Incentives urged to lure geothermal investments

JAKARTA (JP): The Indonesian Geothermal Association has called on the government to provide tax incentives for investors to build geothermal power plants to accelerate the energy diversification program.

"We hope the government will provide tax incentives to encourage investors to develop geothermal energy. But it will be even better if the government can grant them tax holidays," the association's chairman, Prijanto, told The Jakarta Post over the weekend.

He said that if the government gives tax incentives to geothermal energy investors, the cost of electricity generated by geothermal steam could be reduced by 2 U.S. cents, to about 5 U.S. cents, compared to average cost of 6 U.S. cents for coal- fired generation.

Indonesia has been trying to diversify its commercial energy away from oil which still dominates the country's energy sources. According to Prijanto, using geothermal energy to produce 1,000 megawatts (MW) of electricity can save about 300 million barrels of oil.

Until now, he said, investors' main concern is the high capital costs and the high risks in developing geothermal power plants.

"Relatively speaking, geothermal energy is not yet competitive compared with other energy resources, such as coal and gas, in generating electricity," he said.

Prijanto said that this is not to mention the natural and technological factors that could slow the development of geothermal steam.

For example, he said, with the current technology, geothermal power plants have to be developed in stages, making the return of investments much longer than the other resources.

Besides, most geothermal energy is located in remote areas, far away from the consumers so that the transmission costs will be high.

"This seems to have made the development of geothermal energy slower than the other energy resources such as coal and gas," he told the Post.

He said that until now only 309.5 MW of Indonesia's total potential capacity of 19,600 MW have been developed. The 309.5 MW are generated by three geothermal power stations in Java.

According to him, four projects -- Lumut Balai (South Sumatera), Hululais (Bengkulu), Ulubelu (Lampung) and Tompaso (North Sulawesi) -- are being negotiated by state-owned Pertamina and PLN with private investors.

"If all the projects start operating at their full capacity by the end of 1999 the total capacity of geothermal power stations will reach 1,500.5 megawatts," he said.

Diversification

Prijanto noted three factors that can encourage development of geothermal industry, namely the abundance of resources, strong demand for electricity and the government policy of allowing private investors to develop and operate power plants.

"Our potential geothermal resource capacity is 19,600 megawatts," he said.

He said that Indonesia's electricity demand grows at 12 percent per annum.

The state-owned electricity company PLN, which has offered private investors the chance to develop power stations under build-operate-and-transfer schemes, plans to raise its generating capacity from the current 13,129 MW to around 39,000 MW by 2004.

Hong Kong-based Peregrine Brokerage Ltd. noted in its recent report on Indonesia's infrastructure that private sector generation will increase rapidly given PLN's inability to meet the increased demand.

Peregrine projected that Indonesia will need a total generation capacity of 27,300 MW to meet the peak load demand for electricity in 2003.

Of the total current capacity of 13,129 MW, about two thirds are contained within the Java and Bali interconnected grid. PLN's inability to supply the country's expanding industrial base has prompted a surge in the captive generating capacity, which currently accounts for 8,800 MW or 40 percent of the total installed generating capacity in Indonesia. The captive generators are fired mostly by diesel fuel.

Prijanto said the strong demand has encouraged foreign and local investors to build power stations, but so far most of them have chosen coal and gas to generate electricity.

He said that to attract investors, the government should also improve regulations on geothermal investments.

He said that with the prevailing regulations, investors have to deal with many government institutions to get their operational licenses.

"If the regulations are simplified, they will be encouraged to invest in geothermal resource development," he said. (13)