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Promising outlook but still obstacles for development in Indonesia

Promising outlook but still obstacles for development in Indonesia Jakarta, Indonesia (source: flickr/ yohanes budiyanto, creative commons)
Alexander Richter 31 Oct 2012

With an increasing interest by foreign investors in the Indonesian geothermal sector, there remain challenges for development. These include remoteness of location and related costs, as well as a complicated bureaucracy with local and national government involved.

While there are positive signs of an awakening geothermal sector and corresponding development in Indonesia, there remain development and investment obstacles.

Recent news reported an investment by Mitsubishi in Indonesia, and the more serious look of BP into the Indonesian geothermal markets. At the same time – so industry executives and energy professionals in the country – “permit constraints and the high cost of investment due to remote location of project sites remain key obstacles for development in the country”. The announced higher feed-in-tariff rates to be paid to developers, were a good first step.

The government sees “companies racing to invest in geothermal energy (projects) in the country”, while the president director for Medco Power Indonesia, Fazil E. Alfitri, states a need for “a lot of studies to be done by government”, and that there needs to be “better coordination among related agencies to handle geothermal projects.” He also states the remoteness as well as the location of project sites in forested areas and near to volcanoes as a major cost factor.

Project development requires approval from the Ministry for the Environment and the Ministry of Forestry, as well as from the Ministry of Energy. An increased decentralization of policy and government, lets local governments gain more authority than the central government, creates further challenges.

At the same time PLN, the state power company, that will have to buy expensive geothermal power, prefers power generated from coal because the tariff is cheeper. But PLN confirms that geothermal provides a top priority based on its reliability over other forms of energy.

Today PLN has an overall installed capacity of 34,928 MW with coal, diesel and natural gas providing 88%. Geothermal today only provides 5% of power to the Indonesian energy market, despite the great geothermal potential of the country.

A recent report by BP highlights the fact that Indonesia will run out of its coal reserves within the next 28 years at current levels. That highlights the need to explore other energy options and geothermal is a preferred option, given availability and price.

Foreign investors can invest into the sector and are allowed to control as much as a 95% interest in geothermal-based power producers.

Source: The Jakarta Globe