T

he construction of the Sarulla power plant, which will be the country'€™s largest geothermal plant, was expected to begin next March after financing was secured, an executive has said.

Fazil Alfitri, president director of PT Medco Power Indonesia, which has a 37.25 percent participating interest in the consortium '€” Sarulla Operations Ltd. '€” that holds a contract of work (CoW) for the geothermal project, said several other infrastructure projects were now on the way to support the plant.

'€œThe EPC [engineering, procurement, construction] for the power plant itself has not been completed. It will likely start in March or May next year. However, we have started the engineering work on roads and bridges,'€ Fazil said.

'€œThe funding is also in place. We have signed a term sheet agreement. We hope that the financial part can be closed in March,'€ he added.

The Sarulla geothermal power plant, which is expected to generate three by 110 megawatts (MW) of electricity, was initiated in 1990. However, development was stalled over various issues, including shares and contract ownership.

After prolonged delays, the plant'€™s development moved forward after the Finance Ministry issued a warrant for operation feasibility to Sarulla last April. At the same time, the Energy and Mineral Resources Ministry also renewed an energy sales contract, which set the price of electricity to be produced by the plant at 6.76 US cents per kilowatt hour (kWh).

Energy and Mineral Resources Minister Jero Wacik previously said that he expected the financial closing of the project to be completed before year-end.

Development of the Sarulla geothermalplant will require investment of US$1.5 billion. About $1 billion of the costs will be funded by loans from the Japan Bank for International Cooperation (JBIC) and the Asia Development Bank (ADB), according to Fazil.

To realize the project, Medco Power, which is 51 percent owned by private equity firm Saratoga Capital and 49 percent owned by Jakarta listed PT Medco Energy Internasional, is collaborating with Japan'€™s Itochu and Kyushu Electric and US-based Ormat Technologies Inc.

When the geothermal plant begins operating, it is expected to save the country around Rp 4 trillion in annual electricity subsidies. The first of the plant'€™s units is scheduled to be completed in June 2016, while a further two units are expected to be completed in July and December 2017, respectively.

The country is thought to have abundant geothermal energy potential; however, its utilization remains limited. Development of the resource is not straightforward as most of it is located in conservation areas, leading to controversy over planned projects.

Deputy Energy and Mineral Resources Minister Susilo Siswoutomo said the country needed to develop between 400 and 500 MW of geothermal energy per year in an attempt to diversify the country'€™s sources of energy. Most of Indonesia'€™s power plants are powered by fuel and diesel, accounting for increasing oil imports.

'€œWe want to meet electricity demand with a combination of fuel and renewable energy. We have no choice; generating electricity from fuel is very expensive,'€ Susilo said.

PT Pertamina Geothermal Energy, a wholly owned subsidiary of state-owned PT Pertamina, said it was developing eight geothermal power plants with a combined capacity to produce 655 MW. The projects are estimated to require $2.29 billion in total investment.

The planned projects comprise units three and four at the 110 MW Ulubelu plant; units one and two, plus three and four, at the 110 MW Lumut Balai plant; units five and six at the 40 MW Lahendong plant; unit one at the 30 MW Karaha plant; unit five at the 35 MW Kamojang plant; units one and two at the 110 MW Hululais plant, and units one and two at the 110 MW Sungai Penuh plant.