Indonesia 2018 | ENERGY | VIP INTERVIEW

TBY talks to Yunus Saefulhak, Director of Geothermal, Ministry of Energy and Mineral Resources, on the potential of the energy source, educating citizens about the technology, and support from the international community.

What is the potential for geothermal energy in Indonesia?

Indonesia is one of the most attractive geothermal regions in the world with a potential of more than 17.5GW reserves and 11GW resources. If we compare this to the installed capacity today, Indonesia runs around 1,698.5MW per day, or around 9.3% of our total reserve of 17.5GW. Based on our national energy policy, our target is to have 23% of our national energy mix come from renewables in 2025 and geothermal expected to contribute 7.2 GW or 16% out of the renewables energy share. It means that we need additional 5,000MW in less than 10 years.

What is the strategy to reach this ambitious target?

The Indonesian government sees this as being achievable as much as it is ambitious. We have the entire support network to achieve this. The government has provided necessary breakthroughs in terms of geothermal acceleration for this program. Special assignments have been issued to state-owned enterprises to develop geothermal concessions without a tender process. Secondly, the government allows for preliminary survey assignments plus exploration. For such preliminary survey assignments and explorations, a company is allowed to commence drilling without a geothermal license once it fulfills the necessary requirements. The third action is the simplification of our licensing and permitting process, which has been reduced from 29 licenses to three licences for business entities conducting geothermal operations. We are eliminating unnecessary licenses and shorten the time period. In fact these permits have been centralized through our One Stop Service Centre (PTSP) at Investment Coordination Board (BKPM). Furthermore, the government has exclusively alocated USD300 million in our national budget for exploration drilling. Each of these concessions will be drilled by the government, at least three wells, and if the geothermal potential is proven to be economical then it will be tendered for the next stage. This reduces the risk for the private sector at the exploration stage, especially as the main obstacle has been the willingness of financial institutions to provide loans. The fifth action is the acceleration of the tender process, and in 2017 we expect to finish five concession tenders to the private sector, especially in the east of Indonesia, an area with the greatest potential and the highest price for the PPA. In addition, the government provides fiscal and non-fiscal incentives for geothermal, including VAT exemptions, tax holidays, and no import duties on imports of geothermal materials. In terms of non-fiscal incentives, the government provides a guarantee that PLN will not fail to fulfill its entire obligation to pay under the PPA. The government assures that all electricity will be paid to the IPPs within their contract period.

What is the role of the Geothermal Fund set up by the Ministry of Finance in June?

The financing of the USD300 million, which is named as Geothermal Fund, is under PT SMI, one of our SOEs focusing on infrastructure financing in the broadest sense. The main goal of Geothermal Fund is to mitigate exploration risks, which become the main obstacle in geothermal development. All concessions that are succesfully explored and being proven by the PT SMI, will be tendered to private entities and the winner will repay all the exploration costs that have been spent. The funds will then be used for drilling another concessions. Ministry of Finance, ESDM and PT SMI, have a MoU in cooperation whereby ESDM will provide the technical assistance and may have support from other international consultants.

What will be the best policy moving forward to encourage geothermal energy from a pricing perspective?

The previous policy was to implement a feed-in tariff for geothermal. However, the government need to guarantee an affordable electricity price for the community and provide a competitive price for industry. The government recently had issued the new pricing policy through Ministry Regulation No. 50/2017 in wich using the ceiling tariff mechanism. The government seek to provide enough energy and electricity for the entire country given that the energy infrastructure in the east is much less developed. By providing enough electricity, we also seek to lower the cost of electricity and subsequently encourage industry to come to Indonesia since production costs will be lower. This is the main reason why we changed our policy from a feed-in tariff to a ceiling price.

How do you address the education requirements of geothermal energy production?

It is not as easy to educate communities as we initially believed; there are still some resistance from local communities that believe geothermal will cause incidents like the “Lapindo Disaster," which was actually an oil and gas development. This requires education about geothermal and how it is a different type of technology, with different technical aspects.

What is being done to reduce the costs of the exploration stage?

The cost of drilling a well in Indonesia varies from USD6-10 million, while the average exploration cost of one well is USD8-10 million; however, most of these costs depend on the infrastructure and depth of the hole. In more remote areas with less infrastructure, costs are much higher. Aside from coordinate with local government and government institution for infrastructure, the government creates a knowledge-sharing forum between related stakeholders for sharing best practices. We have set up regular meetings with geothermal IPPs to review the drilling processes and share knowledge. We seek to find the most efficient technique to develop our wells and are progressing well. Some of the developers has managed to incur lower drilling costs using a new methodology and we seek to replicate that in other areas. This knowledge is shared with all IPPs so that they can use the most efficient process to lower exploration costs. In terms of electricity generation, we also had a knowledge-sharing discussion. Our first power plant using ORC technology in Sarulla project for example. This project seems has a higher production than expected now and we seek to emulate the success elsewhere. We envision being a knowledge-sharing hub, along with our Center of Excellence and R&D department.

How would you address the international community of investors to help support your geothermal objectives?

Geothermal business opportunity in Indonesia is still widely open. The national target for developing geothermal energy is 7.2GW in 2025. We now have 70 geothermal concessions, of which 40 have already been granted geothermal licenses. There are around 30 more concessions to develop and offer to investors and partners, so this is an opportunity for the private sector to develop our geothermal industry alongside the government. Our intermediate goal is for Indonesia to be the second-largest country in the world for geothermal electricity development by 2018 and by 2022 Indonesia become the largest country in the world for geothermal electricity. We are currently in third place, behind the United States and the Philippines. We need the support from the private sector, banking institutions, and lending institutions to achieve this 7.2GW program and the government provides the necessary incentives and investment details for them. This is a great opportunity for the private sector to be a part of Indonesia's geothermal development.