Fairly valuing geothermal energy as part of Indonesia’s larger energy mix is critical, and intermediaries between government and investors will need to be found.
A recent CNBC article in Indonesia suggests that geothermal energy could lose its competitiveness because “geothermal tariffs are more expensive than those of hydroelectric power stations (PLTA)”.
Despite the great geothermal potential, the use of geothermal energy is lagging behind in development because it is more expensive than other forms of renewable energy.
In an interview with CNBC earlier this month, director of geothermal energy at the Directorate-General for New and Renewable Energies and Energy Conservation (EBTKE) of the Department of Energy and Mineral Resources (ESDM), Harris, said the average price of geothermal electricity in new contracts is now above $ 0.10 / kWh, or even as low as 0 , $ 12 at $ 0.13 / kWh.
Meanwhile, other renewables tariffs, he says, are still below $ 0.10 / kWh on average. For example, the price of electricity from a hydroelectric power station (PLTA) is $ 0.06 to 0.07 / kWh, biomass is 0.07 to 0.08 / kWh.
As the sole purchaser of electricity from the developer, PT PLN (Persero) will first select and prioritize energy at a lower price.
The situation is, however, a little more complex, as we have already pointed out, and has been the subject of constant debate for many years. How policies assess different forms of energy, should include their availability, security of power supply, cost of fuel, environmental impact, emissions, etc. offered by geothermal energy. As has been much described, the fixed tariff cap that has been put in place limits prices to the current average cost of production per region. And the main population areas of Java and Sumatra have the price of electricity dominated by subsidized coal-fired generation.
The question is therefore how the government plans to support renewable energies, in particular with regard to the ceiling tariffs set by region which reflect the current cost of production (often low cost coal) and not the future options in electricity, nor any renewable energy source. this can help Indonesia meet the commitments made under the Paris Agreement. The cost of developing geothermal projects by region is different, but there is also the difference between the energy source it replaces and the emissions it can save. Determining the value of the overall energy system should include the contribution to Indonesia’s commitment under the Paris Agreement, the baseline generation capacity provided by geothermal energy, land use and impact. , local economic contribution, etc.
From a government perspective, to make geothermal electricity rates more competitive, Director Harris says the government will help reduce the cost of geothermal projects by expanding exploration drilling for geothermal wells.
Until 2024, the government will participate in exploration drilling in 22 geothermal work areas.
He explained that the role of the government in the conduct of this geothermal exploration drilling is to reduce the risk of the developers. Indeed, the exploration phase or before production represents up to 50% of the risk. This risk is included in the geothermal cost component, so it will undoubtedly have an impact on the high geothermal tariff.
If the government gets involved in drilling geothermal exploration wells, it says at least 50% of the developer’s risk will be reduced.
“It is hoped that during the implementation the government will drill for exploration and there will be results, at least 50% of the risk will be reduced,” he said.
Not only can it compete with other types of EBT, but this cost reduction should also be able to compete with the base cost of providing electricity (BPP) in Java, which reaches $ 0.07 / kWh.
“Once (the government’s exploration drilling) is done, the risk of geothermal energy can go down and the price can be less than $ 0.07 / kWh,” he said.
In addition, the government also offers tax breaks and tax incentives to geothermal developers. Not only the incentives, the government is currently developing a new system of geothermal electricity tariffs which will later be regulated in a presidential regulation (Perpres).
Not only regulations relating to geothermal tariffs, the draft presidential decree will also regulate other EBT rates such as hydropower, wind, solar (solar) and biomass.
“Now the process is at the Secretary of State. This presidential decree awaits the initials of the ministries concerned which have the authority, the Ministry of Finance, the Ministry of Coordination of Maritime Affairs and Investment, the Ministry of Industry and others ”, he added. he explains.
Based on data from the Ministry of Energy and Mineral Resources, Indonesia has the second largest geothermal resource in the world, reaching 23,965.5 MW, below the United States, which has 30,000 MW of resources.
But unfortunately, the use of geothermal energy in Indonesia is still minimal, namely only 2,130.7 MW or only 8.9% of the total existing resources. The installed capacity of the PLTPs (geothermal power plants) is still lower than that of the hydroelectric power plant (PLTA) which reached 6,121 MW in 2020.
Overall, the general solution is probably somewhere in the middle. But reducing project risk through government drilling may also mean that the cost to investors of purchasing projects could increase. In Kenya, the challenge is that the margins between the price of steam and electricity tariffs are too narrow. It will be necessary to see how the reduction of the risks will be reflected on the purchase prices in the projects / securing of the work areas.
Source: CNBC Indonesia