Government geothermal drilling not sufficient to lower tariffs

Government geothermal drilling not sufficient to lower tariffs Drilling Rig on site of the Muara Laboh geothermal project, Indonesia (source: Sumitomo Corp.)
Alexander Richter 17 Dec 2021

Existing regulations pegging geothermal to tariffs by coal-fired plants make the Indonesian government drilling program insufficient in bringing down tariffs.

Despite the launch of the government exploration drilling program to improve the economics of the Geothermal Power Plant (PLTP) project, developers consider this still insufficient. This is due to the level of risk does not only lying in exploration activities. Chairman of the Indonesian Geothermal Association (API) Priyandaru Effendi said the exploitation stage also has no less important risks in geothermal development. Although the amount of risk is not as big as exploration activities.

For example, from 11 successful wells, it is not certain that the volume obtained will be the same as what the developer expects. So he emphasized that the risk of geothermal developers is not only in the exploration stage. “So if the government only explores upstream, drilling Of course, then the tariff will drop significantly, I don’t think it’s necessarily like that,” said Priyandaru at – INDO EBTKE CONEX 2021 last month.

Priyandaru realizes that geothermal itself is still not competitive. Especially with the cheaper fossil energy prices, making geothermal energy sources less competitive. Therefore, Priyandaru encourages competition in terms of price and more attention from the government for this sector. He also asked that geothermal tariffs could be aligned with the prices of oil and other fossil fuels.

“We are still competing with that which is the main thing that is prioritized by the government,” he said. Minister of Energy and Mineral Resources Arifin Tasrif previously said that geothermal exploration was a high-risk activity. Most of the losses in geothermal projects are due to exploration failures. This causes the price of electricity from Geothermal Power Plants (PLTP) to be quite expensive.

“The high cost of this exploration is all included in the cost component. So what happens is, the cost of electricity per kWh from geothermal is far above the average price of electricity. This is of course very burdensome on the state budget,” he said some time ago.

Therefore, the Ministry of Energy and Mineral Resources took the initiative to take the risk of geothermal exploration, so that exploration costs are only issued once, not carried over for 30 years, as exploration has been carried out so far. “Now we have an initiative where the government can take this exploration risk,” said Arifin. Arifin stated that with this program investors will have more accurate data related to geothermal energy in an area. So it is estimated to reduce the risk of exploration failure.

In a separate article the Jakarta Post mirrors the coverage on KataData, pointing to the low electricity off-take tariffs remaining the unaddressed challenge to developing geothermal in Indonesia. Existing regulation pegs electricity offtake prices for renewable power plants to that of coal fired plants. These coal-fired power plants though have much lower production cost due to coal price caps, economies of scale and a lack of carbon tax. Here the Energy and Mineral Resources Ministry Regulation No. 50/ 2017 caps the sellling price of green electricity at 85% of national electricity supply costs, which is calculated by state-owned PLN based on prices from coal-fired plants.

Clearly a tricky situation for geothermal development, which could flourish if this would be addressed.

Source: KataData, Jakarta Post