Finally Geothermal Fund is Used for Flores Island since Launched in 2011

Photo by IIGCE

JAKARTA (TheInsiderStories) – Since launched six years ago, Indonesia finally use the Geothermal Fund Facility (GFF) for the first project Waisano region in the Flores island. The GFF was actually established in 2011 with an initial capital of Rp1 trillion (US$75.19 million) and a planned annual refinancing of US$226 million until 2013, but the funds have never been disbursed.

Currently, Finance Ministry through the state-owned infrastructure financing company, PT Sarana Multi Infrastruktur (SMI) pocketed Rp3 trillion funds to support geothermal development.

This risk-mitigation initiative has been made possible after Finance Minister Sri Mulyani Indrawati issued a regulatory directive on the use, management and accountability of risk mitigation in May, 2017. With more than 127 active volcanoes, Indonesia has an abundance of geothermal reserves with estimated at 29,000 megawatts (MW).

Seeing the huge potential at the island in the eastern of Indonesia, Ministry of Energy and Mineral Resources (MEMR) on June, 19, released a Minister Decree No. 2268 K/30/MEM/2017 about Flores Geothermal Island. Vice President Jusuf Kalla with MEMR Ignasius Jonan witnessed the handover of the decree to the East Nusa Tenggara’s Governor.

“Compared with its demand (1.8 million inhabitants), it is still greater supply it. So it became a greater number of pilot use of clean energy, especially geothermal,” Director General of Renewable Energy of MEMR Rida Mulyana, said Rida in a release on Friday (4/8).

Waisano was selected based on a survey of the Geological Agency (Coal and Geothermal Energy Resource Center) which had been analyzed previously by World Bank experts. The fund used to develop Waisano is by using the GFF. The funds come from World Bank and state budget grants.

“The funds have been Rp3 trillion from the state budget, plus US$55.25 million from World Bank,” explained Director of Geothermal of Directorate General of EBTKE, Yunus Saefulhak.

According to Yunus, the funds from the GFF was used as a mitigation exploration, so it was expected the costs incurred will be refunded by employers and can be played back to finance exploration in other areas (revolving fund). Exploration cost for geothermal is quite high, considering the cost of exploration required for the development of 1 Geothermal Working Area of approximately US$20-25 million.

Yunus added, Flores Island has geothermal potential reserves around 1.300 MW while the proven reserve is 800 MW. It is estimated need investment cost of $3.2 billion. In Waisano, experts from World Bank and SMI has conducted initial survey, including environment and social impact and expected to start drilling in the middle of next year.

“We see another geothermal potential reserves in Gunung Endut, West Java and Sipaholon Ria-Ria in North Sumatera. Then, the rest is mostly located in eastern Indonesia,” he said by adding, aside from being a model for the utilization of the island electricity, geothermal Flores can also be utilized for the establishment of a geopark.

GFF is a risk mitigation scheme for geothermal exploration introduced in 2011 as a part of a major international effort to expand renewable power generation in developing countries by tapping an underutilized resource, geothermal energy. The scheme was initiated by World Bank and introduced by Sri Mulyani as a World Bank Managing Director before joining the Indonesia Government cabinet.

World Bank called on donors, multilateral banks, governments and the private sector to join a Global Geothermal Development Plan (GGDP) to better manage and reduce risks of exploratory drilling to bring what is now a marginal renewable energy source into the mainstream, and deliver power to millions.

Many developing world regions are rich in geothermal resources, including East Africa, Southeast Asia, Central America, and the Andean region. At least forty countries have enough geothermal potential to meet a significant proportion of their electricity demand.

Some countries, such as Kenya and Indonesia, are developing their geothermal resources, but with only 11 gigawatts of geothermal capacity worldwide, a global scale-up has yet to happen. An obstacle is the initial test drilling phase for geothermal projects, which is expensive and risky. Proving the viability of a single steam field can cost $15-25 million, and if a site has no potential, this investment is lost.

The GGDP’s initial target is to mobilize $500 million. Donors can participate in the GGDP by helping to identify viable projects, and through bilateral assistance, as well as existing channels such as the Climate Investment Funds or the Global Environment Facility. The GGDP would be managed by the World Bank’s longstanding Energy Sector Management Assistance Program. The World Bank will convene donors later this year to discuss financing of specific geothermal projects under the plan.

The Bank Group’s financing for geothermal development has increased from $73 million in 2007 to US$336 million in 2012, and now represents almost 10 percent of the Bank’s total renewable energy lending. It is expected that the GFF will help to accelerate geothermal exploration, enabling the MEMR to tender more concessions with proven reserves. The program will help increase availability of reliable geological data on proven resources and help potential investors to calculate risk and the expected IRRs.

In the regulation by the country’s Minister for Finance, winning bidders for geothermal concessions with proven reserves will have to pay PT SMI a compensation for the geological data they receive with the project. This ensures the sustainability of the GFF. The cost of exploration will be shared between the government and PT SMI in the case of the project not discovering commercially viable proven reserves. (MES/LS/RF)