the primary impacts. 

As a preliminary, high-level analysis, this emission reduction estimate is not appropriate for 

estimating or verifying officially recognized GHG reduction offsets (or “credits”) for use in 

mandatory or voluntary emission reduction programs, including the Kyoto Protocol’s CDM. If 

the generation of carbon offsets is an objective of this project, a thorough GHG reduction 

analysis can be performed during the feasibility and project development stages.34

4.4 Spatial Land Use Planning

Spatial land use planning refers to the “landscape approach” for planning environments. This 

means that a combined geographical and socio-economic approach to managing land, water, and 

forest resources is taken to ensure that the goals of food security and inclusive green growth are 

met.

35

Since 2007, spatial land use planning has been required in Indonesia for all terrestrial and coastal 

resource planning. Any new project activity is required to create a spatial land use plan that 

considers the social and environmental resources inside and outside the project area.

Spatial land use does not apply to this project because it occurs entirely within agricultural land 

and consequently, tenure can be assigned as individual titles by BPN.

The question of the impact of the proposed project on oil palm cultivation area is of interest. 

Land area for oil palm cultivation is generally expected to continue its upward trend in Jambi and 

throughout Indonesia due to world market demand for vegetable oils. Renewable electricity from 

POME is not expected to increase demand for oil palm land area because electricity generation 

equipment will be sized for the current capacity of a mill.

36 If a mill with electricity generation 

from POME did expand, significant capital would be required to purchase additional biogas 

collection and electricity generation equipment, which would also result in significant downtime 

for both the mill and electricity generation plant. Further, the profitability of palm oil 

manufacture greatly surpasses economic benefits of electricity production from the methane 

byproduct. This project is therefore not expected to contribute to any significant increase of oil 

palm cultivation area.

The proposed project does not require any land acquisition and involves minimal land use 

conversion at the site because BBIP owns the relevant lands. There are land use implications 

connected with (1) new construction and infrastructure in the form of expanding or building new 

roads, and (2) connection of transmission lines with PLN.

 34 Detailed accounting methodologies (including guidance for ex ante and ex post monitoring) for GHG reduction 

projects can be found in World Resources Institute and World Business Council for Sustainable Development’s 

GHG Protocol for Project Accounting (http://www.ghgprotocol.org/standards/project-protocol); approved small 

scale methodologies for Clean Development Mechanism project activities 

(http://cdm.unfccc.int/methodologies/SSCmethodologies/approved); and the International Organization of 

Standardization’s ISO 14064 (http://www.iso.org/iso/catalogue_detail?csnumber=38381) 35 http://siteresources.worldbank.org/EXTSDNET/Resources/Landscapes-RIO-FAQ.pdf 36 BBIP mill has no plans to expand the capacity of this mill.
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The proposed project may require proof of Right of Building or Right of Use registered land to 

build a transmission line connecting with PLN. This type of land acquisition is problematic in 

many energy projects, but is not expected to be an issue here because there is a mill-owned road 

surrounded by mill-owned land, connecting to the existing PLN transmission line.

Current land use in Muaro Jambi District is identified in Figure 26 and Table 19.

Figure 26. Muaro Jambi land use

Source: Muaro Jambi Government Statistics Department

Table 19. Muaro Jambi Land Use Area

Muaro Jambi Land Type %

Berbak N.P. 4.4

Peat 4.4

Forest Park 2.8

Limited Production Forest 11.8

Production Forest 6.7

Dry Land (agriculture) 12.39

Settlements 9.72

Palm, Rubber, Coffee, Coconut 41.75

Temple Complex 0.6

Coal 0.2

Other 5.24

Total 100.00

BBIP Mill
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5 Social Assessment

5.1 Community Impacts

A Community Demographic Assessment was conducted with the following results. Bogor

Agricultural University (IPB), under subcontract to NREL, visited a village near the BBIP mill to 

obtain demographic data and assess social implications of this project type. The IPB team visited 

the Sakernan Sub-District of Bukit Baling, one of five settlements near the mill. Bukit Baling is a 

village with many settlements. IPB also visited Mekarsari-Kumpeh in another district located 

among oil palm plantations. 

