The government needs to speed up its approval process and introduce measures to limit investor risk if it wants to accelerate the development of Indonesia’s massive geothermal energy reserves, power producers said.
In Bali for the World Geothermal Conference, energy company senior executives said it takes too long to receive approval from central and local government to develop geothermal energy projects. Further, central and local government do not currently do enough to help the companies mitigate the risks involved, they said.
In addition, local governments often don’t have the expertise and experience required to manage their roles in developing geothermal energy projects, producers said.
Because of the higher level of risk in developing a geothermal project, the Indonesian government needed to provide greater incentives for investors willing to take on those risks, said Supramu Santosa, chief executive officer of Indonesia’s PT Supreme Energy.
Supreme is part of a consortium that on Monday signed agreements to build two geothermal plants in West Sumatra and Lampung worth $1.3 billion.
“Exploration in geothermal has a 50 percent risk of failure and therefore you need to do a comprehensive study before a contractor starts to drill a well,” Supramu said.
Contractors needed incentives from central government so they would not lose money on exploration, he said.
Abadi Poernomo, president director of state-owned PT Pertamina Geothermal Energy, said that multiple licenses were required for exploration and development of geothermal projects.
PGE currently generates 272 megawatts of geothermal power and aims to expand this to 1,342 MW in the next five years.
Contractors needed to obtain a series of licenses, including an environmental impact analysis from the Environment Ministry, a land permit from the Forestry Ministry and a recommendation from the provincial governor, he said.
It took a minimum of one and a half to two years to get all the permits, Abadi said. “So if the government could cut all the bureaucracy, or make it simpler, and let’s say we could obtain all the licenses within eight months, we would be able to complete projects within five years,” he said.
PT Chevron Pacific Indonesia president director Steve W. Green said the 2003 Geothermal Law gave local governments more control over geothermal reserves in their areas, which had proved challenging for them.
“Some of the regional governments do not have a lot of experience in large energy contracts and frameworks under which the investments are made. They neither have the resources nor the experience to take the responsibility that the central government gave them under the law.
Since 2004, the government has tried to revitalize the electricity generation sector and make it more attractive for private investors to get involved.
To this end, President Susilo Bambang Yudhoyono has releases a series of presidential decrees aimed at accelerating the construction of power plants.
Last year, a decree was issued raising the amount PT Perusahaan Listrik Negara could pay producers for geothermal energy to 9.75 cents a kilowatt hour, a ceiling that the government announced on Wednesday would be eliminated soon. Early this year, another decree exempted various capital goods required to build power plants from import duties.
The government is also seeking to speed up the amount of time it takes to get environmental assessments and land acquisition approval and has recently allowed geothermal wells to be drilled in all types of forests.