Renewable Energy World, By Ivan Castano, Contributor , November 2, 2011
Jakarta,
Indonesia -- Indonesia is aggressively moving to build up its geothermal
industry with plans add as much as 9,000 MW of installed capacity by 2025.
However, industry observers say the Southeast Asian country's government must
do more to attract foreign investment if it wants to achieve that target.
"The
tenders are out there, they just need the investors to come in," says Paul
Brophy, president and chief executive of geothermal consultancy GES, which is
working with the Indonesian government to help boost foreign investment and
develop the geothermal industry. "So far, some 20 to 30 concessions have
been issued so there is still lots of room for new companies to come in and
develop the resources."
Industry
observers say Indonesia, with the world's highest number of active volcanoes,
has the greatest geothermal potential in the so-called Ring of Fire volcanic
region straddling the country as well as New Zealand, Philippines, Japan and
the Eastern part of Russia. Of all those countries, Indonesia, Philippines and
Japan have the strongest development potential, observers say.
However,
Indonesia has more volcanic "hot spots" (some 265) and a more
aggressive development scheme than the other countries. Developers are using
these hot spots to drill holes that can produce steam from volcanic energy. So
far, Chevron is the leading foreign developer in the sector but others
including Indian industrial conglomerate Tata, Shell, Canada's Raser
Technologies and Australia's Origin Energy are also looking to set up
geothermal plants.
Investment
Challenge
Brophy said
the biggest stumbling block in the way to Indonesia's development dream is a
dearth of foreign investment as the government does not want to finance the
9,000-MW build-up, estimated to cost $30 billion, on its own.
To do this,
the government recently issued a law that would allow foreign developers to
pursue their own projects as long as an Indonesian player receives a five
percent stake in them. To meet this requirement, international developers must
set up consortiums that include at least one Indonesian company, Brophy explained,
adding that he thinks that the law will boost investment. This is because
before, foreign companies were mostly restricted to partner with state energy
group Pertamina if they wanted to build a geothermal project in Indonesia.
"They
don't need to partner with Peternina anymore. They can go on their own as long
as an Indonesian player has at least five percent equity in the project,"
adds one industry observer.
Jennifer
Derstine, a renewable energy analyst at the U.S. Department of Commerce's international
trade mission, agrees that the government is working to attract more
international players. She adds that when the department of commerce launched a
geothermal trade mission two years ago, the investment framework banned foreign
companies from pursuing small geothermal projects on their own. However, that
is now allowed and is expected to bolster interest from U.S. and other foreign
companies to roll out projects.
"The
law had reserved smaller-size development permits of geothermal plants under 10
MW for Indonesian companies. Now, the market is open to U.S. geothermal
developers and investors," says Derstine.
"Uncompetitive"
Tariffs
However,
echoing other views, she says tariffs are still too low to make geothermal
projects competitive. Brophy says
Jakarta is also working to address this issue. State electricity company PLN
recently established a U.S. $0.097 feed-in tariff per kilowatt-hour (kWh) for
geothermal plants, but the region is wiling to negotiate a higher price for
projects located far from the power grid. However, some investors are concerned
about whether debt-ridden PLN will ultimately be able to pay those prices as
state coffers are already burdened with high subsidies for the energy sector,
observers say.
Because
building geothermal plants is expensive, with the ultimate capacity that can be
extracted from them, uncertain, developers are looking for the highest possible
tariffs and assurances that the projects will be profitable before jumping into
the market. Brophy adds that the government is aware that tariffs must be more
competitive and that it is likely to shift some traditional power subsidies
into renewable energy to develop the geothermal space as well as other green
technologies.
The
Indonesian tariff is lower than in the U.S. where developers are paid $0.10 to
$0.12 per kWh. Development costs are much lower in Indonesia, however, Brophy
says.
If all goes
well — and barring a prolonged and deeper global recession — Brophy hopes
Indonesia will be able to attract enough foreign money to meet its 2025
geothermal targets, which could ultimately make the country the world's biggest
producer of geothermal power. But it will need to watch over rivals like the
Philippines and Japan. The former is looking to install 3,000 MW by 2020, up
from 1.95 MW now. And as it moves to diversify its energy matrix following its
recent nuclear disaster, Japan could also draft ambitious plans to develop its
"vast" geothermal resources, Derstine adds.
For now, eyes are on Indonesia as a potential leader in geothermal energy as long as it can get the funds it needs to meet its ambitious development targets.
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