Thursday, May 10, 2007

Geothermal Power in Indonesia

Development of geothermal potential has proceeded very slowly in Indonesia and is currently facing difficult challenges and uncertainty. Over a span of 20 years, Indonesia has developed only 797 MW of geothermal power, approximately 4% of 20,000 MW geothermal potential. In the early 1990s, eleven contracts for development of geothermal power plants were awarded, with a total committed capacity of 3,417 MW and original completion dates between 1998 and 2002. As a result of the 1997-1998 financial crisis, which brought PLN, the state utility to technical bankruptcy, the Government suspended nine conventionally powered IPPs and seven geothermal projects. The government is now attempting to resuscitate the seven contracts but with little progress.

The new oil and gas law, passed in October 2001, bars geothermal as an area of regulation, requiring the Indonesian Government to develop a new legislative basis quickly. PLN understands that the future of geothermal power will depend on its competitiveness against other means of electricity generation. High capital costs and the associated electricity tariff required remain core problems. In addition, unresolved decentralization issues, uncertainties in security and contracts, and the potential regulatory changes of a planned geothermal law discourage investment in geothermal projects. In the long run, Indonesia still presents one of the world’s most attractive geothermal regions, but the Indonesian Government must develop new approaches to maximize its potential.

PLN is currently negotiating to bring down tariff rates on various geothermal ESCs, with the intent of lowering prices from US ¢ 6-8 cents/kWh agreed under Power Purchase Agreements (PPAs) to around US ¢4 cents/kWh. The original prices negotiated by the geothermal developers ranged between US ¢7.25-9.81/kWh, about double the viable rate.



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