Indonesian Geothermal Push Heats Up

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"The country is to geothermal power what the Middle East is to oil."

Jakarta Globe, Stuart Biggs

Companies from General Electric to India's Tata are leading an investment boom that may climb to more than $30 billion, anticipating that President Susilo Bambang Yudhoyono will honor his promise in February to boost clean-energy subsidies. The pledge has spurred the biggest geothermal spending spree in Asia.

"There's great momentum in Indonesia's geothermal market, and demand for power is there," said Mark Taylor, a geothermal analyst in Washington at Bloomberg New Energy Finance. "But there are regulatory risks for developers."

Geothermal is central to the country's push for alternatives to fossil fuels such as oil, which the country once exported and now must import, driving up costs and curbing growth.

The nation plans 9.5 gigawatts of capacity by 2025, more than triple of U.S.' geothermal use and about 33% of Indonesia's electricity demand, according to Bloomberg New Energy Finance.

Indonesia straddles the Pacific Ocean's volcanic "ring of fire," making the country to geothermal power what the Middle East is to oil. The country has tapped about 4% of its potential and has orders for 2.3 gigawatts, second only to the U.S., New Energy Finance data show.

Indonesia hasn't always appealed to foreign investors, and skepticism still goes beyond questions of how to uncork the boiling water that is trapped miles below the surface. After the Asian financial crisis, PLN canceled power purchase agreements because it couldn't afford the contracts after the collapse of the rupiah.

Nonetheless, there's no shortage of foreign interest. Sumitomo is building a 110 megawatt plant in nearby Ulubelu. Australia's Origin Energy is partnering with power company Tata in Sumatra.

Yet geothermal deals in Indonesia remain "very difficult," according to BNEF. The government's goal is a "pipe dream" until it's prepared to force consumers to pay more for their electricity, said Ari Soemarno, former president of Pertamina.

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