Already a Bloomberg.com user?
Sign in with the same account.
The 1883 eruption of Krakatoa killed some 40,000 people, and for centuries Indonesians have lived under constant threat from the 400-plus volcanoes that dot the country’s 18,000-odd islands. Now a project by Chevron (CVX) in Java is taking advantage of those smoldering mountains. The U.S. oil major has drilled 84 wells to a depth of two miles beneath the rainforest to tap not crude or gas, but steam. The vapors, which reach 600F, spin turbines 24 hours a day, generating electricity for Jakarta, a city with a population of 9.6 million.
Chevron is about to get some competition. General Electric (GE), India’s Tata Group, and other companies are building geothermal projects in Indonesia, and the investment ultimately may add up to more than $30 billion. The companies are responding to President Susilo Bambang Yudhoyono’s promise in February to boost government subsidies for clean energy. Former Vice-President Al Gore has called Indonesia the first potential “geothermal superpower.”
Geothermal is central to Indonesia’s push for alternatives to fossil fuels such as oil, which the country once exported and now must import. Brownouts are frequent on the main island of Java, and 35 percent of the nation’s 245 million population lacks access to electricity, according to the International Energy Agency. Yudhoyono wants to eliminate energy shortages that threaten his target for as much as 6.6 percent annual economic growth through his term’s end in 2014. His government plans to add 9.5 gigawatts of geothermal capacity by 2025, equal to about 33 percent of Indonesia’s electricity demand from about 3.5 percent now, according to Bloomberg New Energy Finance. Iceland, also a volcanic island, gets 27 percent of its power from geothermal.
Indonesia has signed contracts for 2.3 gigawatts of plants, Bloomberg New Energy Finance data show. A gigawatt is about equal to the output of a new atomic reactor, and requires $2 billion to $4 billion of investment. “There’s a remarkable opportunity for Indonesia to increase the amount of power generated from geothermal,” says Stephen W. Green, former head of Chevron’s Indonesia and Philippines operations and now its vice-president of policy, government, and public affairs. “There are synergies between oil and geothermal and it makes sense for us to exploit that.”
Unocal negotiated Indonesia’s first foreign-partnership geothermal license in 1982 with the help of U.S. President Barack Obama’s late stepfather, Lolo Soetoro, who worked for the U.S. company as a government liaison. Chevron acquired Unocal in 2005. At the plant in Java, which lies inside a nature preserve, hot water and steam are pumped from as deep as 10,535 feet below the earth’s surface through 34 miles of pipes to turn turbines to make power. Each well takes as much as 90 days to drill and costs up to $7 million, Chevron says. The company is now planning additional plants in Indonesia, including a potential 200-MW facility in South Sumatra.
Japan’s Sumitomo is building a 110-MW plant in nearby Ulubelu. Australia’s Origin Energy is partnering with Tata in northern Sumatra. GE loaned at least $50 million to a subsidiary of Jakarta-based Star Energy for a 220-MW plant set in a volcanic region in Western Java. “It’s good for the environment and good for reducing our dependence on oil,” says Widhyawan Prawiraatmadja, an executive at General Electric Indonesia. “It also frees up tradable resources such as oil and gas and coal to be exported.”
To lure private capital, the government has required that state-owned utility PLN pay up to 9.7¢ per kilowatt-hour for geothermal power. The higher prices will not be passed on to consumers, however, which essentially commits the state to subsidizing the utility. The government’s plan is a “pipe dream” until it’s prepared to force consumers to pay more for their electricity, says Ari Soemarno, former president of Indonesia’s state-owned oil company Pertamina.
The bottom line: International companies are flocking to Indonesia. Its many volcanos may allow it to become a geothermal superpower.