Pertamina’s Geothermal Push Gets a Price Boost

Jakarta Globe, August 15, 2012

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Pertamina Geothermal Energy, a subsidiary of state energy firm Pertamina, plans to develop another eight geothermal projects after the government announced that the electricity price from geothermal power plants would be increased to make the sector more attractive.

Work on the projects is expected to begin next year but there was no information on where they would be located.

Slamet Riyadhi, president director of PGE, said the company planned to spend an additional $2.7 billion on geothermal projects. That is in addition to the $6 billion it has invested in the ongoing development of 10 geothermal projects.

The new projects would generate 900 megawatts of electricity, he said. The 10 projects already in development would have an estimated combined capacity of 962 megawatts once completed.

The energy and mineral resources minister, Jero Wacik, announced last month that the purchase price of electricity produced by geothermal sources would be increased from 9.7 cents per kilowatt hour to between 10 cents and 17 cents per kilowatt hour, depending on the location.

“If the government makes this price increase official this year, we can start the process of surveying for the new projects next year,” Slamet said.

He said the internal rate of return, a measure of profitability on investment, for geothermal projects under the current price of 9.7 cents per kilowatt hour was 9 percent.

“That is well below the ideal 11 to 14 percent rate for investment in renewable energy,” Slamet said. He added that an 11 to 14 percent rate of investment return could be reached under the proposed new price.

He said the current price structure left investors reluctant to develop geothermal projects, particularly with the additional upstream risks they faced.

“Now they will have no more excuses,” he said.

Slamet said the Energy and Mineral Resources Ministry and the Forestry Ministry had signed a memorandum of understanding on the utilization of forest areas for geothermal projects that could speed up the process of obtaining permits.

“Now we can secure a permit for a geothermal project a month or two faster than usual,” he said. “This is good. Now we can achieve our target of generating 2,000MW of electricity in 2018, ahead of our previous timeline of 2020.”

Indonesia is said to hold some 40 percent of the world’s geothermal energy potential. Unlike other energy sources, however, geothermal energy cannot be transported so a power plant must be built near the source to tap it, making investment more expensive.

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