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Indonesia geothermal development could profit from cutting of fuel subsidies

Indonesia geothermal development could profit from cutting of fuel subsidies Taman Hutan Raya Bung Hatta, Solok, West Sumatra, Indonesia (source: flickr/ Daniel Wilder, creative commons)
Francisco Rojas 22 Jan 2015

The newly appointed government of Indonesia wants to expand geothermal and avoid traditional fuel generation. This could turn out to be a golden age of geothermal in the country.

Following our coverage on Indonesia and the current oil price plummet, more news point on the direction that geothermal could be the most benefited from this situation.

Local news point out that the country is experiencing a huge increase in power and electricity demand and current diesel fuel generation is not viable in the medium nor long term. Due to rapid economic growth, blackouts, even on middle class areas can be a common issue. Fossil fuel generation represents over a third of the total energy mix and it was currently viable thanks to generous subsidies from the government.

This would seem like a particular bleak outlook yet the particular case for Indonesia is that it sits on “40 percent of the world’s potential geothermal reserves but utilizes only 5 percent of that renewable energy potential”.

The new government that is in office right now has decided to cut back subsidies and embrace other forms of energy production, mainly coal and also geothermal. Last year, the country also simplified geothermal legislation and regulation to ensure easier and more attractive perspectives for potential investors.

According to the same source, “Plans to promote geothermal energy production also have support from the top of the government. During newly-appointed presidential chief of staff Luhut Binsar Panjaitan’s speech at CSIS’s Banyan Tree Leadership Forum in December, he outlined how the government wants to pragmatically encourage geothermal resource development. He recognized that price and regulatory road blocks were the primary limits on geothermal usage. Earlier price agreements with geothermal developers set the price per kilowatt hour of power at around 6 cents regardless of the amount of time it would take for a project to pay back investors at that price. Those price agreements also took two years to arrange. According to Luhut, Jokowi wants to bring price negotiations and government approval of agreements down to 6 months. He also wants to target prices that will allow for investments to be paid back in eight to nine years with a 14-15 percent rate of return.”

Source: CSIS CogitAsia