Indonesia’s $300m geothermal play risks being undercut by cheap coal

JAKARTA — A newly secured loan of $300 million for Indonesia to boost its geothermal energy generation will be wasted amid a glut of cheap coal power, and also could contribute to environmental degradation, observers say.

On May 28 the Asian Development Bank (ADB) announced the approval of the loan to PT Geo Dipa Energi (GDE), a state-owned company that was initially set up as a joint venture of state utility PT PLN and state oil and gas firm PT Pertamina.

The loan will finance the addition of 55 megawatts of generating capacity each at existing geothermal plants in Dieng, in Central Java province, and Patuha, in West Java. The projects are expected to be completed by 2024.

But clean-energy observers say these plants may be unable to compete with existing and new plants running on coal, which the government subsidizes for power generation. They will feed into the Java-Bali grid, which already has a glut of idle electricity due to low demand, effectively meaning the geothermal power could go to waste, said Satrio Swandiko Prilianto, renewable energy campaigner at Greenpeace Southeast Asia.

“This is a key point that needs to be addressed, because there’s currently already about 40% overcapacity in the Java-Bali grid,” Satrio told Mongabay. “Coupled with the pandemic that has caused lower electricity consumption, it isn’t impossible that the growth at PLN will be lower than the company projected in its latest planning.”

Most of the electricity in the Java-Bali grid comes from coal-fired power plants, and this is expected to remain the case as more coal plants go online in the near future. Ten began operations last year alone, according to the energy ministry, adding a combined 3 gigawatts to the grid — nearly three-quarters of all new power capacity in 2019, and far outstripping the growth in renewables.

GDE says it has secured a power purchase agreement with PLN that guarantees the utility will buy the electricity from its Dieng and Patuha plants. But given the current excess, that power is unlikely to be part of the baseload as planned, i.e. the minimum amount of electricity needed to feed demand throughout the day.

“In other words, PLN will still have to buy electricity from GDE even though it will only be in reserve,” Meiki Paendong, executive director of the West Java chapter of the Indonesian Forum for the Environment (Walhi), told Mongabay. “With the glut in power in the Java-Bali grid, the electricity from Patuha geothermal plant will go into that reserve scheme.”

Meiki also raised concerns about the projects’ environmental and social impacts, given that most of Indonesia’s geothermal plants are located near forests. According to a 2019 report prepared by GDE for the ADB, the energy firm consulted with WWF Indonesia on Aug. 20, 2019, and Walhi on Aug. 22, 2019. But Meiki criticized the ADB for pegging the environmental impacts of the projects as medium risk, saying they should instead be considered high risk.

He said one likely environmental impact would be land subsidence, due to the massive groundwater extraction required for operating the geothermal plants. He said drilling for new wells could lead to the clearing of nearby forests. The Patuha plant lies within a protected forest area on the edge of the Mount Tilu nature reserve, he said.

“The road access to the wells will give easier access for loggers and poachers to encroach into the protected forest,” Meiki said.

Indonesia, which sits on the seismically active Pacific Ring of Fire, has the world’s biggest geothermal potential, estimated at 29 gigawatts.

But it currently generates only 2.1 gigawatts from this clean energy resource, behind the U.S., which makes about twice as much electricity from geothermal. Hurdles to unlocking Indonesia’s geothermal potential include policy restrictions, a history of low energy pricing, a lack of capital investment in exploration and project development, and environmental and social issues.

The government has boosted efforts to promote geothermal development, including through a policy roadmap and legislation, the latter of which declassifies geothermal energy generation as a mining activity — a category that previously meant it wasn’t allowed to be developed inside conservation and forest areas.

In its announcement of the $300 million loan, the ADB said it has long been interested in Indonesia’s geothermal sector, supporting big plants in Muara Laboh, Rantau Dedap and Sarulla, all on the island of Sumatra.

“Our support is aligned with Indonesia’s long-term goals for economic growth and energy, including maximizing the use of indigenous energy resources, diversifying the fuel mix, and ensuring environmental sustainability,” Winfried F. Wicklein, the ADB country director for Indonesia, said in a statement.

Wicklein added that ADB’s geothermal projects in Indonesia were aimed to help the country combat climate change and provide businesses and consumers with access to affordable, reliable and modern energy.

The lender also said the Dieng and Patuha projects would benefit local communities recovering from the impacts of the COVID-19 pandemic and lockdown, by creating new jobs and livelihood opportunities.

“ADB’s intervention will help make clean energy transition a key part of the country’s recovery from the pandemic,” said Shannon Cowlin, senior energy specialist for Southeast Asia at the bank.

The projects broke ground in April 2019 and are being promoted as part of the government’s slate of national strategic priorities. They’re also aimed at helping Indonesia achieve 23% renewable resources in its energy mix by 2025. Indonesia’s energy ministry estimates the share from geothermal will have to reach 7 gigawatts to achieve that target, which will require total investment in the sector of $35 billion.

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