Incentives urged to lure geothermal investments

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)