This country is bursting with geothermal energy that could power its roaring economy and set an example for countries looking to develop cleaner energy sources.
But confusing government regulations and other hurdles are blocking billions of dollars in potential investments, multinational companies say.
The government hasn’t provided enough information about the country’s geology or pricing to justify some investments, the companies say. Opposition from residents also is slowing work; Hindu leaders at one project worried that meddling with nature could anger the gods. As a result, no new projects have been completed for more than ten years. One site has been relegated to selling produce and exotic coffee.
Companies including India’s Tata Group and Chevron Corp. and General Electric Co. of the U.S. are interested in pouring more money into Indonesia’s geothermal potential, which stems from the same seismic forces that curse the Indonesian archipelago with volcanoes, earthquakes and tidal waves.
Hundreds of volcanoes
“Geothermal-project developers face high upstream investment cost and land-acquisition issues, uncertainties on government guarantees and regulations,” says Edward Thiessen, president of Alstom SA’s Indonesian operations. The French company is setting up a team for Indonesia, which is becoming a focus of the company’s renewable-energy business. Mr. Thiessen is hopeful, he says, that “many of the issues…are being addressed.”
The geothermal industry’s problems are echoed elsewhere in Indonesia, which has Southeast Asia’s largest economy but desperately needs to improve its roads, ports and other elements of its infrastructure. Jakarta’s ability to nurture such investments will determine whether Indonesia’s economic growth, running around 6.5%, sputters out or whether the country joins China and India as the next Asian economic juggernaut.
Getting the geothermal industry up to snuff could require tens of billions of dollars in new facilities. The Indonesian government says it supports the geothermal-power industry but that it will take time to resolve various problems. Jakarta wants to create a revolving fund of more than $100 million to finance exploration work and is expected soon to approve government guarantees for geothermal power producers, says Kardaya Warnika, director general of new and renewable energy at the Ministry of Energy and Mineral Resources.
The country has what some scientists describe as the world’s richest reservoirs of underground steam and hot water used to make geothermal power. Hundreds of volcanoes bring heat from the earth’s core close to the surface, leading some scientists to estimate that Indonesia could generate more than 28,000 megawatts of power a year—about what the nation consumes now.
Geothermal power also is considered especially clean—important in a country that produces large quantities of greenhouse gases. Geothermal energy produces almost no carbon dioxide and uses less than a third of the land needed for solar or wind power. Geothermal also is cheaper than most other forms of alternative energy once it is up and running, though costs can vary widely.
With around 1,200 megawatts of geothermal power produced each year, Indonesia is the world’s third-biggest such producer, after the U.S. and the Philippines. But all of Indonesia’s natural steam power comes from fields approved more than a decade ago, under the relatively bureaucracy-free dictatorship of Gen. Suharto.
With much of Indonesia still exposed to frequent blackouts, the government wants to more than triple the country’s geothermal output in the next three years and lift it to around 12,000 megawatts by 2025. The first phase of expansion is likely to cost more than $10 billion, most of which will have to come from the private sector.
But would-be producers don’t know exactly how much steam and hot water are trapped in potential fields or whether they will be suitable to generate power. While energy companies generally fund their own exploration around the world, they often rely on government geological data to help.
“Companies are really taking a stab in the dark because there is not a lot of public data,” says Bret Mattes, the chief executive of Indonesia’s PT Star Energy, a closely held geothermal power company.
Overlapping jurisdictions often get in the way, as well, with projects that are approved by the central government later blocked by local authorities. Much of Indonesia’s geothermal power is located in mountaintop national parks, involving the country’s forestry and environmental ministries as well as the ministries for mining and energy.
Draining a lake?
“There are more institutions and more agencies involved” than during the Suharto regime, says Jeff Shellebarger, managing director of Chevron IndoAsia. Chevron is the biggest geothermal power producer in Indonesia, and the world, thanks to plants on the Indonesian island of Java and in the Philippines.
Chevron wants to expand its power output in its existing fields and open new plants in Indonesia. But in the last month it has had to defend itself against accusations from local authorities that the company cut trees in protected forest. Chevron says it hasn’t broken laws at its geothermal site.
It also is unclear how much Indonesia’s national power company will pay for the power, companies say. The government has set a ceiling price of 9.7 cents per kilowatt hour for this year, which companies say is acceptable. But some producers say they also need a minimum price of more than eight cents per kilowatt hour to be profitable and start investing.
Some projects have been delayed by local politics. Geothermal start-up Bali Energy, on the resort island of Bali, started exploration close to 15 years ago and received most of the necessary approvals in the 1990s. Its plans to rev up production several years ago hit a bump when some groups expressed concern that tapping geothermal wells would drain a nearby lake. Hindu leaders, meanwhile, worried that meddling with nature’s pressure points could anger the gods.
The company was able to satisfy its critics, but the project still awaits final approval from authorities, says Bali Energy CEO Ira Hata. “The only thing we don’t have is a recommendation letter from the governor.” The governor’s office declines to comment.
While Bali Energy waits to start production of a modest 10 megawatts a year, it is exporting vegetables and kopi luwak, coffee beans that are supposed to have complex flavor after being excreted by civets. Bali Energy’s pools for runoff water, meanwhile, are being used to raise catfish.
