What has been your experience here since you entered the market?
SUPRAMU SANTOSA Geothermal energy has immense potential in this country, and did so at the time when I founded Supreme Energy in 2008. Indonesia was not having a honeymoon with oil and gas energy anymore. Oil and gas production was declining rapidly, from 1.5 million bpd to 8,000bpd and the discovery of new reserves was difficult, so oil and gas are not reliable to support growth in Indonesia. This situation encouraged the government to develop renewable energy, including geothermal. So, it was an excellent business opportunity to invest in geothermal development. Furthermore, the idea of renewable energy is ideal in terms of reducing climate change.
MICHAEL READING We entered the Indonesian market by acquiring two existing concessions. One is Sokoria, a 30MW project with a PPA in Flores, and the other is Sorik Marapi, a 240MW project with a PPA located in North Sumatra. At Sorik Marapi, we completed the acquisition process in August 2016 and started drilling almost immediately, finishing exploration in July 2017. That was a record. We knew it was a great location and the project has an excellent PPA. Comparatively, we are ahead of the game here. During the exploration period, we had two rigs drilling simultaneously, something that I believe no one has done before in Indonesia.
How did you develop your partnerships?
SS In 2008, many investors wanted to come in because there was encouraging news about renewables development in Indonesia. For our Muara Laboh and Rajabasa projects we partner with ENGIE and Sumitomo Corporation, and for Rantau Dedap we work with ENGIE and Marubeni. We are lucky to get partners who have had a great experience in the power industry around the world. We have extremely reliable partners, and world-class partnerships. The total cost for Muara Laboh is USD580 million and we received a loan for USD440 million from a consortium of development finance institutions. Financial institutions are supportive of geothermal, though the environmental and social requirements are extremely tough. We have many obligations for environmental compliance. We do have experienced local staff; most geoscientists are Indonesian and have a great deal of experience after being trained by multinationals companies.
What is different about ORKA's model of geothermal exploration?
MR We have a fundamentally different business model. The traditional model is based on a conventional power plant project finance model, where preliminary surveys are done first. Then the traditional approach is to target the first well where the center of the heat source is. After that, traditionally companies start looking for the boundaries of the resource. The idea here is that exploration is focused on determining the size of the resource. The problem is that it is difficult to get financing for exploration drilling from banks so generally, exploration is done using all equity. Banks then require between 30% and 50% of “steam under wellhead" before they are willing to lend to the project. So for example, for a 100MW project, banks would require 50MW of steam already be drilled. Traditional project financing would then cover the rest of the project, from drilling to power plants. The problem is that it takes a long time to get all this completed before a power plant can be built. Instead, we follow an incremental development model. Our surface exploration is the same: we attempt to identify the center of the heat source but once we do we do not start looking for the boundaries. If we are successful with the initial wells, we continue to drill in the same location. For us, exploration wells are production wells; we want commercially viable wells from day one. Once we find the resource, we develop it in that location; we put a power plant on it and get it operational. Then, we revise our resource model and follow the resource. We have our own proprietary power plant technology, which gives us the flexibility to customize our units and the ability to use more of the energy we find. We have very few, if any, wasted wells and we can develop projects much faster.