Green is good

Indonesia can’t get enough power to feed its booming economy and fortunately for Mochamad Sofyan, investors are lining up to invest billions of dollars in the country’s growing green power sector.

Sofyan, head of the new and renewable energy division at state utility PLN, is busier than ever as an increasing number of foreign and local firms file into his office looking to invest in geothermal, hydro and biomass power projects.

Government programmes to speed investment in power projects, easier regulations and rapid economic growth are lures. Around a third of Indonesia’s 240m population are without power supply, and projections are for generation capacity to nearly triple by 2020 to meet a severe power shortage. Rising investment in green power as well as coal and gas is part of a surge in foreign direct investment, up 21 percent on the year in the second quarter of 2011.

Indonesia has pledged to cut the growth of greenhouse gas emissions, in part through boosting green power. It has plenty of clean energy bubbling away under the surface. The archipelago, along the Pacific Ring of Fire, is brimming with volcanoes and super-heated water that can be pumped from deep wells to drive steam turbines.

Coal still king
At present, about 12 percent of Indonesia’s total energy mix comes from geothermal and hydro. By 2019, that is projected to grow to 18 percent. Coal will remain as the top energy source, rising to about 60 percent of the energy mix by 2019 from less than 50 percent now.

The challenge is vast. As of 2010, Indonesia’s generation capacity was 30,000 megawatts. For neighbouring Australia, with a tenth of the population, it is 51,000 MW. Two fast-track power programmes, each totalling 10,000 MW, have helped propel investment because of a government guarantee that PLN, the top power producer and sole distributor, will buy the electricity.

The second and latest programme focuses on green power, with about half of the capacity set to come from renewables. Other investments are going ahead outside the programme as well.

Despite the rush for green power in Southeast Asia’s largest economy, bureaucratic delays were hampering completion of power purchase agreements and other steps, such as permits to clear forested land could hold projects up for two to three years. 

However, investors have shown willingness to deal with delays and red tape, with Swiss firm South Pole Carbon Asset Management stepping up its interest in geothermal and hydro projects in Indonesia. Smaller projects, those less than 10 MW, were particularly attractive because a change of rules in late 2009 streamlined the approval process and sets a standard power payment, or feed-in tariff.

Coal and gas are attracting much greater investment. PLN estimates it will add an additional 26,700 MW of new coal and gas-fired power by 2019. Independent power producers will add at least another 19,000 MW. Recently, Indonesian coal miner Adaro, Itochu and Japan’s Electric Power Development Co (J-Power) won a tender to develop a $3.2bn high-efficiency coal-fired power plant in Java with a capacity of 2,000 MW.