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Sustaining Indonesia’s power supply with geothermal power generation

Indonesia

Renewable energy that is less susceptible to climate conditions

Geothermal power generation is a method used to generate electricity with a renewable energy source. The mechanism itself is simple: underground source of extractible fluids are heated by deep underground magma near volcanoes, and the resulting steam turns the turbine of a generator that produces electricity. As it requires no fossil fuel consumption, geothermal power generation has a low environmental impact. Also, the cost of generating electricity is unaffected by fuel market fluctuations. Compared to other renewable energy sources such as solar and wind power, geothermal energy is undisturbed by climate conditions. Accordingly, this generation method can deliver electricity on a stable basis.

However, geothermal power generation entails some risks. It is unclear to know if enough hot water or steam (i.e. geothermal fluid) can be obtained for power generation until after a deep well has been drilled. Some projects must be aborted as a result of drilling 2,000 to 3,000 meters in depth. Developing geothermal energy projects requires know-how of surface level surveys, ability to fund wells for drilling, ample time, and even a certain amount of luck.

Steamfield Above-Ground System (SAGS) extending from the Ulubelu production well (Ulubelu power station [left] and Lahendong power station [right])

Abundant geothermal resources in Indonesia

There are two major business models for power generation infrastructure development. The engineering, procurement and construction (EPC) business involves undertaking these tasks on a contract basis to create a power station. The consigned business is fulfilled when the power generation facility are completed and delivered to the client. In contrast to this is the independent power producer (IPP) business, in which an entity becomes the owner of a power generation facility, selling electricity to utilities and end users on an ongoing basis after completion of the power generation facility.

In 1995, Sumitomo Corporation launched geothermal power generation in Indonesia, home to the world’s second largest amount of geothermal resources. In 1997, Sumitomo Corporation received its first EPC order for a geothermal power station in Indonesia. Since then, the Company has been involved in a total of 11 geothermal projects. They account for about half of the country’s geothermal power stations and outnumber all other Japanese integrated trading and business investment companies.

Our success with numerous geothermal EPC projects has been built on the productive partnerships we have forged. Our partners include Fuji Electric Co., Ltd. the world’s leading manufacturer of steam turbines for geothermal power stations, and an Indonesian company PT. Rekayasa Industri, which take charge of civil construction, installation and local procurement. Among our recent geothermal EPC projects are the Lahendong power station in north Sulawesi and the Ulubelu power station in south Sumatra.

Most geothermal power stations are located deep in rural mountainous areas. Encountering Sumatran tigers posed a threat during construction work for the Ulubelu power station on in Sumatra. (Ulubelu power station [left] and Lahendong power station [right])

Demonstrating persistence in geothermal IPP project development

Our first geothermal IPP project in Indonesia was the Muara Laboh project, launched in west Sumatra in 2011.

Geothermal power stations are generally developed and built in untouched mountainous areas near volcanoes. Development of a geothermal project beings with construction works which consists of clearing and leveling the ground at the project site. Muara Laboh is located in a remote area, requiring four to five hours of overland travel from the nearest airport. In March 2012, the Project Company which Sumitomo Corporation along with its partners invests in entered into a long-term power purchase agreement over 30 years with the Indonesian state-owned electricity utility. After obtaining a Government Guarantee Letter from the Ministry of Finance of the Republic of Indonesia, the Project Company embarked on trial well drilling.

However, as a result of drilling exploration wells, the need to downscale power generation capacity became clear. We renegotiated with the Indonesian government and the Indonesian state-owned electricity utility which took nearly two years to settle on terms and conditions that all parties were willing to accept. The next step was to make financial arrangements for the actual power station construction. Finally, after five years of concluding the initial long-term power purchase agreement, we were able to achieve finance close in March 2017. Construction work is steadily progressing now, with the target commercial operation date set for October 2019.

It was unprecedented for a Japanese company to be involved in the development of an Indonesian geothermal power project from the earliest stage. The various long-term negotiations, conducted against a range of systemic difficulties, helped us build a foothold for our next project. Currently, the Rajabasa project, our next geothermal IPP project, is underway on Sumatra Island.

Production well drilling at the Muara Laboh power station (left) and a panoramic view of the entire site

Indonesia to quadruplicate geothermal power generation capacity by 2025

Indonesia is home to 250 million people—the fourth largest population in the world—and its economy is continuously growing at around five percent per annum. The country seeks to improve its infrastructure so that electricity can be supplied to all of its 13,000-plus islands. Recognizing that Indonesia’s abundant geothermal resources may provide a key to addressing this challenge, the Indonesian government plans to increase its geothermal power generation capacity from 1,800 megawatts to 7,200 megawatts by 2025. The government is looking to Sumitomo Corporation, with its 20-plus years of experience in the field, for support in this endeavor.

We are confident that we can play vital roles in developing Indonesia’s geothermal power generation infrastructure.We will use our extensive experience and collaborate with government agencies and financial institutions to handle the risks involved in geothermal projects.

Good communication is essential among project staff. We also value communication with local community members and promote local hiring.

May 2018

Keyword

  • Infrastructure Business
  • Asia and Oceania
  • Electric Power Energy
  • Environment

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