Mon, 26 Jul 2010

From: The Jakarta Post

By Josh Franken, Editorial Manager
Indonesia is to tap into vast reserves of geothermal energy to help meet its power needs for coming decades, with plans to invest more than US$10 billion over the next 15 years in the renewable power source.

Estimates put the geothermal potential of Indonesia, which hosts hundreds of active and extinct volcanoes, at around 28,000 MW or 40 percent of the world's total. A clean energy source, geothermal power is generated by heat extracted from the Earth's core.

Only a fraction of the country's full potential, just 1,100 MW, is currently being utilized, compared to 4,000 MW in the US and 2,000 MW in the Philippines.

In late April, while addressing the opening of the World Geothermal Congress in Bali, President Susilo Bambang Yudhoyono said Indonesia aims to become the world's largest user of the energy source. Some 5 percent of national energy needs will be met by geothermal energy by 2025, he said.

In order to achieve Indonesia's goal, some 10,000 MW in capacity will need to be added over the next 15 years. The government has estimated that this will require at least $12 billion in investment, much of it to come from foreign sources.

To encourage investors, the Finance Ministry has introduced incentives for investment in renewable energy such as exemptions in value-added tax, income tax and import duties. It has also guaranteed that state utilities firms will buy electricity produced from geothermal and other alternative energy sources, and a recent regulation caps the price of geothermal energy at $0.097 per KWh.

Indonesia has been touting the investment potential of its geothermal energy sector overseas, with one of the most recent approaches made by Yudhoyono in the Turkish capital Ankara on June 30.

In an address to the Turkish parliament, he called for investment in Indonesia's manufacturing, infrastructure, mining and energy sectors, especially renewable energy. "Indonesia holds 40 percent of the world's geothermal resources, and of that we are using only 4.2 percent," Yudhoyono said. "This is an investment opportunity for Turkey, which has the technology necessary for harnessing this form of energy."

Just days later, in early July, the Turkish construction and mining company Cengiz Holding signed a non-binding memorandum of understanding (MoU) to develop a geothermal plant in Java with Geo Power Indonesia, a wholly owned subsidiary of the Australian firm Greenearth Energy. The MoU is set to become a formal agreement once the Turkish company completes due diligence assessments.

Domestic interest is also growing in the energy source. In late June, the state-owned oil and gas company Pertamina announced it was planning to list a partial stake in its geothermal energy subsidiary to raise funds for capital investments.

Ferederick Siahaan, Pertamina's director of investment planning and risk management, told media that Pertamina Geothermal Energy (PGE) and upstream producer Pertamina Hulu Energi (PHE) were being readied for listing. "We may divest about 20 percent of each of those firms," he said on June 25, without giving specifics on timing or how much money will be raised by the initial public offerings (IPO).

PGE has facilities in West Java and North Sulawesi which produce a combined 272 MW but the company wants to expand this output to 1340 MW by 2015, and sees an IPO as a way to fund this expansion.

The World Bank has already shown interest, announcing in late March that it was providing the government with $400 million to assist in the development of geothermal energy. Announcing the funding on March 22, Katherine Sierra, the international lender's vice-president for sustainable development, said Indonesia has the greatest geothermal energy potential in the world.

"The co-financing will help Indonesia reduce the use of fossil fuels to meet its rapidly growing energy needs," she said. "It also gives a clear signal on the practical actions developing countries can take to combat global climate change."

The need to address environmental issues is another driver for an increase in geothermal energy usage. The government is committed to reducing carbon emissions by a minimum of 26 percent, and a maximum of 41 percent, by 2020. To achieve this target it must slash its use of fossil fuels, with zero-carbon geothermal energy positioned as an ideal offset in the overall energy mix.