Thu, 29 Apr 2010

Visit any of Indonesia’s islands, and chances are a day trip to one of this massive archipelago’s volcanoes will be on your itinerary. Many of them are still active, beguiling you with their surreal landscapes, with guides enticing you to smear the steamy, grey volcanic mud on your face for a quick facial. Eventually the smell of the sulphur will lead you to hike back down the mountain or to run back to your tourist bus. But there is more than the “wow” factor: the Indonesian government recently announced plans to develop 4000 megawatts of geothermal energy from its volcanoes by 2014.

While the chattering classes debate China’s and India’s future impact on the earth’s energy supply, Indonesia is a sleeping giant that is slowly emerging on the world’s economic scene. After years of sluggish growth and corruption under Suharto’s regime, Indonesia is reducing its debt, attracting more foreign direct investment, and has implemented financial reforms. Poverty is declining, but still snares about 18% of its population of about 230 million people, 35% of whom do not have electricity - yet.

And therein lies the conundrum. Indonesia meets much of its energy needs from coal, the consumption of which will only increase in the years ahead. But most experts believe Indonesia has the world’s largest geothermal energy potential, but only a tiny fraction has been harvested: about 1100 megawatts annually. Estimates vary on how many homes the entire project would fuel: the simple math suggests 4 million homes; my conservative estimate suggests that 800,000 houses could benefit.

The project has its challenges. First of all is the cost: US$12 billion, a huge sum for a country with a GDP of US$514 billion. And on average, a geothermal power plant is double the cost of one fueled by coal. Then you have to throw logistics into the mix: this project as it is conceived now is scattered across this nation of 17,000 islands. Finally, the islands are populated by ethnic groups whose leaders have little love for the Javanese, Indonesia’s largest ethnic group and who dominate Jakarta, Indonesia’s capital.

Indonesia still has the potential to power more homes while weaning itself away from coal in the long run. The geothermal plant at Kamojang has provided a steady stream of electricity since 1982. Bali is also hosting the world’s largest geothermal conference this week. So far the World Bank and Asian Development Bank have invested about US$400 million. There’s a long road ahead, but the potential payoff may well be worth it, as more people climb out of poverty and governments seek to foster increased economic development for their people.