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EDITORIAL: Funding geothermal exploration
The problem is that geothermal exploration costs are, according to analysts, much higher than oil, gas and coal.
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Major projects -- President Joko "Jokowi" Widodo inspects geothermal power plants PLTP Lahendong unit 5 and 6 with a capacity of 2 x 20 Megawatts (MW) in Tompaso, North Sulawesi, on Tuesday. (JP/Lita Aruperes)
G
eothermal development in Indonesia will get a significant boost after the government decided to take on the risks of exploration, which is the highest-cost factor in the process of harnessing geothermal energy into power generation.
This risk-mitigation initiative has been made possible after Finance Minister Sri Mulyani Indrawati, after a delay of five years, finally issued last month a regulatory directive on the use, management and accountability of the Geothermal Fund Facility (GFF) at the state-owned infrastructure financing company, PT Sarana Multi Infrastruktur (SMI).
The GFF was actually established in 2011 with an initial capital of Rp 1 trillion (US$75.18 million) and replenished annually to a cumulative total of Rp 3 trillion until 2013. But the funds have never been disbursed in the absence of regulations on their use and management.
With more than 127 active volcanoes, Indonesia has an abundance of geothermal reserves, estimated at 30,000 megawatts, but this is only potential, which has yet to be proven by exploration. The problem is that geothermal exploration costs are, according to analysts, much higher than oil, gas and coal, reaching as high as $60 million to $75 million for one working area simply to ascertain whether there are commercially viable proven reserves.
Since the success ratio in Indonesia so far is less than 50 percent, all this upfront exploration spending must be financed with equity because no bank is willing to lend for such ventures. It is little wonder, therefore, that even though geothermal power has been developed since the early 1980s, only about 1,700 MW have so far been harnessed because very few private investors are willing to take on the huge risks of geothermal development.
The success of a geothermal development project depends on the availability of reliable geological data on proven reserves. The GFF will therefore accelerate geothermal exploration, which in turn will enable the Energy and Mineral Resources Ministry to tender more concessions with proven reserves so that potential investors are better able to calculate the risks and the expected internal rates of return.
Lenders will be willing to finance geothermal power development if they have access to complete and reliable data and information on the proven reserves, geological feasibility studies and interpretations of seismic investigations.
The finance minister’s rule stipulates that the winning bidders for geothermal concessions with proven reserves will be required to pay PT SMI compensation for the geological data, thereby ensuring the sustainability of the GFF. PT SMI and the government will share the costs of explorations that fail to discover commercially viable proven reserves.
Under the medium-term national energy policy on renewable energy, the government has set the target of geothermal power development at 7,000 MW by 2025.
Geothermal power development is extremely promising and is environmentally sustainable. Given the nature of geothermal — fluids and hot steam — it is a source of energy that can only be used for local power generation.
