Betting the Energy Future

Betting the Energy Future
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Indonesia, the country with the world's largest number of active volcanoes, is betting that all the hot rocks will provide a clean and reliable energy source for the future.

The country is believed have 40 percent of the world's geothermal energy resources. But making geothermal energy economically feasible will require adjusting the country's heavily subsidized energy prices. And that issue is a political hot potato.

Unused Potential

Steam is visible from miles away as it billows into the sky over Kawah Kamojang, Indonesia's first geothermal field in West Java. Some of the steam is piped into a plant, where it turns turbines and generates electricity that is fed into the national power grid. It's is run by the geothermal arm of the state-owned oil company Pertamina.

"This area," explains plant manager Tavip Dwikorianto, "used to be a volcano that erupted and collapsed, forming a large crater. Heat comes up from faults inside the crater. The heat is released through vents and hot springs around the crater."

In many spots near the Kamojang plant, boiling hot water with the sulfurous smell of rotten eggs gushes from the ground.

Indonesia has around 130 active volcanoes, strung out through the archipelago. At present, Indonesia is only using about half a gigawatt of its estimated potential of 28 gigawatts of geothermal energy. That potential is roughly equivalent to 12 billion barrels of oil.

Until 1996, Indonesia produced more oil than it could consume, so there was little incentive to invest in geothermal, and it is still cheaper to produce electricity by burning oil or coal.

Return On Investment

Slamet Riadhy, CEO of Pertamina Geothermal, says his company will only invest in building up capacity if the price is right.

"It takes very little money to operate a plant to produce geothermal power," he says. "But it requires huge investments up front. The price has to be high enough to help us recover that and give us a return on our investment of more than 10 percent."

Riadhy says geothermal in Indonesia is now poised to take off. The government is preparing to introduce feed-in tariffs that will make the price of geothermal more competitive with fossil fuels, and Pertamina plans to double or triple its geothermal capacity in the next five years.

Last year, geothermal accounted for most of the billion dollars of investment in renewable energy sources in Indonesia, a 520 percent year-on-year increase, according to the Pew Charitable Trusts. This month, Indonesia's State Investment Agency announced it will spend $367 million on new geothermal projects in the near term.

New Zealand geothermal consultant Mike Allen, who helped build Pertamina's Kamojang facility nearly three decades ago, says that private energy companies are now lining up to invest in Indonesian geothermal, which is currently dominated by state-owned firms like Pertamina.

"I think that the private sector input is valuable because it's going to give the opportunity for work to be done by commercially savvy groups, who perhaps can do things a little bit cheaper and faster than the state-owned enterprises would able to do, so I think it will bring some balance into the market," Allen says.

Political Considerations

It's hard to make money in Indonesia's energy market because prices for oil, kerosene and electricity are all heavily subsidized by the government, which sets prices based in part on political considerations, including social stability.

On April 1, police in downtown Jakarta fired tear gas on thousands of demonstrators who were protesting government plans to reduce fuel subsidies by a third. In the end, the government relented and shelved the planned cuts.

At the equivalent of about $1.90 a gallon, Indonesia's gas is the cheapest in Asia. Critics point out that the government now spends about 2 percent of GDP on fuel subsidies, more than it spends on roads and other infrastructure.

They also note that the biggest beneficiaries of this subsidy are those who burn the most fuel: the rich. Geothermal could help this problem by generating electricity which could then be used to power urban mass transit for everyone.

Whatever energy mix Indonesia chooses, says Allen, geothermal provides a good, steady supply, which unlike solar or wind, doesn't depend on the weather.

"It just runs 24 hours a day, seven days a week," he says. "It provides you a good underlying input of energy which doesn't exist in Indonesia at the moment; that has to come from coal or oil."

Renewables, Allen points out, can't meet all of the energy needs of Indonesia's rapidly developing economy. But he says they'll make an important contribution without emitting a lot of greenhouse gases, of which Indonesia is already the world's third largest emitter after China and the U.S.

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