Indonesia's Geothermal Energy Bonanza

Ormat Combines for 330 MW Geothermal Plant

Written by Brian Hicks
Posted May 14, 2009

It's a geological bonanza for clean energy investors, yet no one's talking about it.

With its population spread out over more than 17,000 islands, many Indonesians live in cities, yet some are in areas so remote that electricity access is almost zero.

Indonesia is also the only OPEC member in Southeast Asia, but in recent years it's actually become a net importer of oil. (Production is down from aging oil fields, consumption is up, and the government in Jakarta feels the fire of an energy crisis bubbling beneath the surface.)

But trouble isn't the only thing simmering under this archipelago nation. That's because geothermal energy is about to break out from an underexploited state to become a primary resource for Indonesia's energy needs.



Geothermal Energy in Indonesia

Indonesia's largest listed oil and gas company, PT Medco, is about to break ground on a 330 MW geothermal plant in Northern Sumatra. That project will cost about $800 million to be split with Ormat Technologies (NYSE:ORA) and Japan's Itochu. For Ormat, geothermal is a normal day's work. For Medco, this marks a major reality check for its regional energy ambitions.

I first found out about PT Medco because of its exploration projects in faraway Libya. Medco is all over the Indian Ocean and the oil-producing world, inking deals from the main Indonesian island of Sumatra all the way to North Africa.

As Indonesia is the world's largest Islamic nation by population, and a country with a long history of controlling important trade routes, it only seems natural that Medco has acted as a petroleum-oriented arm of its outgoing home state.

Nevertheless, as Medco generally looks to the Arab Gulf and North African oil producers for its fossil fuel linkups, it may have overlooked a bigger opportunity — that the Pacific Rim region may be a more important group of nations in which Indonesia could play a part.

Now, Medco may be selling its stake in Libya and switching focus to the Indonesian domestic market, even if that means moving away from petroleum.

The Pacific Rim is about to become a major clean energy success story, just as much as the Persian Gulf's oil traps were for the fossil fuel industry.

Medco is currently engaged in a pricing dispute over the N. Sumatra geothermal project, and the dominant Indonesian utility, Persero, is trying to quash it.

With 27,000 MW in potential geothermal resources, PT PLN (Persero) and the government shouldn't have to nudge Medco into a deal — it's a lifeline to future viability for the aging oil and gas firm.

More than anything, though, geothermal energy can combine with greater energy efficiency to bring Indonesia into better balance with its own growth and global energy pricing.

And yet again, our international geothermal standby Ormat is in the best position as a pure play to pounce on Indonesia's tectonic shift away from oil and towards geothermal power.

Regards,

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Sam Hopkins

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