The ethnicity of Bukit Baling is a mix of ethnic migrants from Javanese (Tanjabtim district)

(75%) and local ethnic Melayu Jambi (25%). Voluntary Javanese migrants began arriving in 

1985 seeking better opportunities as rubber farmers. They initially worked in rubber plantations

owned by local residents and saved money to eventually purchase their own land. Marriages 

between these two ethnic groups led to sharing agricultural experiences and activities. Younger 

men and married women are more likely to seek work with oil palm companies. 

Table 20. Bukit Baling Demographics

Bukit Baling Demographics

Male Population 3,512

Female Population 3,271

Households 1,926

Farmer Household 70%

Households using PLN 27%

Households with other electricity sources 68%

Java migrants in Bukit Baling initially planted rubber as a means to increase income. They also 

planted other food crops such as cassava, corn, duku, and durian. It is estimated that oil palm was 

introduced in that area in 1990s, and large oil palm plantations were established in 2003. As 

private oil palm companies expanded their lands, many smallholders with lands not susceptible 

to flooding (both local and migrants) removed rubber trees and planted oil palm because it was 

thought to have better potential to increase income. 

Some smallholders entered into partnerships with oil palm companies while others remain 

independent. In the past, village land was distributed to the community where it was later taken 

over by oil palm companies. There are several methods of land use for oil palms including:

1. Independent smallholders growing oil palm on their lands and selling FFB to local traders 

who hold delivery orders from oil palm companies. Smallholders receive approximately 

11,000/kg of FFB from local traders. Local traders typically sell to various palm mills at 

a rate of 14,000/kg of FFB. 

2. Cooperative arrangement of community members who release their land to a palm oil 

company as a partnership; these lands typically have sporadic documents (lands without 

certificate).

3. Palm oil companies obtain a community member’s land through a broker based on 

inventory and categorization of lands with sporadik documents.
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In Bukit Baling, PT Bukit Bintang Sari established the Aksobondo Cooperative with village 

smallholders where the palm oil company manages the lands. In this arrangement, the palm oil 

mill typically keeps 70% of net profits, and the remaining 30% are paid to the cooperative. In 

this arrangement, the palm oil company runs all stages of the production process leading to little 

capacity building among farmers. The Jambi office of the Indonesian Oil Palm Farmers 

Association suggested that these partnerships were more favorable for farmers when the 

government was involved in the process; currently smallholders and palm oil companies 

negotiate directly without government involvement. BBIP mill, the focus of this study, does not 

have this type of arrangement—it obtains its FFB from independent smallholders, a small BBIP 

owned plantation, and a minimal amount from plasmas (organized oil palm smallholders). 

Land prices in the area range from IDR 40 million/hectare for empty lands to IDR 60–100 

million/hectare for productive lands. The system of land inheritance is based on ethnicity of

family structure. 

Table 21. Bukit Baling Land Inheritance System

Ethnicity Inheritance 

System

Land Resource

Farm Unirrigated 

Land

Home 

and 

Vegetable 

Garden

Melayu Jambi (local) Matrilineal Man Woman Woman

Java (migrant) Bilineal

Man 

and 

Woman

Man and 

Woman

Man and 

Woman

Mixed

(marriage of migrant and 

local)

Matrilineal 

(tend to follow 

female)

Man Woman Woman

Overall, communities tend to view the development of the palm oil industry positively due to the 

creation of jobs at plantations and mills as well as increased demand for FFB, which increases

income for smallholders when compared with other crops. Typical jobs include fruit pickers, 

fertilizer application, bedding, foremen, and supervisors. All workers are paid monthly and 

permanent employees receive insurance. Approximately 40% of the jobs are permanent and 

include housing. Non-permanent employees make up 60% of palm oil company jobs and are 

split evenly between men and women with a daily pay of IDR 57,000.37 In some areas, palm oil 

companies fund village development programs that assist in infrastructure and training. 

Leadership in the village includes the village head, village secretary, religious leader, as well as 

oil palm managers. Local oil palm traders, who collect and deliver FFB to mills, are also viewed 

as important in communities. In 2013, Bukit Baling will have elections for the headman and two 

of three candidates are local oil palm traders. 

5.1.1 Role of Gender in Oil Palm Community

Both men and women participate in agricultural activities throughout the year (see Table 22). 

