Indonesia’s geothermal development

Hanan Nugroho, The Jakarta Post 30 Nov 09;

Indonesia, which lies on the Pacific Ring of Fire, holds approximately 40 percent of the world’s geothermal reserves, equivalent to about 27,000 megawatts of electrical power. Most of the geothermal potential is found in Sumatra (13,800 MW), Java and Bali (9,250 MW), and Sulawesi (2,000 MW), while smaller pockets are found scattered across the archipelago.

Geothermal energy is a type the world currently favors to combat global warming. Its price is not volatile, such as that of fossil fuels, meaning that in the long term, the costs associated with using geothermal power can be cheaper and less risky than that of fossil fuels.

While geothermal energy is clean and renewable, can be used locally (is not exportable), has a very reliable supply, has low and stable electricity-dispatching costs, and is concentrated in Java and Sumatra (which are home to large numbers of consumers of electricity), then why has Indonesia’s geothermal potential not been adequately developed?

The installed capacity of our geothermal power plants (Kamojang, Salak, Dieng, Lahendong, etc.) is still about 1,189 MW, lagging behind that of the Philippines and the United States.

The government plans to implement its second 10,000-MW power development program, where about 48 percent (4,733 MW) of the power generated will come from geothermal plants. The plan is to start delivering the electricity by 2014.

However, the program is challenged by several constraints: a weak tendering process, lack of sufficient and reliable data, lack of human resources, inadequate financial support, and – the most basic – the weak power purchase agreements (PPA) process.

The current capacity of our geothermal power plants is actually a result of planning and developing done in the 1970s and 1980s, when oil prices skyrocketed. Presidential decrees No. 16/1974, No. 22/1981 and No. 23/1981 instructed state-owned oil and gas company PT Pertamina to explore Indonesia’s geothermal potential, and ordered state electricity company PT PLN to buy its electricity production.

The Decrees were significant in reducing exploration risks and providing a guaranteed buyer for the steam/electricity produced from successful exploration efforts.

However, the current geothermal development efforts face different regulations and challenges.

Geothermal Law No. 27/2003 stipulates that working areas and exploration-exploitation works are to be tendered by regional administrations. Due to a lack of experience and knowledge in dealing with international tendering standards, regional administrations have so far only been able to award a limited number of geothermal working areas.

Since the tender for geothermal exploration is not directly related to the price of the electricity to be bought by PLN, there has been no working area development license to construct new power plants since the law was passed.

Unlike oil and coal, which can be sold worldwide, or natural gas, which has wider consumer potential even though it requires specific infrastructure to be built to link production fields to consumers, the uptake of geothermal energy in Indonesia is still limited to power generation.

As a monopoly, PLN is the only buyer of geothermal power, and its stand for determining electricity prices is very dominant.

On the other side, the selling prices for PLN’s electricity are regulated by the government. The government provides a subsidy, but how the rate and the subsidy will directly affect the making of PPA between PLN and geothermal exploration companies is not well defined. PLN tends to pass through its perceived low rate regulated by the government to the exploration companies.

It is clear the making of PPA will take a very long time or be difficult to conclude.

While the government frequently claims Indonesia’s geothermal potential is 27 GW of electricity, to be accepted for energy business the data must be more detailed and more technical, as well as verified and certified by internationally respected third parties. Without this effort, it will be difficult for any tender to attract high-quality bidders or get the necessary funding to develop geothermal prospects.

The second-stage 10,000-MW program attempts to get 4,733 MW from geothermal, or about four times the current installed capacity that has taken three decades to develop. The acceleration program will certainly need a large number of specialists, project managers, researchers, etc.

Geothermal technology is not very sophisticated, but only a handful of institutions the world over teach the expertise. There are many people in the central and regional administrations, banking industry, consulting and construction companies, who need to increase their knowledge of the geothermal industry. Therefore building human resources capacity to support the acceleration program will also be a challenging job.

Finance, even it is hard to get right now, could be a relatively easy problem to solve since there are many parties in the world ready to support this kind of low-carbon project. However, solid PPA and high quality of overall project concepts are prerequisites for finance to be secured.

Even though the government might rely – in part – on the “green projects” being developed by Pertamina, the overall geothermal development acceleration program will have to address the above challenges. Without addressing those constraints seriously, it will hard to achieve the target; instead, our geothermal potential will remain buried in the ground.


The writer is an energy planner and economist with the National Development Planning Agency
(Bappenas). The opinions expressed are his own.