Foreign firms team up with PLN to determine geothermal power price

The government has formed an independent team comprising of state owned electricity firm PT Perusahaan Listrik Negara (PLN) and eight foreign firms, to determine fair prices for geothermal power to be produced by investors in Indonesia, a senior governmental official said on Monday.

The eight foreign firms PB Power (based in New Zealand and USA), Sinclair Knight Mert (New Zealand), Geothermex (USA), West JEC (Japan), CFG (France), GNS (New Zealand, ELC (Italy) and Therma Resources (Iceland).

The team will work on budget from PLN and the Indonesian Association of Geothermal (API), Sugiharto Harsoprayitno, director of geothermal at the Ministry of Energy and Mineral Resources said.

?The problem is there is a discrepancy between the price set by PLN and the one set by investors. PLN set the (ceiling) price at 6.7 US cents per kilowatt hour (kWh), while investors set it at 8.7 cents per kWh, thus there is a 2 cents gap. So, we decided to form an independent team to mediate,? Sugiharto said.

According to Sugiharto, the difference in the price proposal came as a result of different assumptions held by PLN and the investors. PLN assumes the geothermal wells in Indonesia have an average depth of 2,000 meters and one well can generate 12 MW of power. Meanwhile, investors contend that Indonesian geothermal wells have an average depth of 2,500 MW and one well can only produce 8 MW.

?Furthermore, their IRR (investment rate of return) assumptions are also different,? he said.

Under the existing regulation, the government sets price ranges (PHL) for geothermal power in regions of the country. But PLN has to negotiate with investors on the exact price (PHS) of geothermal power the former will buy from the latter.

Sugiharto said PLN would like determine the PHS price during the tender for geothermal contracts. Investors, however, want that the PHS price be determined after they carry out exploration.

?We (the government) have thus proposed that investors use the government-set PHL price range as a benchmark during the tender. The contract will be then awarded to investors who offer the lowest bidding price within the PHL price range. After they drill at least three exploration wells, the investors then sit together with PLN to negotiate the PHS price. But the price should not top the PHL price range,? Sugiharto said.

The government is offering 13 geothermal concessions to investors under the Phase Two 10,000 MW power development program. (Bernard)