While oil palm is a primary activity in these communities, fishing and other secondary food 

 37 This data is based on Mekarsari Village, which is not in Bukit Baling but is a village in Jambi near palm oil 

companies. 
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crops are still important for both subsistence and additional income. Marriages between Melayu 

Jambi and Javanese migrants have resulted in a fairly equal division of labor and responsibilities

in oil palm activities, although men generally have the power to make significant decisions. 

While women have access to land, men control the land used to grow oil palm and also 

determine if land will be kept or sold. Men also make decisions on production inputs, such as 

seedlings and fertilizer, and dominate sales of FFB.

For oil palm specifically, both men and women are involved in all stages of the production 

process. The following division of labor is common in households with oil palm:

• Men: purchasing seeds, land preparation, fertilizing, transportation, selling FFB

• Women: seeding, bedding, weeding, household labor

• Both: planting, pruning, harvesting (men harvest FFB in trees, women harvest fallen 

FFB), social activities

Table 22. Bukit Baling Agriculture Division of Labor

Season

Economic 

Activities Time of Year Distribution of Labor

Rainy

Oil palm, 

Duku, Durian Oct–Mar Men: planting, fertilizer, spraying, harvestingWomen: weeding, bedding, drying

Paddy on 

unirrigated land Jan–Feb Women: harvesting

Fishing, processing 

salted fish, selling 

fish; oil palm labor

Feb–Jun

Men: fishing, oil palm labor

Women: processing and selling fish, oil palm 

labor

Dry Oil palm, Duku, 

Durian Apr–Oct Men: planting, fertilizer, spraying, harvestingWomen: weeding, bedding, drying

Women are responsible for household activities including cooking, washing, and caring for 

children. Women typically make all household decisions, including financial management,

although men and women together decide on expenditures related to buying a motorcycle or

sending children to school. Community activities that include women include 

religious/traditional ceremonies, births, deaths, and marriages. Men dominate public social 

activities related to village development, farmer groups, and similar events. Women do not have 

good access to training programs, and if training is provided, it is only for men. Additionally, 

only women in farmers groups are widows. Gender and access to resources and community are 

summarized in Table 23. 
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Table 23. Bukit Baling Access to Resources

Activity

Access to Resources

Men Women Both

Land X

Labor X

Seed purchasing X

Training X

Farmer Group X

Cooperative X

Social Organization X

Kinship Organization X

Income X

Credit X

Prior to 2010, most households in Sakernan (the settlement visited by IPB) used kerosene togok 

lamps for light in the evenings, and few households had diesel generators for electricity. Over the 

past 2 years, the community built a diesel power plant with a household fee of IDR 2 million for 

capital costs. Electricity is available to connected households for 12 hours each day beginning at 

6:00 p.m. PLN has built transmission lines up to the village, but power has never been delivered. 

While the community did not provide a reason, this is would sell to an area mill because the 

transmission line ends in this town and demand for power exceeds supply in Jambi and there is 

likely not enough power generated to run to the end of the line. A project developer should 

further explore this issue with PLN. Monthly fees are IDR 150,000 plus IDR 3,000 for each 

kilowatt-hour, with an average totally monthly cost per household of IDR 220,000 to 300,000. In 

total, 93 households are connected to the system, which burns 100 L of diesel/night. Community 

members manage the diesel power plant and all aspects of operating the plant including 

purchasing diesel, billing, payment, maintenance, and connections. Operators stay overnight to 

ensure that community members have electricity supply for the whole night.

5.1.2 Results from Impact Assessment

The availability of electricity during the day may lead to alternative economic activities. A 

household could decide to start a small business close to home. Currently, these communities 

cannot open small businesses due to the lack of daytime power. Electricity will be available with 

a 900-W connection for a rate of IDR 75,000/month. This will reduce electricity costs by IDR 

150,000–225,000/month when compared with diesel generation. This money could be used 

towards transportation and school costs for children. It is possible that some households will be 

reluctant to pay the household connection fee to PLN because they made a large investment in 

their community diesel system 2 years ago. The project cannot dictate where or how PLN 

delivers power; however, it is expected that nearby communities will be connected to the 

transmission line as it passes from the mill to the tie-in and because PLN’s plans to connect this 

area to its grid.

The mill will pay a modest premium payment to area oil palm smallholders. It is unclear how 

smallholders will use this small increase in household income. Presumably, a higher price paid 

for FFB may lead to a short-term or sustained increase of harvesting from existing smallholder
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land as they typically harvest less often than plantations. The increased income will not be 

significant enough to allow smallholders to purchase new land or make large purchases. 

