Geothermal Energy in Indonesia: Yudhoyono Opens New Power Plants

26 August 2014 | Indonesia Investments

Indonesian President Susilo Bambang Yudhoyono will be present at the official launch of four geothermal power plants (the Ulumbu, Ropa, Ndunga and Mataloko plants) on 11 September 2014 on Flores (East Nusa Tenggara). These plants will supply 20 megawatts of electricity to eight regencies on the island (West Manggarai, Manggarai, East Manggarai, Ngada, Nagekeo, Ende, Sikka and East Flores). Indonesia is estimated to have the world’s largest geothermal energy reserves. However, the country only uses a fraction of its geothermal potential.

Geothermal energy is a relatively environment friendly energy source derived from the earth’s inner heat in the form of steam which is used to drive turbines for the production of electricity. Although exploration costs and the capital cost of geothermal plants are higher than plants that run on fossil fuels, production costs for geothermal plants, however, are low compared to the fossil fuel-fired plants.

Besides electricity generation, geothermal energy can be used for heat pumps, bathing, space-heating, green- houses, aquaculture, and industrial processes.

In recent years the geothermal power market grew significantly, in particular in emerging markets where – amid economic expansion – more and more low income and rural communities are connected to the electricity grid. Many governments are also increasingly focused to lessen their traditional dependence on expensive and environmentally unfriendly fossil fuels such as oil.

Previously it was reported (in December 2013) that the Indonesian government is getting closer to issuing a new law that will make it easier for investors to tap the country’s huge geothermal energy potential. A committee of Indonesia’s House of Representatives (DPR) supports a bill that was proposed by the government, which aims to spur investments in the country’s geothermal energy sector through providing a better legal framework. This new bill separates geothermal development from mining activities.

Despite having 40 percent of the world’s total geothermal potential, Indonesia only utilizes about four to five percent of its vast geothermal reserves. The main problem for geothermal energy development in Indonesia is the legal framework. Currently, geothermal activities are lawfully defined as ‘mining activities’ (Law No. 27 2003), which implies that it is prohibited to be conducted in protected forest and conservation areas (Law No. 41 1999), even though geothermal mining activities have a small impact on the environment (compared to other mining activities). However, about 60 percent of Indonesia’s geothermal energy is located in soils beneath protected forest and conservation areas and thus is prohibited to be extracted. The government of Indonesia has only recently realized the potential of geothermal energy and is therefore yet to create a conducive investment climate.

Another important point in the proposed bill is the obligation for geothermal concession holders to “sell a ten percent interest to regionally owned enterprises or state-owned enterprises after it enters the exploitation stage.” This provision intends to secure local participation (and benefit).

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