The government wants geothermal energy promoters to take advantage of global carbon trading market as an alternative source of funding to help lower their investment and production costs, a minister says.
Energy and Mineral Resources Ministry Purnomo Yusgiantoro said Tuesday that geothermal energy promoters could benefit hugely from the global carbon credit program to compensate for their huge investment costs, thereby allowing them to offer competitive tariffs to state power firm PT PLN as their buyer.
"Let say that to build a 100-megawatt geothermal power plant, the investors will need some US$100 million. If the project was eligible for carbon credits, for example, credits worth $70 million, that means that the investment would only cost $30 million," Purnomo said.
The carbon-credit mechanism was created under the Kyoto Protocol to help developed nations meet the target of reducing their carbon dioxide emissions by 5 percent from the 1990 level by 2012.
Under the scheme, businesses developing clean projects in developing nations can seek compensation in the form of carbon credits, certified by the United Nations (UN), and then sell these to the developed nations.
Purnomo's remarks came after a recent study by a special ministry committee showed that the feasible price for geothermal-generated electricity is around 7 to 8 U.S. cents per kwh, well above PLN's standard purchase price of around 5 U.S. cents per kwh.
The committee, which was established to come up with a formula for determining an economically feasible ceiling price for electricity, said the main reason for such a high price was the huge investments geothermal projects require.
However, according to Purnomo, the carbon-credit trading mechanism now provides a quid pro quo for investors in the geothermal sector.
"With lower investment costs, we can expect the price of the electricity to be much lower than the 8 U.S. cents per kwh suggested by the committee," he said.
Purnomo pointed to three geothermal projects -- Drajat and Kamojang in West Java and Lahendong in North Sulawesi -- which he said had secured carbon credit certificates worth $156 million.
Indonesia has great potential to participate in the carbon-credit market through geothermal projects as it is host to 40 percent of the world's reserves.
Currently, the country only has seven geothermal plants in operation, which have a combined capacity of a mere 852 megawatts.