Smallholders would benefit from harvesting and similar farmer training, and it may be possible 

for the palm oil company to provide this type of training. 

5.2 Community Participation Plan

Nearby communities, local governments, and organizations should be engaged early in the 

project by the mill, PLN, and the IPP in a series of stakeholder meetings to communicate project 

plans. Project owners should insist on including women and any other minorities or marginalized 

groups. Such meetings should summarize how electricity is made from POME, emissions 

benefits of both covering POME ponds and from discontinuing use of diesel generators, as well 

as job opportunities both temporary and permanent. The mill and IPP should also explain the 

differences between types of renewable energy and natural gas and coal. A timeline should be 

provided highlighting construction activities that may impact nearby residents with increased 

traffic for delivery of equipment to the mill. Engagement meetings should provide all residents 

of the community the opportunity to ask questions and provide input. This will allow the mill 

and IPP to understand what aspects of the project are most important to the community as well as 

identify social risks related to the project. The project will need to provide documented responses 

to community-identified concerns and issues. 

An IPP will need to develop relationships and trust for a successful project. It will need to 

engage community leadership and ensure that its efforts reach women and other marginalized 

groups. Any large landowners or other industries in the area should also be informed of the 

project as they may provide valuable input. Community members should be provided with active 

roles in public outreach meetings and give input to the project to generate public support.

The mill should work directly with local collectors to engage independent smallholders, both 

men and women, to identify the best methods to provide a FFB premium with profits from 

electricity sales. The possibility of oil palm smallholder training should also be discussed since 

smallholder yields are lower than large plantations and state-owned plantations. PLN should 

identify which communities will be connected to transmission lines, how much power will be 

supplied, the average monthly costs, a timeline for connection, and costs for connection paid by 

the household. PLN should also address the investments already made in community-based 

diesel generators and be specific in why these communities would benefit from PLN grid power. 

Engaging all members of nearby communities early and throughout the project will lead to 

greater social acceptance for the specific project and renewable energy generation in general. 

Successful community development with a project may serve as an example for expansion of 

POME electricity at palm oil mills.

5.3 Impact on Local Labor, Goods, and Services

Major equipment, including the flexible membrane and biogas capable electricity gensets, will be 

purchased from manufacturers outside of Indonesia. This is because there are few companies 

providing these products and none are domestic. It is possible that piping, pumps, seals, and an 

assortment of other equipment necessary for the project will be obtained in Indonesia but not 

from Bukit Baling since this equipment is not manufactured in the local community. 
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Construction of the project will result in temporary construction jobs and 10–12 permanent jobs 

to staff the energy project. Jobs for women will include laboratory and office administration 

positions. It is expected that many of the construction staff and all the permanent staff will be 

hired from the local community. Some of the construction jobs and staff from equipment 

suppliers will visit from out of town, which is likely to result in temporary increases in revenues 

for community shops, restaurants, and related businesses.

5.4 Social Risks

5.4.1 Mitigation Plan for Identified Social/Gender Risks

The BBIP mill intends to use profits from electricity sales to pay a premium price for FFB to 

smallholders to ensure their mills are able to continuously run at capacity. The BBIP mill obtains 

the majority of its FFB from independent smallholders through local collectors and a much 

smaller portion from plasmas (farmer groups). There is transparency in pricing because all

smallholders in the area receive the same price and they are aware of the price the local collector 

receives from the mill. The economic analysis in the study projects modest payments to the mill 

for electricity, which will result in an equally modest premium to smallholders. Some mills are 

expected to produce more electricity, which could result in a higher premium for FFB. This may 

also result in smallholders competing to sell their FFB to the mills and paying a higher price that 

could create conflicts between smallholders nearby these mills and those further away, and 

perhaps conflicts with plasmas that may join into a partnership with mills offering a premium. 

This may drive up the price paid for FFB at all mills in the area because all mills hope to 

maintain a constant supply of FFB. The overall costs for palm oil production has increased 

overtime partly due to GOI allowing palm mills to be built without plantation land, which has led 

to competition for FFB from smallholders. Pricing must be transparent to all parties to ensure 

that the financial benefits of the project are reaching the smallholders.

