Pricey oil makes geothermal projects more attractive for Indonesia and the Philippines

By Ed Davies and Karen Lema Reuters
Published: June 29, 2008


JAKARTA: Faced with looming energy crises in their developing economies, power-hungry countries like Indonesia and the Philippines are looking deep into the earth for solutions.
Both are in the so-called Pacific Ring of Fire, an area peppered with volcanoes and home to the world's biggest reservoir of geothermal power.
"When I think of Indonesia and energy, I think geothermal," said Lester Brown, president of the Earth Policy Institute, during a speech this month to the brokerage house CLSA Asia-Pacific Markets. "Indonesia has more than 500 volcanoes, of which 130 are active."
"Indonesia could run its economy entirely on geothermal energy and has not come close to tapping the full potential," he told the investment group.
That might be changing, though, as soaring oil prices, surging demand and creaking infrastructure in the power sector make it all the more urgent for Indonesia and the Philippines to find ways to exploit their geothermal reserves.

But unlocking the potential is proving difficult.
Geothermal projects involve drilling wells deep into the earth to tap steam or hot water than can power turbines. Not all of the challenges are terrestrial in nature. This is a capital-intensive process complicated by bureaucracy and other stumbling blocks.
The Indonesian Bedugul project, set among volcanoes on the Hindu enclave of Bali, aims to develop up to 175 megawatts of power, or roughly half of what the resort island needs. But the project is on hold because local residents fear it could damage a sacred area and affect water supplies from the nearby lakes.
Most of the power supply in Bali comes from the neighboring island, Java, via an undersea cable. Supporters say that the Bali project is essential to meet growing electricity demand in the resort island, which is at the heart of the Indonesian tourism industry.
"We hope that the project will run, not just because of the investors but for Bali's future," said Ni Made Widiasari of Bali Energy, the firm behind the project. She denied that the project would be damaging.
In the Philippines, which is the world's second-biggest geothermal producer behind the United States, one of the main obstacles to developing the reserves is the high, pipe-corroding acidity associated with active volcanoes.
"There are many fields that are still acidic, meaning the dead volcanoes underlying them are not really dead," said Paul Aquino, president of PNOC-Energy Development which operates nine steam fields with a capacity of 1,199 megawatts, or about 60 percent of the country's geothermal capacity.
That would make it difficult for the Philippines to achieve its goal of raising geothermal capacity from an existing 1,931 megawatts to 3,131 by 2013, and overtaking the United States as top global geothermal producer, he added.
Geothermal power accounts for around 18 percent of the energy needs in the Philippines.
"We have already exploited those areas with the biggest geothermal resource," Aquino said, adding that many of the most attractive untapped sites in the Philippines are located in natural parks or protected by the Indigenous Peoples Rights Act.
Catherine Maceda, spokeswoman for the Renewable Energy Coalition, a group promoting the use of alternative energy, also warned that the Philippines needed to push through a renewable energy bill to provide greater incentives and clarity.
While President Gloria Macapagal Arroyo has earmarked the bill as urgent, political bickering is holding up its passage.
"Right now there is no predictability," Maceda said.
Electricity networks in the Philippines and Indonesia, with a combined population of 316 million, are already under strain.
Philippine power demand is estimated to be growing at an average rate of 4.8 percent a year, while Indonesia has suffered power blackouts because of a razor-thin supply cushion when demand peaks.
Indonesia supplies just 850 megawatts of an estimated 27,000 megawatt potential from geothermal sources, or about 3 percent of its current power output.
While the government wants to focus on using more coal-powered stations to meet energy needs, Energy Minister Purnomo Yusgiantoro has said that power from geothermal could reach 9,500 megawatts by 2025.
Despite the setbacks and stalled projects, high energy prices are providing the spur for firms to look at geothermal again, and several are eager to expand their existing operations, or to bid for fresh projects in Indonesia under a new government framework.
The Indonesian energy firms Medco Energi Internasional and Star Energy, are looking at making new investments, while Chevron, the world's largest private producer of geothermal energy, plans to double its geothermal business in Indonesia and the Philippines by 2020 despite the heavy capital outlays.
It takes about eight years for a geothermal plant to move from exploration to production. Aside from drilling and plant costs, there are often additional expenses like the need to build access roads in remote and mountainous areas.

Geothermal plants require high capital investment for exploration, drilling wells and plant installation compared to other alternatives. But operation and maintenance costs are relatively low.
Chevron is looking at further expansion of its existing fields in West Java and is considering 10 of 256 other sites identified by Indonesia as having geothermal potential.
"You have to spend all your capital up front to develop these fields, you know, put in the wells and power plants, but with current prices of oil, gas and coal, geothermal is becoming competitive" said Barry Andrews, president of geothermal power operations for Chevron.
Eligibility for carbon credits could make such investments more attractive, he said, as they might offset some of the hefty start-up costs.
The Chevron plant in Darajat, in West Java, has been registered with the United Nations as being eligible for 650,000 certified emissions credits per year.
Meanwhile, Indonesia is putting the finishing touches on new regulations for the geothermal sector, after many projects collapsed in the wake of the 1997-98 Asian financial crisis.
"I think we're virtually on the cusp of seeing all of that come together in the next year or so," Andrews of Chevron said.
Brown, the environmentalist from the Earth Policy Institute, said that this followed a global trend in localizing energy policies as oil prices prod countries to find cost-effective alternatives.
"In Indonesia that means geothermal is going to loom large in the energy economy of the future, and that development could come very quickly once the leadership begins to see the potential," Brown added.