Indonesia's geothermal potential

Indonesia's geothermal potential is substantial with the country reported as having 40% of the world's potential geothermal resources estimated at 28,000 megawatts (MW).

Currently Indonesia produces around 1,200MW from six geothermal fields in Java, North Sumatra and North Sulawesi. In 2007, geothermal energy represented 1.9% of the country's total energy supply and 3.7% of its electric power.

At the 2010 World Geothermal Congress in Bali, President Susilo Bambang Yudhoyono announced a plan to build 44 new geothermal plants by 2014, more than tripling capacity to 4,000 MW. By 2025, Indonesia aims to produce more than 9,000MW of geothermal power, becoming the world's leading geothermal energy producer. This would account for 5% of Indonesia's total energy needs.

History
The first proposal on energy from volcanoes came in 1918 during the Dutch colonial era. In 1926, five test borings were drilled in Java's Kawah Kamojang field, the third being the first that was successful. In the early 1980s, it was still discharging superheated steam. A prefeasibility study for electricity generation was initiated in 1972 by Geothermal Energy New Zealand. The first generator was inaugurated in 1983 by President Suharto and subsequently expanded in 1987. Current capacity is 140 MW.

Since the mid-1980s, Chevron, the world's largest geothermal power producer, has operated two geothermal fields in West Java at Mount Salak and Darajat with a combined capacity of around 365 MW.

Between 1989 and 1997 explorations were conducted at the Sibayak geothermal field in northern Sumatra, and subsequently a 12 MW plant has been placed in operation.

The Wayang Windu Geothermal Power Station in West Java, owned by British Star Energy, has been in operation since 2000. It currently comprises two units with a total capacity of 227 MW. There are plans for a third unit of 127 MW which is expected to be on-stream by mid-2013.

Exploration and development
Exploration of the Bedugul Geothermal Field in Bali started in 1974 and though production capacity was estimated at 175MW in 2008, the project is on hold after being opposed by local residents.

PT Pertamina Geothermal Energy (PGE) - a geothermal business branch of state oil and gas company Pertamina - plans to develop seven new plants by late 2012 with a total capacity of 270MW. Of these, a 110MW plant at Lumut Balai in South Sumatra, a 110 MW plant at Ulubelu, Lampung, and a 20 MW plant at Lahendong in North Sulawesi are to be financed through loans from the World Bank and Japan International Cooperation Agency.

At the 2010 World Geothermal Congress in Bali, several companies were awarded the rights to develop geothermal fields and power plants: Golden Spike Indonesia won the tender to develop a power plant at Mount Ungaran in Central Java, Sokoria Geothermal Indonesia gained rights to develop a plant at Ende, on Flores island, while Supreme Energy was chosen to develop plants at Mount Rajabasa in Lampung and Solok in West Sumatra. These projects were estimated to require a total investment of US$1.68 billion.

As of 2010, a total of 265 potential sites for plants have been identified across the country.

World Bank
In June 2008 the World Bank announced its support for the Geothermal Power Generation Development Project which aims to increase geothermal power capacity to 6,000 megawatts by 2020, six times Indonesia’s current geothermal capacity.

Challenges facing geothermal development
In April 2011, Monty Girianna, Director of the energy, mineral resources and mining division of the National Development Planning Agency (BAPPENAS), wrote in an opinion column that "nearly 1,000MW, scattered from east to west Indonesia, are currently being developed to be commissioned in early 2014" by state-owned companies or their subsidiaries with financing from lulti-lateral development banks.

A further 13 fields, he wrote, "with a combined capacity to produce up to 1,000MW have been identified and can be commissioned by 2015." Despite this Girianna argued that government efforts to attract private sector investors had floundered. Firstly, he wrote, "is a perceived high risk of resource exploration because of a lack of adequate data, and the second is because of the absence of a bankable Power Purchase Agreement (PPA) with the electricity recipient (PLN)."

"The power production capacity of greenfield concession areas cannot be determined, and this has a tendency to make any form of investment in such fields uncertain, unless some form of guaranteed return is assured. Defining the electricity price at an early stage of the transaction, i.e. during the concession tender, based primarily on preliminary data, constitutes a substantial risk to developers and leads to pricing for a worst case scenarios," he wrote. Compounding this is that while local governments have the rights to the geothermal resources they do not have the financial capacity or technical capabilities to assess them.

The problem of reaching agreement on a bankable Power Purchase Agreement (PPA) with PLN, he argued, was due to a number of factors. These factors included the "inability of geothermal power proponents to commit to a volume and price", the rules and regulations on how PLN should set prices under a PPA, and the political problem of "getting more subsidies that may be required for geothermal PPAs" due to the "cost differential between coal-fired power plants and geothermal power plants."

Girianna wrote that a number of these hurdles were being addressed: a $120 million fund had been established to assist local governments with geothermal exploration, a new pricing formula requiring PLN -- under certain circumstances -- to buy power from independent producers set at the time of bidding on the concession. (He points out that the price would be capped at a maximum of 9.77 US cents per kilowatt hour (kWh) at the point of power transmission though this could be higher if the subject of renegotiation after the completion of the tender process.)

However, even with those changes Girianna noted that 5.6 GW of geothermal potential in five to 10 years would require "at least $19.1 billion" in private capital. While debt financing of 70% of the total he thought would be "high" but "manageable", equity financing for %5.7 billion would be "a challenging task". Private investors would want not only government guarantees of "the creditworthiness of PLN" but also "PPA heads of terms have to presume off-taker payment risk mitigation, notwithstanding the availability of off-taker creditworthiness guarantees."

Related SourceWatch articles

 * Indonesia's Coal: local impacts - global links
 * Indonesia and nuclear power
 * Indonesian Coal Mining Association
 * Celukan Bawang power station
 * Global use and production of coal

External resources

 * World Bank, Indonesia: Geothermal Power Generation Development Project, May 29, 2008.
 * Directorate General of Minerals, Coal and Geothermal
 * Indonesian Geothermal Association - NGO
 * PT Pertamina Geothermal - Indonesian government-owned corporation (map and project data sheets)