Chevron Corp. drilled 84 wells to a depth of two miles beneath the Indonesian rainforest to tap steam, not oil and gas, that’s trapped in the world’s richest store of volcanic energy.
The geothermal plant, set among wild orchids and bamboo trees, uses 315 degree Celsius heat to spin turbines 24 hours a day, generating electricity for Jakarta, a four-hour drive to the north. The oil driller, which pioneered geothermal energy 20 years ago in Southeast Asia’s biggest economy, is about to see competition.
Companies from General Electric Co. to India’s Tata Corp. are leading an investment boom in Indonesia that may climb to more than $30 billion, anticipating President Susilo Bambang Yudhoyono will honor his promise in February to boost clean- energy subsidies.
The pledge has spurred the biggest geothermal spending spree in Asia and the largest outside of the US.
“There’s great momentum in Indonesia’s geothermal market, and demand for power is there,” Mark Taylor, a geothermal analyst in Washington at Bloomberg New Energy Finance, said in an interview. “But there are regulatory risks for developers.”
Chevron was burned by Indonesia in the late 1990s, when the state-owned utility forced it to renegotiate a power-purchase accord.
The San Ramon, California-based oil company is now planning to expand its geothermal operations, helping Yudhoyono eliminate energy shortages that threaten his target for as much as 6.6 percent economic growth through his term’s end in 2014.
Geothermal is central to Indonesia’s push for alternatives to fossil fuels such as oil, which the country once exported and now must import, driving up costs and curbing growth.
The nation, described by clean-energy investor Al Gore in January as the first potential “geothermal superpower,” plans 9.5 gigawatts of capacity by 2025. That’s more than triple the US’s geothermal use and about 33 percent of Indonesia’s electricity demand, according to Bloomberg New Energy Finance.
Indonesia’s 17,000 islands straddle the Pacific Ocean’s volcanic “ring of fire,” making the country to geothermal power what the Middle East is to oil - the world’s largest potential resource with 40 percent, or about 28 gigawatts, of the total.
Geothermal currently provides about 0.3 percent of global electricity and 0.2 percent of energy for heat, and with better policy incentives those levels could climb to 3.5 percent and 3.9 percent, respectively, the Paris-based International Energy Agency said yesterday.
Indonesia country has tapped about 4 percent of its potential and has orders for 2.3 gigawatts, second only to the US, New Energy Finance data show. A gigawatt, about equal to the output of a new atomic reactor, needs $2 billion to $4 billion of investment, Taylor said.
“There’s a remarkable opportunity for Indonesia to increase the amount of power generated from geothermal,” said Stephen Green, former head of Chevron’s Indonesia and Philippines operations and now its vice president of policy, government and public affairs.
"There are synergies between oil and geothermal and it makes sense for us to exploit that,’’ he said in an interview Chevron’s Jakarta office.
Indonesia hasn’t always appealed to foreign investors, and skepticism still goes beyond questions of how to uncork the boiling water that’s trapped miles below the surface.
After the Asian financial crisis, state-owned utility PT Perusahaan Listrik Negara canceled power purchase agreements with companies including PT Paiton Energy, 40 percent owned by Irvine, California-based Edison Mission Energy, because it couldn’t afford the contracts after the collapse of the rupiah.
Unocal Inc., which built the plant in the rainforest and was acquired by Chevron in 2005, was forced to renegotiate a deal to sell its power at 4 to 5 U.S. cents a kilowatt-hour instead of 6 cents to 7 cents. Unocal negotiated Indonesia’s first foreign-partnership geothermal license in 1982 with the help of U.S. President Barack Obama’s late stepfather, Lolo Soetoro, who worked for Unocal as a government liaison.
The rainforest plant was opened in Mount Halimum Salak National Park in 1992. Together with another about 100 miles west in Dajarat, Chevron lights homes for 4 million people. To capitalize on the new tariffs for geothermal electricity, the company is planning new plants including a potential 200- megawatt facility in South Sumatra.
Geothermal investors are again “starting to look at Indonesia as a place where they can do business,” Ravi Krishnaswamy, a Singapore-based director for energy consultancy Frost and Sullivan, said in a phone interview.
Indonesia began consuming more oil than its domestic production capacity in 2004 as economic growth surged. It suspended membership in the Organization of the Petroleum Exporting Countries, or OPEC, in 2008.
Higher oil prices give the government more incentive to promote geothermal power, Chevron’s Green said.
The generators use wells to tap underground deposits of scalding water. At Salak, hot water and steam are pumped from as deep as 3,211 meters below the surface through 54 kilometers of pipes to turn turbines to make power. Each well takes as much as 90 days to drill and costs up to $7 million, Chevron says.
There’s no shortage of foreign interest. Sumitomo Corp., Japan’s third-biggest trading company, is building a 110- megawatt plant in nearby Ulubelu. Australia’s Origin Energy Ltd. is partnering with power company Tata in northern Sumatra.
“It’s good for the environment and good for reducing our dependence on oil,” Widhyawan Prawiraatmadja, General Electric Co.’s Indonesia company executive, said in a phone interview from Jakarta. “It also frees up tradable resources such as oil and gas and coal to be exported.”
Yet geothermal deals in Indonesia remain “very difficult,” according to BNEF. The government’s decision to raise the price that state-owned utility PLN pays for geothermal power to up to 9.7 cents per kilowatt-hour may backfire, Vandana Gombar, a geothermal analyst at BNEF, wrote in a February report.
The utility usually opts for cheaper coal power that enables it to sell electricity to consumers at the government- mandated 6-7 cents per kilowatt-hour.
The policy hinges on whether the government will continue to subsidize PLN at the higher prices because the increase can’t yet be passed on to consumers, Gombar said.
The government’s plan is a "pipe dream" until it’s prepared to force consumers to pay more for their electricity, Ari Soemarno, former president of Indonesia’s state-owned oil company PT Pertamina, said in an interview. The government can’t afford to keep subsidizing power yet isn’t brave enough to force consumers to buy at cost, he said.