Technical Due Diligence for Minihydro Power Plant Project in Indonesia

Technical due diligence as part of the bankability due diligence carried out by the bank for the minihydro power plant (MHPP) project which will be financed for its construction. This research is to determine important variables as the object of due diligence and to conduct technical due diligence based on the variables. The important variables as the object of due diligence were obtained from interviews with group of experts who have experience in the construction of MHPP. The results of the interviews were processed using the Relative Importance Index (RII) and the Analytical Hierarchy Process (AHP) method to determine the risk ranking/weight. The due diligence process is carried out on submitted project documents and onsite verification to three sample of MHPPs at West Sumatera Province, Indonesia. Based on the assesment to each variables to the sample MHPPs, we get result that one MHPP does not ready to be financed from a technical point of view.


Introduction
The Business Plan for the Provision of Electricity of PT Perusahaan Listrik Negara (Persero) (RUPTL) for 2021 to 2031 [1] states that there are still many additional needs for minihydro power plantt (MHPP) in Indonesia, as the option as cheap renewable energy power. MHPP is a hydroelectric power plant with a capacity below 10 MW [2]. The report ASEAN Centre for Energy [3] also shows that the levelized cost of electricity of hydroelectric power in ASEAN countries is USD 0.044/ kWh, lower than that of biomass power plants (USD 0.088/kWh).
One of the important things in the development of MHPP is the availability of funding to build the project. ICED-USAID states that funding for MHPP in general ranges from 65% to 75% of the total investment cost [4]. This means that the independent power producer (IPP) must be able to convince the banks that their MHPP project to be developed has mitigated the risks that may arise if it has received financing. One of the risks that must be mitigated is the risk related to technical aspects.
Many research discus the technical feasibility study of MHPP in Indonesia, but they never mention what kind technical aspects need to be considered to make the project bankable (worthiness to be financed). There are many MHPP in have already signed power purchase agreement but have not obtained financial close yet [5].

Method
Before the technical due diligence process is carried out, it is necessary to agree on what variables will be the object of the assessment. Therefore, a literature study and interviews from competent experts in the development of MHPPs were carried out. These variables are obtained using the Relative Importance Index (RII) and Analytical Hierarchy Process (AHP) method to get the ranking as well as the weighing of the frequency and the severity. The risk is multiplication between frequency and severity [6]. These variables include the stages of planning, construction, and operation. Figure 1 represents the research methology.

Figure 1 : Research methodology
Based on the list of variables obtained through RII and AHP method, the technical due diligence process can be carried out. Data related to the MHPP Project is obtained from planning data (feasibility study, detailed engineering design and interconnection study), procurement and contracts (engineering contracts and machine purchase contracts), permit and licenses, PPA, and other data related to human resources.

T2
Detail engineering design (DED) for civil work DED must be clear and detailed in providing information related to the type and specifications of the main building (dam/dam, intake, sand trap, waterway or tunnel, head pond or head tank, penstock, outlet) [8], [15], [9], [10] Interviews

T3
Mechanical and electrical design The design of mechanical and electrical equipment must provide complete information about the specifications of the turbine and generator and transmission equipment.

Local grid condition
The condition of the local electricity network must be able to absorb and distribute electricity production to the maximum and in safe conditions.

Point of interconnection
The distance of the interconnection point should not be too far from the MHPP.
[19], [20] Interviews T6 Electricity load and its projections The condition of the electricity load must be able to absorb the electricity generated by the MHPP to the maximum within the PPA period.

T10 Operation & maintenance ability
The team appointed to carry out operation and maintenance activities must have been doing the same activity for at least 2 years.

[14],[21]
Interviews T11 Supplier's credibility The supplier must have experience in supplying MHPP's equipment in Indonesia, and the MHPP must have been operating properly (at least 2 MHPPs).
[7], [13] Interviews First interview is in order to obtain frequency index uses 5-Likert's scale frequency. The question is how important the variable on the success of the MHPP Project. The result of interview is presented in Table 3, and the data is processed using RII method.
Second interview is in order to obtain severity index uses 9-scale of Saaty's number [22] . The question is how important the variable if compared with other variable with regard the effect on the success of MHPP project. Table 5 presents the geometric mean of result of interview from 20 respondents.The data in Table 5 is processed using AHP method.
AHP method is used to assess the severity that will be faced by a MHPP project caused by errors in mitigating technical aspects as listed in Table 1. Eigen factor as the result of AHP method is converted to severity index based on a severity scale which described on PMBOK Guide [23].   Table 6 presents the risk level of each technical variable in Table 1. The risk level is the multiplication between frequency and severity [6]. In this study, the quality of feasibility study (T1) is considered the most important variable to be considered for mitigation.

Sample MHPP for Technical Due Diligence
There are 3 MHPPs are involved in this technical due diligence. All MHPPs have a same capacity, same type of turbine and located in West Sumatera, Indonesia

Technical Due Diligence Process
The technical due diligence process is carried out on the related document of the MHPP (procurement, permits, PPA, contracts, company profiles, and key person's profile). Basicaly, the due diligence will be assesed the availability and documents/data completeness, the data consistency, and actual condition at site.

Scoring
The scoring for the technical due diligence will be in 1-5 (1 = very poor, 2 = poor, 3 = fair, 4 = good, 5 = excellent). The MHPP have to obtain minimum score "3 or fair" to pass the technical due dligence process. The minimum score is concluded refer to the discussions with the experts and experience involved in technical due diligence process for MHPPs during 2013-2019.

Result and discussion
The result of the technical due diligence is presented in Table 10. The MHPP # 2 does not pass the minimum score. Based on the documents submitted, there are several weakness and potential risk to be mitigated for MHPP#2.
• The river has only small catchment area. In the other hand, there is high rainfall in the area. Based on our experience and discussion with the experts, the data is contradictory. The wider a watershed, the greater the possibility of rainwater being captured. • There is significant difference between the FS and the DED of MHPP#2. The generating capacity of MHPP#2 according to the FS is 6 MW, while in the DED is 8 MW. • The other risk is local grid capability. The local grid conditions can only absorb 3.9 MW • The distance of point of interconnection is far from the power house (24 kms). It will requires larger investment costs and the possibility of significant losses. • There is no information regarding operation and maintenance strategy. The IPP has no exeperience to operate and maintenance power plant.

Conclusions
The technical due diligence which conducted on 3 MHPPs shows that MHPP #2 has not technically feasible to obtain financing yet. There are several potential risk which need to be mitigated. Improvements to the DED by concerning to the actual conditions in the field (availability of discharge, installed capacity, and electricity absorption) absolutely necessary to determine the investment cost and how mitigate the risk might be occured in the construction and operating phase. The appointment of experience consultant, contractor and operator (for operation and maintenance work) needs to be considered, since the IPP have no experience in MHPP development.