Another potential risk is the recent investment of households in community-owned, diesel-based

electricity generators. The IPB study stated that a community near the mill invested in a shared 

diesel-generating unit in 2011 with 93 households each contributing IDR 2 million, a significant 

sum for equipment and connections. Additionally, three members of the community are paid to 

operate the diesel plant; they would be affected if the diesel plant was turned off in favor of using 

PLN grid power. These employees would be ideal candidates for jobs at the mill’s electricity 

generation plant since they already have experience with generators. 

While not an official policy, PLN tends to install transmission lines and tie-ins along paved roads 

and not provide service to communities on unpaved roads. Of the five communities near the mill, 

two are on unpaved roads and three are on paved roads. This could lead to some communities 

getting the benefits of PLN power such as electricity available throughout the day and night and 

lower monthly costs. Furthermore, these communities would have a competitive advantage in 

opening businesses and more opportunities to increase income, which could create conflict 

between nearby settlements. The project may work with PLN during the PPA process to 

influence and encourage PLN to provide grid transmission to all communities in the immediate 

area of power generation. In Jambi, road improvements appear to be a priority and some 

communities near the mill recently had their roads paved. This issue will be reduced as road 

infrastructure continues to develop in the area. 
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5.4.2 Monitoring and Evaluation Plan Ensuring Social/Gender Equity

The project owner—either a mill or IPP for this project type—needs to develop an effective 

Environmental and Social Management System (ESMS) that will establish a process between the 

project owner, employees, and nearby communities.38 The project should consider engaging a 

third-party to establish the equal distribution of FFB price premiums to area smallholders. This 

will require transparency in prices paid to each local collector delivering to the mill and the 

smallholders from which they typically obtain FFB. The ESMS will define the relationships and 

responsibilities of all parties involved in the project. The project owner must establish an official 

method for communities to communicate issues with the project both as it develops and is 

operational. The ESMS will also establish an effective way to communicate how these issues are 

being resolved. Representatives from area communities should be a part of the monitoring and 

evaluating benefits over the life of the project. 

5.4.3 Suggested Next Steps

The next steps toward project implementation could begin with discussion of a path forward 

involving all stakeholders, including the mill, the IPP, villagers, the utility PLN, technology 

suppliers, and government offices having jurisdiction. This report may inform discussions 

leading to such a consensus. The following steps should be considered in moving toward a 

successful project:

1. Project Identification and Planning:

a. Develop the full description of the project.

b. Summarize any issues that could impair the feasibility of the project

c. Describe the proposed financial structure for the project.

d. Provide details of the proposed project team, any additional technical assistance 

that would be needed, and documentation needed to complete the project team 

(e.g., requests for qualification, solicitation for letters of interest, for a market 

survey). Form any legal entities needed for the project team. 

e. Document site ownership, land use agreements, or other elements of site control.

f. Develop documentation required to start the PPA process with PLN.

g. Document all the permits and licenses needed and the status of securing each.

h. Develop a full implementation plan. This would include the scope of work, 

procurement and construction, the required equipment for installation, site access 

for delivery, staging area for equipment and construction, limits on work times 

 38 Project owners should refer to IFC Performance Standard guidance while preparing an ESMS. Last Accessed 

August 13, 2013: 

http://www.ifc.org/wps/wcm/connect/c8f524004a73daeca09afdf998895a12/IFC_Performance_Standards.pdf?MOD

=AJPERES
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due to weather or holidays, milestones and timeline, and a monitoring and 

evaluation plan with outcomes and indicators.

i. Ensure that all project risks are identified, analyzed in detail, and mitigation plans 

are developed.

2. Technical Plan:

j. Evaluate technical assistance companies, IPPs, equipment, and construction 

companies with experience in POME electricity projects.

k. Provide a schematic design of the system, including minimum hardware 

requirements, and evaluate potential equipment.

l. Develop a site plan to confirm the fit of the system into the existing palm mill 

site. Determine if space is available to co-locate biogas clean up and electricity 

generation equipment in palm mill’s engine room. If space is unavailable, develop 

plans for a small building to house this equipment.

m. Prepare a detailed electric production estimate by month for input to the economic 

model, and review and revise all other economic inputs.

n. Develop a detailed O&M plan, describing the local capabilities that would include 

scheduled maintenance, warranty management, response time and resources for 

unscheduled maintenance, site security, spare part inventories, experience of the 

O&M organization, and a training program for local support.

o. Refine the long-term technical risk assessment with regard to selected equipment, 

access to parts, and reliability; errors in biogas resource estimates, O&M risks, 

construction risks.

p. Refine the risk mitigation plan, including a commissioning and system acceptance 

plan; process it for periodic performance verification, review of equipment 

quality, O&M response time, and system design.

