T

he Energy and Mineral Resources Ministry has set a time limit for the developers of a number of stalled geothermal projects to reach deals on a power purchase agreement (PPA) should they want to enjoy a new ceiling price.

The ministry has issued a new regulation regarding the ceiling price for new geothermal projects ranging from 11.8 US cents to 29.6 cents as part of the government'€™s program to attract more investors.

Under the regulation, the ceiling price will be applicable to new projects. Existing developments can also be adjusted with certain requirements.

According to a presentation delivered in a geothermal conference in Jakarta last week, ongoing geothermal development projects were asked to seal PPAs with the buyer of electricity (state electric company PLN) produced from geothermal plants on a given date.

For example, for a project in which a tender winner has been determined but the working license remains in progress, the developer is required to complete a PPA by Dec. 31.

The ministry'€™s geothermal director at the renewable energy directorate general, Tisnaldi, said Dec. 31 would be the deadline for developers to sign a PPA with the electricity price offered in the tender.

'€œThen, developers will conduct exploration and feasibility studies, in which they will establish the real cost. If the feasibility studies find that the PPA price is not economical, a price adjustment can be carried out but the cost must be audited. So, price negotiations [with the ceiling price regulation in place] will be after the studies,'€
Tisnaldi said.

If the developers fail to meet the deadline, they will miss the chance to adjust the electricity rate under the ceiling price plan.

Paul Mustakim of Chevron Geothermal, whose projects of Gunung Ciremai and Suoh Sekincou have deadlines for Oct. 31 and Dec. 31 respectively, said the company still had time to work on the agreements.

He declined to reveal the obstacles hampering the PPA negotiation process.

Indonesia is estimated to have around 29 gigawatts of geothermal potential. However, the current capacity is only 1,341 megawatts, less than 5 percent of the potential.

The government has been trying to encourage more geothermal projects. To date, 58 geothermal working areas have been offered, but only nine of them are already in operation while the remainder are in progress or are stalled for various reasons including prolonged PPA negotiations, permits related to the usage of conservation or protected areas and resistance from local residents.

Pricing has also been an issue. The ceiling price regulation is expected to attract investors and accelerate development as the government is targeting up to 9,500 megawatts in electricity produced from geothermal power plants by 2025.

However, the more attractive ceiling price means the government must provide more electricity subsidies.

Anang Yahmadi of PLN'€™s directorate of construction and new and renewable energy, said with 3.5 gigawatts from independent power producers (IPPs), geothermal projects could be completed by 2020, and with an average electricity tariff of 11.5 cents per kilowatt hour (kWh), the government would have to set $780 million in subsidies.

'€œIf the contract of IPPs is based on the ceiling price of 14.7 cents per kWh, the subsidy will be more than double,'€ Anang said.

Energy subsidies are a big portion of the state budget. This year'€™s electricity subsidy is set at Rp 71.4 trillion ($ 6 billion) in the state budget and is planned to be revised higher to Rp 107 trillion under the revised state budget as a consequence of the weakening rupiah exchange rate and higher price of crude oil.