Clear rules, completion of PLN negotiation with IPP, competition policy important factors to spur development of geothermal energy
Thursday, March 15 2001 - 05:00 AM WIB
Indonesia has a huge geothermal energy potential, but development of geothermal energy has been inhibited by various hindrances, including the lack of legal basis, subsidized fuel energy and the uncompleted negotiations between state electricity company PT PLN and independent power producers (IPP).
According to official data, the huge geothermal energy potentials in the country from 217 geothermal locations will be enough to create 20,000 megawatt of electricity - accounting for about 40 percent of the world's geothermal energy.
That amount of energy comes from economically-viable geothermal energy sources. If all geothermal energy potentials are calculated, including those with water-content at various level, geothermal energy in Indonesia could produce about 40,000 megawatt. If those geothermal energy is utilized, it will help prevent potential energy glut in the Java and Bali electricity interconnection area.
According to Minister of Energy and Mineral Resources Purnomo Yusgiantoro, national electricity demand grows by 12 percent per annum, and if there is no new investment in power generation in the Java-Bali system, there will be power glut by year 2003.
However, the development of geothermal energy has been slow. Total electricity produced using geothermal energy currently stands at 769.5 megawatts. The development of geothermal energy has been especially curbed by the issuance of Presidential Decree No. 5/1998 that suspended seven out of 12 geothermal energy projects because of the crisis.
The chairman of the Indonesian Geothermal Association, Puguh Sugiharto, said that the issuance of such a presidential decree would not give a strong basis for the development of geothermal energy.
He suggested that the government and the House of Representatives produce a geothermal law to give stronger legal basis for the development of geothermal energy. He contended that regulations on geothermal energy had been made based on Law no. 44/1960 on oil and gas.
"This is not proper because geothermal is not oil nor gas, as stipulated in the law. Moreover, this particular oil and gas law will be restructured. So, where geothermal energy will be put?" he said.
Besides lacking of legal basis, the development of geothermal energy has been inhibited by the uncompleted negotiation between PLN and IPPs.
The vice president of geothermal energy producer Ormat International Inc., David Citrin, said that the completion of the negotiation was a prerequisite for investors like Ormat to enter into geothermal business in Indonesia.
"Besides political and economic stability, the settlement of agreement contracts between PLN and IPP serves as a prerequisite for the new entrance of investment on geothermal energy," Citrin said.
In addition, the electricity produced by geothermal power plant is still more expensive than those produced by power plants using other energy sources such as coal and fuel. Geothermal energy is technically justified, but economically not justified.
Based on contracts signed by PLN and geothermal power plant owners, the price of electricity produced by geothermal power plants is set between 4.94 U.S. cents and 9.81 U.S. cents, a lot more expensive than the sale price of PLN electricity.
And lastly, state oil and gas company Pertamina's monopoly over the exploration and exploitation of geothermal energy sources serves as another barrier to the development of geothermal energy.
Thus, the liberalization of the geothermal exploration and exploitation will give a better competition climate in the geothermal energy business, and thus would make the sector more attractive to investors. (*)