3. Economic Plan:

q. Update and refine the economic model with new information from the full 

feasibility study, including proof of proposed costs and revenues and strong 

evidence (such as local surveys) for benefit streams.

r. Provide separate plans for monitoring and managing variables that affect 

economic return.

s. Document community surveys that show that benefits are distributed equitably.

t. Document the creditworthiness of the borrower or grantee for the project, through 

a credit check, and if applicable, collateral for the loan, loan insurance, and a plan 

for default.
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u. Refine the long-term economic risk assessment with updated and more complete 

data, with a mitigation plan that addresses the economic risks identified.

4. Environmental Plan:

v. Conduct thorough baseline studies with quantitative data for compliance with all 

identified laws and regulations.

w. Conduct the public consultations and scoping analysis required by IFC and others,

if required, or develop the UKL-UPL.

x. Develop Terms of Reference for the environmental and social analyses.

y. Develop the Environmental Monitoring Efforts Reports, Environmental Impact 

Assessment, and Environmental Assessment Application to ensure compliance 

with Indonesian government regulations.

z. Complete the environmental license application.

aa. Comply with the requirements of the IFC’s Performance Standards.

bb. Provide for a guarantee fund that will be used to rehabilitate the site in the event 

of environmental damage.

cc. Document that the communities impacted by the project plan support the 

proposed environmental plans.

dd. Refine the GHG impact analyses with more complete and up-to-date information.

5. Social and Gender Plan:

ee. Provide more quantitative detail for project impacts on women, minorities, and 

other vulnerable groups; land use and community resources; and the 

local/community economy in terms of job creation, business development, and 

new supply chains.

ff. Action plan to engage women in empowerment activities in the project.

gg. Complete stakeholder consultations, and document community engagement, such 

as who has been engaged; their level of support; plans for further engagement, 

training, or methods for further behavioral change required; and strategy for 

continued consultations and community feedback during project implementation.

hh. Develop lists of agreements, contracts, and other details that prove the benefits to 

local stakeholders.

ii. Refine the long-term social risk assessment with updated and more complete data 

and mitigation strategies for any negative impacts on the community, such as job 

training, small business startup funds, etc.
67

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5.4.4 Potential Complementary Activity

As explained in the Resource Assessment section of this study, smallholders FFB yields are 

lower than plantations or state-owned lands. An additional activity to support this project and 

improve incomes of smallholders would be to engage Yayasan Setara for training or a similar 

organization. Yayasan Setara is a local, non-governmental organization based in Jambi and that 

understands the specific issues oil palm smallholders experience in the local area. Yayasan 

Setara trains smallholders in techniques to sustainably harvest FFB, which both increases yields 

and incomes, and training fees are expected to be very low. The training takes place on 

smallholder land in the surrounding areas. There is a risk that increasing yields, resulting in more 

income, will cause smallholders to expand their oil palm land at the expense of their own land.

They may also be tempted to expand into peat land or other degraded areas, resulting in negative 

impacts on land. In addition to farmer training to increase yields, Yayasan Setara teaches the 

importance of farmers using some of their land for a subsistence garden as food shortages are 

projected in Jambi in the next few years, and the problems that occur if farmers expand into peat 

land.
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6 Conclusions

Ideal biomass energy projects are those that generate a waste product onsite with energy 

potential, which is the case with this proposed project. There are numerous benefits from POME 

electricity at palm mills, including electrification of rural areas, renewable electricity entering the 

grid, and reductions in emissions and POME processing wastes. Economics in this study indicate 

a modest return for an IPP, which may not achieve its corporate hurdle for investing in a project. 

However, geography may positively influence economic returns and investments in this type of 

electricity generation because PLN biogas rates for PPAs are higher for other provinces—such as 

Kalimantan, Maluku, West Nusa Tenggara, Papua, or Sulawesi—than on Sumatra. The projected 

revenues the mills receive would be small but would allow them to pay a premium to 

smallholders, thus increasing their income a small amount. There is no guarantee that 

smallholders will receive higher prices as they are independent and have no formal agreements 

with mills, however, the BBIP mill profiled in this study currently pays a premium. Compared to 

the specific mill project studied here in Mauro Jambi, the economics of other similar projects 

may be more attractive if the POME is richer in organic content, which leads to greater 

electricity potential and/or if the mills are located where PLN biogas rates are higher.

