Indonesia's Low Electricity Price Discourages Investment in Geothermal Energy
Indonesia's push for usage of renewable energy sources, particularly geothermal energy, at the expense of usage of fossil fuels (such as oil or coal) has experienced a setback as there has been an impasse between state-owned electricity company Perusahaan Listrik Negara (PLN) and Pertamina Geothermal Energy (PGE), a subsidiary of state-owned energy company Pertamina regarding the renewal of their power purchase deal for electricity generated by PGE's Lahendong and Kamojang plants. The existing deal expires at the end of the year.
Based on existing contracts, Pertamina Geothermal Energy (PGE) has been selling electricity to Perusahaan Listrik Negara (PLN), which holds a monopoly on the distribution of electricity in Indonesia, for a price of 6.2 cents per kilowatt-hour (for electricity generated by PGE's 235-megawatt Kamojang plant in West Java) and 9.7 cents per kilowatt-hour (for electricity generated by PGE's 60-megawatt Lahendong plant in North Sulawesi). Together, these two plants account for around 20 percent of Indonesia's total geothermal power output. PGE is Indonesia's largest geothermal power producer, generating over 700 megawatt.
As the existing deal will expire at the year-end, PLN offered to purchase electricity from the Kamojang and Lahendong plants for the price of 3.3 cents per kWh and 5.8 cents per kWh, respectively, during the negotiations. However, PGE requested a price of 7.4 cents per kWh for electricity sold by its Kamojang plant and 10.1 cents per kWh for power from its Lahendong plant.
Abadi Purnomo, member of the National Energy Council said - although being a common bargaining strategy - PLN's low asking price is not only unfeasible for Indonesia's geothermal power producers but is also a discouraging sign for future investment in Indonesia's renewable energy sector. Particularly in times of low crude oil, coal, and natural gas prices, investment in renewable energy sources should be encouraged as fossil fuels are a very attractive option right now amid low prices.
Renewable energy is projected to account for 23 percent of Indonesia's total primary energy by 2025 (from a mere 5 percent currently) and therefore it is important to encourage investment instead of discouraging it. Especially geothermal power is considered a great opportunity as Indonesia is estimated to contain about 40 percent of the world's geothermal reserves. However, nearly all of these reserves remain untapped due to the lack of investment. This lack of investment is mainly caused by the unclear legal framework. It took years before Indonesian parliament decided to separate geothermal from other mining activities through Geothermal Law No. 21/2014 (hence opening up room for geothermal exploration in Indonesia's protected forest and conservation areas as mining activities are prohibited to be conducted in these areas). However, Geothermal Law No. 21/2014 still is yet to bear fruit and to be streamlined with other ministerial regulations.
PLN, on the other hand, needs to keep electricity prices low because the government cut the energy subsidy bill, while the company is also tasked to build the infrastructure to meet the central government’s ambitious goal of adding 35,000 MW of power capacity by 2019.
Energy Mix Indonesia:
| Energy Mix 2011 |
Energy Mix 2025 |
|
| Oil | 50% | 25% |
| Coal | 24% | 30% |
| Gas | 20% | 22% |
| Renewable Energy | 6% | 23% |
Source: Ministry of Energy and Mineral Resources
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Cutting the Gordian knot seems fairly easy to me:
Open the energy market, particularly power generation to all players especially experienced foreign enterprises under modified build and transfer legislation. Disband PLNs monopoly on the purchase and sale of electricity. Pay off all ''important'' stakeholders with shareholdings in the new players.
Benefits: technology would revert to local management after a period of time, interesting investment opportunities read outsize profit potential for early foreign investors or particularly well connected investors especially from Austria. PLN, through ''tough love'' may finally become a solidly profitable company through better performance and not abuse of monopoly status, through competition and knowledge of local markets. "'Important stakeholders'' may have a lesser share but the pie will be much greater. And last of all and very far down the list of importance: Indonesia's population may finally achieve greater wealth.