Indonesia aims to boost geothermal power

JAKARTA, July 28 (UPI) -- Indonesia aims to tap into its massive reserves of geothermal energy.

While Indonesia boasts some 40 percent of the world's geothermal reserves, less than 1,200 megawatts of the energy source have been explored. It still has a long way to go to reach its national energy policy stipulation that geothermal energy account for 9,500 megawatts by 2025.

Indonesia lags behind the United States and the Philippines in geothermal power. To achieve President Susilo Bambang Yudhoyono's goal for the archipelago nation to become the world's largest user, Indonesia is counting on at least $12 billion in foreign investment.

To attract investors, the Finance Ministry has introduced incentives for investment in renewable energy such as exemptions in value-added tax, income tax and import duties as well as guarantees that state utility firms would buy electricity produced from geothermal and other alternative energy sources.

In a June 30 address to the Turkish parliament, The Jakarta Post reports, Yudhoyono touted his country's geothermal reserves as "an investment opportunity for Turkey, which has the technology necessary for harnessing this form of energy."

A few days later, Cengiz Holding, a Turkish construction and mining company, signed a non-binding memorandum of understanding to develop a geothermal plant in Java with Geo Power Indonesia.

And the World Bank announced in March a $400 million investment fund plan to help double the sector's energy capacity.

But regulatory and policy issues continue to be an obstacle to the much-needed foreign investment.

U.S. Commerce Secretary Gary Locke, during a trade mission to Indonesia in May with representatives from 10 clean technology companies, stressed that companies were eager to invest in the country, but a lack of government transparency was a huge obstacle.

"Over the last year there has been a lot of policy movement to get the investment climate in shape for foreigners to come in," Ted Saeger, energy and natural resources officer at the U.S. Embassy in Jakarta told The New York Times. "But key barriers remain," he said, including "a confusing tendering process and land acquisition problems."

Technical risks and escalating exploration costs have also hindered foreign investment. Exploratory drilling for a geothermal plant can last up to eight years and requires a substantial investment in heat-extraction and power-generating technology.

"You might put $20 (million) to $40 million into digging holes just to find out what the capacity of your field is," said Brett King of Paul, Hastings, Janofsky & Walker in Hong Kong, a law firm which has been involved in several geothermal deals, reports the Times.

Locke was more optimistic about the initial costs for geothermal development. "Ultimately, the cost will go down, the technology will improve," he told an American Chamber of Commerce luncheon during his visit to Jakarta.