There is plenty of talk about Indonesia diversifying its energy mix, but geothermal development is occurring at a very slow pace. GlobeAsia talked to Abadi Poernomo, the president director of Pertamina Geothermal Energy (PGE), to find out how the country can capitalize on its geothermal potential. Excerpts of the interview:
What is the main hurdle now for geothermal energy development?
Abadi Poernomo: We need to make amendments to Law No. 27 of 2003 which defines geothermal activities as mining, and Law No 41 of 1999 which restricts mining activities in protected forests. At least 60% of our geothermal potential is in protected forest and conservation areas. Mining peels off the top soil and damages the forests but geothermal doesn’t. So we need to redefine the ‘mining’ part, the restrictions and the purpose.
Given that the government has committed to geothermal, what is the next step?
We have lobbied the government and the legislators. We have attended hearings at the House of Representatives. The government and the legislators have acknowledged that geothermal development differs from mining, which extracts minerals from the earth. The main problem is that you can’t change the law just like that. Even a presidential decree can’t change the law. It will be a long process, but we keep lobbying so that the issues can be resolved.
Why is geothermal development more focused in the western part of the country and not in eastern Indonesia?
You have to look at the economics. The demand is greater in the western part of Indonesia and the geothermal reserves are larger. In the eastern part the reserves are smaller in scale and developing smaller scale geothermal energy is more expensive. Higher costs means higher selling prices as well. Another problem is Bali for example. Bali has huge reserves, but the preservation of the culture hampers development of geothermal energy.
What about North Sulawesi?
I want to point out that North Sulawesi has the most advanced use of geothermal energy for electricity. The total demand for electricity in North Sulawesi is 175 MW and 40% of that is supplied by geothermal energy. With a 60-MW plant already operating, 80 MW more at the end of the year and 40 MW next year, North Sulawesi can be very proud that it is so advanced in terms of geothermal energy usage.
How broad is the geothermal energy master plan?
The Energy and Mineral Resources Ministry’s vision is that Indonesia will rely on renewable sources for 25% of its energy demand by 2025. In reality, geothermal energy development is currently the most prepared. Our target is to achieve 12,332 MW from 2011 to 2015. There are handicaps here and there, but we must find ways to solve these problems. Geothermal energy is a priority and is being monitored by the vice president, the UKP4 (Development Supervision Council) under Kuntoro Mangkusubroto and the president himself.
Can that 12,332 MW target be achieved?
The long licensing process may mean it is delayed. Most of PGE’s concessions are in forest conservation areas and we are still facing obstacles with the Forestry Law, which only allows for research. It can be difficult to predict how long this will take. The initial target can be extended to 2018. I raised this issue with the forestry minister last February and he has agreed to find a way out, but to date we have nothing concrete.
What sort of support is the government providing?
The government has allocated funds for exploration to the value of Rp1.2 trillion. This will help a lot because the exploration risks will be borne by the government and this may help reduce the selling price. The government has also acknowledged that drilling for geothermal can’t be categorized as mining and use of 0.01% of forest areas could be approved. There is also political support for our plans.
Do we have the expertise to develop? How long have you been in geothermal?
Indonesia first developed geothermal projects with the New Zealanders in 1976. In 1982, we already had a geothermal plant generating 32 MW. So if we talk about expertise, we have 29 years of experience. I spent 14 years in geothermal then moved to oil and gas for 10 years and have returned to geothermal now. I am also the chairman of the Geothermal Association.
Are many investors interested in geothermal projects?
There are three categories of investors. Those who just want to invest their money, those who want to do everything including expertise and those who just want the upstream side. The third category is the largest because they want less risk. We have no problem as far as financing is concerned. We already have the standby funds. We don’t need an IPO because we can still borrow money with an interest rate of less than 1%.
Where has the financing for geothermal developments come from?
Of the total investments, 65% came from external financing such as the Japan International Cooperation Agency (JICA), the World Bank and the Asian Development Bank. I don’t think we have to worry about financing. It is true that the private sector is reluctant to invest in geothermal development due to the high risk of exploration, but despite that our state-owned companies are ready to support the development of geothermal in the country, with financing as well.
What is your relationship with the end user, PLN?
Most recently we signed an agreement with state electricity company PLN for the acceleration of geothermal development at the national level. That includes a sales agreement to buy electricity at the price of $0.075 to 0.082 per kilowatt hour (kWh). It is a landmark agreement in terms of achieving the second-phase 10,000-MW program mandated by Presidential Instruction No 4 of 2010. The signing of the agreement was witnessed by the energy and mineral resources minister, the director general of renewable energy, PLN’s president director and Pertamina’s president director, Karen Agustiawan. GA