Already the world’s third-largest geothermal power producer, Indonesia is poised to enter a fresh phase of expanding this resource, with a new law setting the stage for further investment. By smoothing out many regulatory wrinkles for developers, the government hopes to tap the many subterranean thermal hotspots that dot the country as electricity producers scramble to meet growing demand. The same forces that cause natural disasters like earthquakes and volcanic eruptions across the nation’s archipelago also harbour some of the globe’s largest potential for renewable energy.
Total Reserves
According to the Ministry of Energy and Mineral Resources (MEMR), total proven, probable and possible (PPP) reserves were an estimated 28.9 GW in 2013; another 7.4 GW were “speculative” and 5 GW were “hypothetical”. This makes Indonesia the owner of some 40% of global estimated geothermal reserves. By region, the leader in proven reserves by far is the highly populated and well-explored island of Java, with 1.8 GW of its 9.8 GW PPP total being proven. While Sumatra posted a higher PPP figure of 12.8 GW, most of this is still classed as probable (6.8 GW) rather than proven (380 MW), meaning its potential also far outweighs that of other regions, with 3.2 GW of speculative resources and 2.5 GW of hypothetical resources, or 43.2% and 49.7% of the national totals.
Installed geothermal power plant (GPP) capacity hit 1.35 GW spread among 10 GPPs in 2013, where it has hovered since 2011, according to the MEMR. This represented around 2.6% of the country’s 52 GW in total generation capacity in 2013, with GPPs pumping out 4345 GWh each year. The most recent growth spurts occurred in 2000-01, when the addition of 260 MW brought the total to 785 MW, and in 2006-08, when another 202 MW were added for a total of 1.05 GW.
The largest plants are located in West Java, including the 377-MW Salak GPP, the 270-MW Darajat GPP, the 227-MW Wayang Windu and the 200-MW Kamojang GPP. Outside of Java, generation is less developed, with the largest operational facilities being the Ulubelu GPP in Lampung (110 MW) and the Lahendong GPP in North Sulawesi (80 MW).
In 2013 Indonesia’s GPPs produced energy totalling 15.25m barrels of oil equivalent (boe), in line with the 2010-13 average of 15.19m. Moderate investment over the previous decade had boosted output by about half, from below 10m boe in 2000. Most of this was consumed locally as electricity, though 15,245 boe was exported, of which 8912 was derived from independent power producers and the rest from state-owned power company Perusahaan Listrik Negara (PLN).
While this headline figure ranks the country third among global users of geothermal technology, behind only the US and the Philippines, the sector has stagnated since its initial boom some 30 years ago and in recent years has not attracted significant new investment. Since the start of the millennium, the geothermal contribution to Indonesia’s primary energy mix has averaged around 1% through to 2013, with a high of 1.26% in 2009 and a low of 0.92% in 2003, according to the MEMR. This flat-lining has continued despite the MEMR having offered 58 geothermal concession areas through to 2013, as only nine are so far producing. While most outstanding concession areas have been tendered, these remain largely undeveloped for a host of reasons ranging from land use restrictions and electricity off-take pricing problems to disputes with locals and lack of financing.
Welcome Change
In a bid to capitalise on the country’s vast reserves, the government has been working with the industry to scrap some of the barriers to entry imposed by Geothermal Law of 2003. Much to the relief of producers, Indonesia struck one restriction from the books in August 2014, when the House of Representatives passed a new geothermal law: the key provision was to stop classifying geothermal exploration and development as a mining activity subject to the same restrictions as extractive processes. This has allowed geothermal activity to be carried out in forest conservation areas, which had been prohibited under the forestry law. This change is likely to pay dividends in the near future: a number of concessions have already been issued for high-potential areas within forest conservation areas, including PLN’s 40-MW Kotamobagu GPP in North Sulawesi, initiated in 2012, and the 55-MW Lyang Argopuro GPP in East Java. Another key change was the addition of new guidelines for establishing an electricity-pricing policy applicable to both investors and PLN. With these in place, the MEMR was able to issue a new regulation setting ceiling prices for new geothermal projects, ranging from $0.12 to $0.30 per KWh. A final change was to re-establish central authority over the permitting process in Jakarta, so that tenders for geothermal projects are now issued by the central government alone, which previously only determined geothermal working areas and left local authorities to tender projects. In return for ceding this role, the law now requires geothermal developers to allocate a portion of their revenues to local communities. Exactly what portion has yet to be codified: the legislature is expected to pass rules for implementation by the end of 2015 to clarify this and other issues.
Obstacles
Despite these improvements, a number of issues still hold back the development of geothermal resources. Developers would like to see some regulations tweaked, such as the length of time allocated for cost recovery, which is less than that afforded to oil and gas operations, and a recent moratorium on permits and land acquisition problems.
Perhaps of even greater immediate concern is the current global market climate for energy and its effects on the bankability of new projects. With the price of traditional fuels – oil, natural gas and coal – all stagnating, less attention is being paid to cleaner and more expensive alternative power sources. The recent slump in oil prices has significantly dampened enthusiasm for reducing emissions and developing more renewable energy, particularly in developing countries. Since geothermal energy costs far more per megawatt of electricity to produce, investors, lenders and power purchasers will need strong incentives to go green when faced with much cheaper and proven conventional options. PLN will guarantee the off-take of geothermal power once the turbines begin spinning, but banks remain wary of the long development times and high perceived risk of early-stage projects. The result is that, although Indonesia is in the midst of a big electricity crunch, with tens of gigawatts of new generation capacity needed by the end of the decade, geothermal power is likely to play only a minor role in the expansion and diversification of the primary energy mix.
All the same, a number of geothermal projects are already under way, including large-scale fields with the potential to produce hundreds of megawatts. Stateowned energy firm Pertamina told local press in January 2015 that it intended to spend $432m to build eight GPPs with a combined total of 437 MW. Medco Power Indonesia is meanwhile leading a consortium to commission the first 160-MW stage of the 340-MW Sarulla power plant by 2016, which on completion will become the country’s single largest geothermal plant.
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