Geothermal in Indonesia – Developers’ Perspective

IIGCE June 5 2014

Dr. Bret Mattes

The opportunity cost of not developing geothermal in Indonesia is massive. So why has development been allowed to lag…..?

• Average lead time for new projects in Indonesia has been > 12 years

• Fundamental issue – petroleum-scale capital at risk upstream for a utility rate of return downstream

• Is Sarulla the breakthrough project that will give the industry momentum??

• Where does the blame lie – public or private?

What’s holding us back?

• Demand issues• Accessibility • Resource quality• Pricing• Industry structure• Finance• ??

Demand• Market is clamoring for base-load electricity• Government has outlined clear electrification and

renewable energy targets; but…• Market is distorted – energy subsidies soak up

almost 20% of annual national budget• Lack of coordination within government• Risks are not shared equitably• Government guarantee is inadequate• No national database• License rules not rigorously enforced

Accessibility• Extractive mining activity• Cumbersome tender process• IUP commitments that don’t reflect:

– Paucity of data– Delays with PPA– Delays with forestry approvals and other consents

• High drilling costs– Onerous treatment of drilling cuttings

• Land acquisition issues• Limited talent pool• Lack of coordination within government• Exploration Fund is ill-conceived

Resource

• Inconsistent definition of resources at time of gazettal

• Mix of high/low temperature; deep/shallow• Geography

Pricing• Bidding requires nominal tariff at COD to be

specified before resource data is available• National cap versus FIT; avoidable cost versus

project-specific B to B outcome• Post-COD escalation reflects inequitable risk

sharing

Industry Structure

• Single buyer– Also a developer– Can’t choose its suppliers

• Plant versus unit commissioning – encourages irresponsible development strategies

• Coordination across and between levels of government• Who builds/owns/operates connection infrastructure?• Needed: experienced, persistent developers willing to

risk upstream capital• “Fast track” was a rhetorical turn of phrase

THANK YOU