This project type is more likely to benefit older or inefficiently run mills than new or efficient 

mills. A poorly operated or old mill is capable of producing more than the 1.25 MW used in the 

model; up to 2.5 MW is possible resulting in economies of scale for the project. If a mill is new 

or highly efficient, it may produce less than 1.25 MW, making the project less feasible.

This project meets several of Green Prosperity’s target goals by increasing income through 

modest FFB price premiums to smallholders, lower monthly energy costs for villagers, lowcarbon project development, and renewable electricity generation in a rural area.
69

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Appendix A: PLN PPA Chart

Source: “Renewable Energy Toolkit.” Second Edition. USAID Indonesia Clean Energy Development (ICED) Project. November 27, 

2012. pp 88-89.
70

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71

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Appendix B: Details of Economic Calculations and 

Modeling

General Variables 

Descriptor Value IDR Distribution Upper Lower

Start Year 2015

Start Number 0

Social Discount Rate (%) 10%

Number of Periods (years) 20

National Inflation Rate (%) 4.00% Triangular 5% 3%

Exchange Rate (IDR/$) 9,700

Generating System Variables

Value IDR Distribution Upper Lower

Capital/Operating Costs

Installed Capacity (kW) 1,250

Capital Cost per Watt ($/W) $2.49 24,153 Triangular $3.00 $2.00 

Total Installed Capital Cost $3,220,747 31,241,250,000

T&D Capital Cost per km ($/km) $21,649 210,000,000

T&D length (km) 5

Total T&D Capital Cost $108,247 

Fuel Costs ($/kWh) $0.00 0

O&M cost (% of installed capital cost) 10% Triangular 11% 9%

Salvage value % of capital costs 0%

Mill Lease Payments (% of Revenue) 10%

Production

Capacity Factor (%) 90% Triangular 95% 80%

Degradation Factor (% per year) 0.0%

Parasitic Load (%) 7.7% Triangular 8% 5%

Share of production purchased by PLN (%) 100%

Other

Capital physical lifetime (years) 20

Construction Time (months) 18
72

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FFB Supply Agreement

Descriptor Value IDR Distribution Upper Lower

Annual Consumption (tonnes per year) 270,000 

Long Term Consumption Growth (% per year) 0%

Percent Purchased from Smallholders (%) 50% Triangular 60% 40%

Current FFB price ($/ton) $146.39 1,420,000 Triangular $160 $130

Nominal FFB Price growth (% per year) 4.00% Triangular 5.0% 3.0%

Mill share of lease revenue (% per year) 10.00% Triangular 12.0% 8.0%

Financial Structure Variables

Descriptor Value IDR Distribution Upper Lower

Grant (0) / Loan (1)/ Combo (2) 1

WACC (%) 4.7%

Leverage (% of capital cost) 50% Triangular $0.36 $0.24

Grant (% of capital cost) 0%

Equity (% of capital cost) 10%

Equity Holder 

Dividend Payout (%) 5%

Return on Equity (%) 6.07%

Equity Exit Year 20

Lender

Term (years) 10.00

Debt Payment Start Year (year) 1.50

Interest Start Year (year) 0

Nominal Interest Rate (%) 4.50% Triangular 6% 3%

Grid Variables

Descriptor Value IDR Distribution Upper Lower

PLN FiT ($/kWh) $0.101 975

Nominal FiT Growth (% per year) 0.0%

PLN sale price per kWh ($/kWh) $0.063 614

Nominal PLN Price Growth (% per year) 3.30% Triangular 4.00% 3.00%

PLN cost of generation ($/kWh) $0.301 2,922

Nominal PLN Gen Cost Growth (% per year) 8.3% Triangular 8.5% 7.5%
73

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Appendix C: Other Supporting Documentation 

FFB Price Premium Paid to Smallholders

Sensitivity Parameter Contribution to Total Variance 
74

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Appendix D: Geospatial Mapping

Bukit Baling Rural Electrification Rate
75

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