After a long delay, Indonesia will finally start construction of the world's largest geothermal power plant, the USD $1.6 billion Sarulla project, in June 2014. Coordinating Minister for Economic Affairs Chairul Tanjung said earlier this week that the groundbreaking of the Sarulla project will start very soon as the government had settled the financial framework. The project was already initiated in 1990 but shelved due to various issues, including the Asian financial crisis in the late 1990s. The first phase of the project is expected to be completed in 2016.
The Sarulla geothermal power project is led by a consortium which consists of Medco Power Indonesia (37.5 percent), Itochu Corporation (25 percent), Kyushu Electric Power Company (25 percent) and, lastly, Ormat International (12.5 percent). Medco Power Indonesia is a subsidiary of PT Medco Energi Internasional, an Indonesian oil and gas exploration and production company. About USD $1 billion of the project costs will be financed by loans from the Japan Bank for International Cooperation (JBIC) and the Asia Development Bank (ADB). Other financial institutions that are involved in the project are the Bank of Tokyo-Mitsubishi UFJ Ltd, ING Bank NV (a unit of ING Groep NV), Societe Generale, Sumitomo Mitsui Banking Corportation, Mizuho Bank Ltd and National Australia Bank.
The Asian Development Bank (ADB) informs: "the Sarulla project will develop the steam resources, and design, finance, construct, operate as well as maintain geothermal power plants with a total net guaranteed deliverable capacity of approximately 300 MW for 30 years. The project will be the largest single-contract geothermal power project upon completion, representing the large scale, high productivity and great potential of Indonesian geothermal resources."
With about 40 percent of total global geothermal energy potential, Indonesia is estimated to have the world's largest geothermal energy reserves. Indonesia's largest reserves are located in the western part of the country (Sumatra, Java and Bali). However, the country only taps about four to five percent of its geothermal potential as exploration and exploitation have been hindered by law. Geothermal exploitation is lawfully defined as a 'mining activity' (Law No. 27 2003) and thus prohibited to be conducted in protected forest and conservation areas (Law No. 41 1999), despite the fact that geothermal mining activities have a relatively small impact on the environment (compared to other mining activities). As about 60 percent of Indonesia's geothermal energy reserves are located in conservation areas, it therefore seriously blocks the development of its geothermal potential. At the end of 2013 a new bill was submitted to the parliament (DPR) which separates geothermal development from mining activities.
The government targets to enhance the role of renewable energy in the country's energy mix in order to reduce dependency on expensive and exhaustive fossil fuels. Geothermal energy is projected to contribute 12 percent to Indonesia's energy mix by 2025. However, this will require large investments and may be an unrealistic target. Demand for power in Indonesia grows by 7 percent per year and therefore the government plans to add 60 gigawatts of capacity to its existing grid by 2022. Moreover, when the 330-MW Sarulla geothermal plant commences operations, it is expected to save the country around IDR 4 trillion (USD $348 million) in annual electricity subsidies.
The Sarulla geothermal power station will replace Star Energy's Wayang Windu Geothermal Power Station as the country's largest geothermal power station. The Wayang Windu Geothermal Power Station, located South of Bandung (West Java), has a total installed capacity of 227 MW.