In October 2017, Sarulla commenced the second unit at its geothermal power plant, after the first unit opened in March 2017. Could you tell us more about this project?
The second phase generates 110MW and construction went smoothly because our contractor learned a great deal from the first phase, which took a little longer than expected. We are pleased that the second unit went operational on October 2, seven weeks ahead of schedule. Each unit of the three phases consists of seven generators: one steam turbine generator from Toshiba (Japan) producing about 60MW and the remaining six manufactured by ORMAT Technologies (USA). With those six units, we produce another 50MW and the combination is called an integrated geothermal combined cycle (IGCC) that uses both steam and hot water, which is called brine, at a temperature of around 200 to 300 degrees Celsius. The third unit is scheduled to be operational by May 2018. It will add another 110MW to the total capacity. The Sarulla area is brine dominated, and the energy coming out is high-pressure steam and high-pressure brine (hot water). In other parts of Indonesia, most of the areas are steam dominated. For brine-dominated resources, the ORMAT equipment (called OEC, Ormat Energy Converter) is suitable and energy can be extracted from the brine, which is not possible just using a steam turbine generator. For nearly 20 years ORMAT, together with ITOCHU, has been promoting this system in Indonesia. In 2004, government decided that PLN as a new owner of the project had to invite interested developers to bid to take over the previous development made by UNOCAL. MEDCO, the second largest private oil and gas company in Indonesia and the second largest next to PERTAMINA, raised a hand as it wanted to grow further in the renewable sphere. They found the Sarulla bid as a great opportunity. MEDCO approached ORMAT, who sought the support of ITOCHU, and a combination of MEDCO, ORMAT, and ITOCHU formed the original consortium. In 2004, Indonesia was still considered by many international banks not quite ready for large infrastructure projects, which is why it remained difficult to get financing with reasonable rates. Around 2006 onwards, the consortium felt it was time to further promote Sarulla, invited KYUSHU Electric (Japan) to join and started pursuing a viable financing proposal based on the support from Japan Bank for International Cooperation (JBIC) as well as Asian Development Bank (ADB). We had to amend certain portions of the original contracts executed by the previous developer, which unfortunately took much longer than expected; however, in 2014 we could start construction. From the initial bid, it took 10 years until the start of construction. In 2015, INPEX (Japan) joined the consortium by acquiring a part of MEDCO's project interest.
How environmentally friendly is geothermal energy?
We do not waste too much energy and with IGCC technology we return almost 100% of the energy that we extract from 2-3km underground except for a small percentage of non-condensable gas. We do not need to let the steam vaporize from a cooling tower as we adopt an air cooling system and we can circulate the steam condensate in a closed cycle. After extracting energy for electricity, we re-inject the steam and brine coming out at a temperature of 200-300 degrees Celsius back into the ground at around 100 degrees Celsius. In the long run, we inject still relatively hot water that will be reheated by geothermal energy, which can then be recycled, making it literally 'renewable' energy. The geothermal technology is not that sophisticated; however, the potential areas are limited to volcanic regions and not so widely spread all over the world. The geothermal power industry is not as large as those for other types of power generation like thermal and hydro because a number of opportunities are relatively smaller. In many cases, potential areas are located in the middle of volcanic mountains and those are the areas of deep forests, national park or where endangered species may live. So, there needs to be always a fine balance between preserving the neighboring environment and constructing geothermal power plants. Therefore, it is not that easy to rapidly develop geothermal power plants, especially in countries like Indonesia, Japan, and the Philippines.
What can the government do to further support the geothermal industry in Indonesia?
The ministries in charge of energy and environment need to further clarify and streamline the procedures and licenses to allow part of the forest to be developed. The tariff needs to be reasonable and provide not only affordable energy prices for consumers but also a reasonably attractive returns for investors. It took us 10 years to execute the project, though it was an exception since we had to renegotiate old contracts that did not match the project financing scheme. In general, it takes time to drill and find resources to ensure they will be there for 20-30 years before we build a power plant. Building a power station takes two to three years at least but a company has to allow for a longer period for investigation, planning, drilling and financing arrangement. This takes another three to four years and thus, even without unique contractual issues such as Sarulla, it may take five to seven years. Now, after our example, there are several new projects that are being developed on a project finance basis following the success of Sarulla.
What are the challenges and opportunities of investing in Indonesia?
For geothermal development, the challenge is that in this country there is not much reliable subsurface data. The government has not invested enough to find resources by itself and has been relying on private investors to do so. This is because the start of geothermal development in this country was closely linked to oil and gas development and Indonesia was then developing geothermal concessions under PERTAMINA, a state-owned oil and gas company. In other countries such as the Philippines, the government itself is deeply engaged up to a certain stage of exploitation activities to ensure that there are resources and then tender the rest of the process. However, in Indonesia, private companies are expected to do everything. The regulations have become more reasonable than those in the past and there are some successful examples, including Sarulla, with many keen investors and interests from banks. However, the basic scheme has not changed much, which is one of the remaining challenges.
What are your expectations for the coming year?
By May 2018, I hope to have the Unit 3 completed and toward the end of 2018 we will conduct a preliminary feasibility study for the expansion of Sarulla project for around 200 to 300MW (Sarulla II). By the end of 2018, I hope we will be able to start discussions with our partner, Pertamina Geothermal Energy (PGE) regarding the potential, size, tariff, and development schedule. Then, I hope that PGE and SOL can start negotiations with PLN for Sarulla II. The development may take some time but if we start discussing around the end of 2018, I expect the first unit of Sarulla II to be built and generating electricity by around 2024 or 2025. Sarulla geothermal working area is large and the potential is massive; therefore, we should not stop at only 330MW.