Mar. 02, 2012
Sumitomo Corporation to enter into Power Purchase Agreements for Geothermal Projects in Indonesia
Sumitomo Corporation ("Sumitomo"), together with PT. Supreme Energy and International Power - GDF SUEZ (collectively our "Partners"), through the joint investment companies (the "Joint Investment Companies") PT. Supreme Energy Muara Laboh and PT. Supreme Energy Rajabasa, both Indonesian companies based in Jakarta, have entered into long term power purchase agreements ("PPAs") in respect of the Muara Laboh geothermal power project ("Muara Laboh") and the Rajabasa geothermal power project ("Rajabasa", and together with Muara Laboh the "Projects") with PT. PLN, the Indonesian state-owned electricity utility. The Projects are the first overseas projects in which a Japanese company participates in the development of a geothermal power project as a project developer from the very initial stage.
Muara Laboh and Rajabasa are located in the West Sumatera province and the Lampung province, respectively, both on the Sumatera island. For each of the Projects, Sumitomo and our Partners are planning to construct a geothermal power plant with a generating capacity of 220MW (110MW x 2 units) which would be among the largest sized geothermal power plants globally, (the Projects will have a total combined generation capacity of 440MW). Sumitomo joined the Projects in February, 2011, and, through the Joint Investment Companies, negotiated the PPAs with PT. PLN. The target schedule is to commence commercial operations in 2016 for Muara Laboh, following the drilling of production wells from 2012 and plant construction in 2013-2016. Rajabasa will be developed slightly after Muara Laboh, and consequently, its commercial operations are scheduled to commence in the second half of 2016.
We expect to secure financing for the Projects through project finance with the assistance of Japan Bank for International Cooperation and other interested financial institutions, and to procure the main equipment for the power stations such as geothermal steam turbines and generators from a Japanese manufacturer with advanced technology and rich experience all over the world.
Sumitomo has a very successful record in geothermal EPC(1) projects and in supplying geothermal steam turbines, by installing and supplying more than 2,000MW of geothermal power plants all over the world. Of this, around 640MW has been installed or constructed in Indonesia which accounts for more than half of Indonesia's existing geothermal power capacity. Sumitomo will also take advantage of its accumulated business know-how in Indonesia acquired through the development of various businesses including the Tanjung Jati B coal fired power project whose total generation capacity (4 units) is around 2,640MW. Sumitomo will develop the Projects utilizing this experience and business know-how to overcome any further challenges that may arise during the project development.
Geothermal power plants help to tackle greenhouse-gas problems by generating electricity without emitting a high level of CO2 by burning fossil fuel. Moreover, geothermal power has a special capacity to generate stable electricity at the base load. Accordingly, a lot of attention is now being focused on geothermal as an important global renewable energy source for the next generation. However, the initial development stage of geothermal power generation requires a huge capital investment to fund deep exploration drilling (approximately 2~3km) and involves the significant risks of failure to secure the expected quantity or quality of steam. Such risks are not easy for a private company to take and are regarded as a barrier for the promotion of investment in geothermal green field developments by private companies. Sumitomo decided to take these risks together with our Partners after investigating the Projects' potential, the various supporting regulatory and legal frameworks established by the Indonesian government, and recent technology advancements in resource assessment.
Indonesia owns around 29,000MW(2) of potential geothermal power resources, which accounts for 20-40% of the total global potential, and is said to be the most promising country for geothermal power production in the world. However, only around 4% (1,226MW(3)) of this potential has been utilized so far, and the Indonesian Government aims to accelerate further utilization of this rich potential through the "2nd fast track program" announced in 2009. The "2nd fast track program" is the national plan to accelerate utilization of Indonesia's national power sources by adding around 10,000MW of new power generation by 2014 including around 4,000MW of geothermal power.
Sumitomo would like to contribute further to the sustainable development of the global economy through its efforts to promote renewable energy all over the world including geothermal power development not only in Indonesia but also in other regions.
(1) EPC : Engineering Procurement, and Construction
(2),(3) Published by Indonesian Government
[Reference 1 : Project Site Map]
[Reference 2 : Projects site]