More than 2.000 delegates attended the World Geothermal Congress 2010 in Bali, Indonesia, representing 85 countries. The geothermal industry generates 10 Gigawatts (GW) globally and the world has 70 GW equivalent of geothermal resources, with 40 percent in Indonesia, presenting both opportunities and pitfalls. Geothermal will never be as big as oil, coal or nuclear power. It has taken the industry 100 years to build 10 GW of power capacity. Maybe it can deliver 100 GW by the end of the 21st century. But that would make geothermal a significant energy player.

Indonesia, with 28,000 megawatts (MW) or 28 GW of identified geothermal resources has 40 percent of global geothermal potential. Yet it only developed 1,200 MW so far and is now embarked on an accelerated program to build 4 GW of capacity urgently as part of its second 10,000 MW accelerated electricity expansion program.

The country aims to build 9.5 GW of capacity by 2025, equivalent to the entire world capacity now. So Indonesia is the flagship. But will it sail, or sink? On the one hand Indonesia, the land of volcanoes on the fiery rim of the Pacific is a geothermal dream.

But on the other hand in terms of past performance and present problems it could prove to be a geothermal implementation nightmare, where only big rich or state-backed players would stand a chance.

The result could be delay, disappointment and to dash the dreams of the global geothermal lobby which hopes the industry will leap ahead from linear to exponential growth, with Indonesia in the lead. So what could go wrong and what can be done to put it right ?

Firstly although the reforming government of President Susilo Bambang Yudhoyono is doing its best, Indonesia is held back by an often obstructive and complex bureaucracy, a maze of regulations, and a reputation for lack of transparency, lack of legal certainty and corruption. Steven W Green, president director of Chevron Indonesia referred to President Yudhoyono’s remarks at the Bali congress that Indonesian local government, was charged with the management of geothermal development by the 2003 Geothermal Law, but did not have the capacity to run the tenders and procedures needed. (The Jakarta Post 29.12.10).

There are also disputes on geothermal development between local government and the national power utility PLN whose past monopoly on grid power production and sales is being slowly broken by the government.

Secondly the record of attempts at reform of electricity generation are not encouraging. The state-backed power utility PLN, now led by a reforming president director, Dahlan Iskan, has been a bastion of bureaucratic obstructionism. The first 10,000 MW accelerated program based entirely on coal-fired power stations was implemented with heavy delays, despite extensive Chinese backing for finance and equipment. The program was started in 2006 and won’t be completed until 2011 or 2012. And coal power stations can be built in three years.

The figures given for the 40 percent geothermal component of the second 10,000 MW program do not yet add up. The program was sold to the public as starting in 2010 and ending in 2014 when the second term of the President Yudhoyono’s government ends. But most geothermal plants take six years to build from greenfield site, three years on exploration and three years to build the power plant. So if the government is making over 30 agreements now for geothermal power development then most of these power stations will not be completed until 2016, assuming no hold-ups and 100 percent financing. Some plants may be built faster if the exploration stage is finished or already half done, but this is not generally the case. All this assumes a rapid learning curve despite a major shortage of human resources and capacity and decisive rapid action to unblock barriers and facilitate finance.

The Government does not want to give sovereign guarantees this time and tried hard not to do so last time, but had to give way state guarantees to keep the Chinese export banks in the game. But this time round many are convinced that without subsidies or subsidized insurance against exploration drilling risks by the state or foreign agencies that many geothermal projects will never get off the ground (or get under it!).

Others argue that subsidies will kill the power industry whatever the sector and that it would be far better to build a genuine Independent Power Producer (IPP) model based on realistic power sales prices to make it work. The standard sales price of 9.7 US cents will not be enough if smaller projects have higher costs. The lesson of delays in the coal-fired program was that you need flexibility on PPA pricing. More than 50 PPAs are being renegotiated. What a waste of time. Time to get real on risks, regulations and prices (Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.)

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