The Jakarta Post reports that Indonesia substantially raised its geothermal tariffs this week across the archipelago of 240 million people, beginning what the government bills as a “crash” program.
While details in English on the new policy are not widely available, several English presentations by government officials in the past year indicate that Indonesia was on the verge of launching a major renewable energy development program.
The crash program, not unlike the massive program announced recently by Saudi Arabia, seeks to develop thousands of megawatts of not only geothermal but other renewable energy technologies as well. And like Saudi Arabia, Indonesia is a major oil producer.
However, Indonesia has fallen out of the league of major oil exporters. In the past decade Indonesia has become a net importer of oil to run its industry and power sectors and the loss of oil export earnings may play a role in the decision to rapidly ramp up renewables.
Indonesia’s new policy, which it labels “feed-in tariffs”, offers eye-catching rates for geothermal generation. The rates vary from USD$0.10/kWh to nearly USD$ 0.20/kWh depending upon the region where the resource is located.
Unlike the existing policy for hydro, biomass, and landfill gas, the tariffs are given in US dollars.
However, the “tariffs” are benchmark prices or ceiling prices and not true feed-in tariffs as used internationally. Indonesia’s policy is similar to that in Kenya where the government says, in effect, “we won’t pay any more than this amount” and then seeks bids to build power plants for something less than the “benchmark” price.
Nevertheless, the benchmark prices for geothermal are significant, and the government is offering a host of additional financial incentives to lure developers.
It will have to, to meet its ambitious targets.
Lofty Renewable Targets
Energy and Mineral Resources Minister Jero Wacik said in a release that Indonesia’s fossil fuels were depleting quickly and that renewable energy development was necessary to offset oil in electricity generation. Left unsaid of course, is that oil not burned in power plants can be sold on the international market for nearly USD$100 per barrel.
Currently renewables supply only 5% to 6% of Indonesia’s energy mix but the government’s existing target of 17% renewables by 2025 may not be ambitious enough. The Minister of Energy expects this will soon be raised to 25% renewables by 2025.
Geothermal is slated to contribute the lion’s share of new generation.
Currently Indonesia operates 1,200 MW of geothermal generation–the third largest fleet of geothermal power plants in the world behind only the Philippines (1,900 MW) and California (3,100 MW), and twice as much as New Zealand (600 MW) and Iceland (600 MW).
In what they are themselves calling a “crash” program, Indonesia plans to more than double existing capacity by adding 3,000 to 4,000 MW of new geothermal development by 2014. Whether this is even physically possible is unknown.
But that’s just the warm-up act. By 2025, the government wants to see as much as 10,000 MW of new capacity, employing as many as 800,000 people in the second phase of its crash geothermal program.
These grand plans have been tempered in more recent pronouncements. The government now expects only 375 MW of geothermal to be added by 2014–well short of their targets.
To ramp up the pace of development, the government is seeking international investment. Part of their effort to make Indonesia an attractive place for international geothermal developers is the creation of a system of feed-in tariffs–or benchmark prices–in US dollars.
Other Tariffs Competitive Internationally
Overlooked in the frenzy about the new geothermal prices is Indonesia’s existing tariff for biomass, including biogas, hydro, municipal waste, and landfill gas. Indonesia’s tariffs for these technologies are competitive internationally.
And these tariffs appear to be true feed-in tariffs. The tariffs are differentiated into two tranches by connection voltage. Generation connected at low voltage receive a higher payment than those connected at “medium” voltage”.
The tariffs for hydro and biomass also are differentiated by location through the use of a bonus system. For example, a hydro plant connected at a low voltage receives 1,000 Rp/kWh (USD$0.106/kWh). But if the plant is installed in Papua, the bonus is 1.5 or 1,500 Rp/kWh (USD$0.16/kWh).
Tariffs for Solar & Wind Coming
Currently there is a negligible amount of wind and solar capacity in Indonesia.
In a 14 May presentation Hasrul L. Azahari, the Director of New and Renewable Energy in the Ministry of Energy, said that Indonesia planned to introduced feed-in tariffs for wind and solar soon. The government’s targets for wind and solar are as ambitious as those for geothermal.
The targets for solar photovoltaics (solar PV), wind, and other technologies are
- 2,000 MW of solar PV by 2014,
- 300 MW of wind by 2014,
- 1,300 MW of new hydro by 2015, and
- 400 MW of new biomass by 2015.
However, sorting out what are “targets” and what are reasonable estimates of what will be built is another matter.
What is clear is that Indonesia, like Saudi Arabia, has ambitious plans to develop their domestic renewable sources of energy and that there is a national imperative to do so as rapidly as possible by the use of feed-in tariffs.