More policies needed to boost

Indonesian geothermal use

Fedina S. Sundaryani
The Jakarta Post
Jakarta | Mon, November 14, 2016 | 06:46 am

Two workers inspect high-pressure pipelines at the Lahendong geothermal power plant in Tompaso, Minahasa, North
Sulawesi, on Sept.26. (Antara/Adwit B. Pramono)

Topics

GeothermalPower electricity-tarif

24

Share this article

Follow Us

A new regulation aimed at setting a fixed feed-in tarif for geothermal power is about to
come, clearing uncertainties for investors. However, a lack of accurate data on
geothermal reserves in existing fields seems to have curbed investor confidence and
impeded price negotiations.
Geothermal energy, the Earths internal heat, which can be harvested to generate
consistent power, produces zero greenhouse gas, making it the perfect alternative to
replace fossil fuels. Sitting on the ring of fire, Indonesia is said to have massive potential
in geothermal reserves in almost 330 fields across the nation.
The governments estimates, in a report published in 2013, cited around 29 gigawatts
(GW) of geothermal potential. However, the countrys geothermal sector has remained
sluggish with only 1.5 GW of geothermal power produced since the first geothermal
power plant in Garut, West Java, in 1982.

The government has since set an ambitious goal to increase the national geothermal
capacity to 7,155 megawatts (MW) by 2025, which would make Indonesia the largest
geothermal energy producer in the world.
PLN in its business plan (RUPTL) has set a target of increasing geothermal-based power
to 6,150 MW by 2025. If successful, the stateowned electricity company will see almost
a quarter of all its electricity production, an estimated 42,485 gigawatts per hour (gWh),
come from geothermal resources.
However, a problem appeared as PLNs business plan cited a 2007 report by West Japan
Engineering Consultants, Inc., which states that there are 9 GW of exploitable potentials
in 50 existing geothermal fields.
A 2010 report by Castlerock Consulting argued that there were inconsistencies in the
past studies of Indonesias geothermal potentials, leading to an overestimation of
existing reserves. Castlerocks detailed field-by-field assessment suggests that a total of
only 3,435 MW will be established by 2020.
The lack of accurate data on the geothermal potentials has discouraged banks from
handing out loans to companies that have won the geothermal tenders in Indonesia.
Thus, many investors must rely on their equity before they can receive loans for the
explorations.
The Energy and Mineral Resources Ministrys geothermal energy director Yunus
Saefulhak said that it was the government who ideally conducted the thorough
exploration in the fields, before putting them on auction. Due to a lack of funds, the
government could only rely on geological, geophysical and geochemical tests to
estimate the geothermal reserves.
We all know that it costs around US$10 million for drilling one exploration well, and
even we dont have a warrant [for any reserve finding]. The government just does not
have enough funds to drill the 330 potential reserves, he told the Jakarta Post.
A joint report by the ministry, the World Bank and the Asian Development Bank has
estimated that it takes $4 billion in equity and $9.5 billion in debt finance just to
produce 3 GW of geothermal power, assuming a 30 percent equity and a $4,500 selling
price per kilowatt (kW).
What the government can do amid the limited condition, Yunus continued, was to lure
investors appetites into the geothermal potentials by issuing a new regulation that
establishes a fixed price depending on the real capacity found after the exploration.
Soon the government will issue a regulation on a fixed feed-in tarif based on an
appealing internal rate of return [IRR] starting from 5 MW to 220 MW. So during the
auction, companies will no longer have to propose a price, and will only need to propose
their exploration commitment and the amount of funds they are willing to invest, he
said.
Currently, ministerial regulation No.17/2014 stipulates the price ceiling of electricity
from geothermal energy at 10.4 to 29 US cents per kilowatt hour (kWh) depending on
the capacity. Room for negotiation is available but mostly ends up into months and even
years of talks.
The impending regulation is expected to boost investors eagerness to bid on the
countrys fields, especially amid drama within the PLN and Italys Enel Green Power,

both of which were warned to pull out of the bidding race on Chevrons two Indonesian
geothermal assets.
Indonesian Geothermal Association chairman Abadi Poernomo claimed that many
domestic and foreign investors had decided to opt out of bidding on the countrys
geothermal fields as they were waiting for the new regulation to be issued.
Many companies have had past experiences where they discovered a lower proven
reserve from the governments initial estimate in a field that they won. Thus, they
demanded tarif renegotiations with the PLN.
The problem is that there are only two base load power plants the coal-fired and the
geothermal power plants. Thus, the geothermal power plant is always compared to coal,
which is much, much cheaper despite environmental costs, he said.
However, unlike coal, which is dependent on the global market, the geothermal feed-in
tarif is fixed for the whole 30-year contract, with only an additional fee encompassing
25 percent of the operations cost. The new regulation is reportedly to include a
retroactive tarif with prices that will be adjusted based on proven capacity.
Abadi, who is also a member of the National Energy Board (DEN), said he was also
working with the ministry to prepare a regulation on the assignment of preliminary
surveys and exploration for the geothermal sector.
It will allow the government to hire geothermal consulting firms through a limited
auction to gather more accurate data in the fields. This data could slightly decrease the
prices as it would minimize a companys risk, Abadi said.
BMI Research, a subsidiary of Fitch Group, appraised the governments move to reshape
the regulation on geothermal power, and expected that well-established domestic
geothermal industries would be attracted due to their expertise in developing
geothermal power capacity.
In particular, US and Japanese firms will likely have a strong foothold in the market as
they look for international contract opportunities amid a slowdown in their domestic
geothermal markets, BMI Researchs head of power and renewables Georgina Hayden
said.