Thomas White Global Investing
Green Reports

May 12, 2010

The Green Report

Volcanoes to Power Indonesian Economy
Volcanoes to Power Indonesian Economy

Apart from the World Bank, Indonesia is also working on projects totaling $8.6 billion with the Asian Development Bank and countries like Germany, France and the Netherlands to generate more megawatts from geothermal energy.

To the dismay of the world, the power of volcanoes was demonstrated with the recent Icelandic eruption, which threw a cog into the world’s machinery, affecting trade, travel plans and transport. But what is not as well known is that these lava spewing mountains are also an untapped source for geothermal energy, derived from the intense heat stored in the earth’s core.

Now, Indonesia is charting ambitious plans to harvest this largely untapped goldmine of natural energy. In late April 2010, the South East Asian country hosted in Bali what has been termed the world’s biggest Geothermal Energy Conference, with representatives from 80 countries mulling over the possibilities of harnessing volcanic energy to fuel the future.

Currently, Indonesia is lit up mainly by oil and coal, whose sooty fumes are a major environmental worry. Indonesia aims to reduce its carbon emissions by 26% in the next decade and it is looking to geothermal energy to achieve its goal. Yet, for Indonesia, the relevance and significance of the conference was more practical, reaching far beyond global warming concerns.

The country has long been in the grip of an acute electricity shortage that has deprived its citizens of modern conveniences and has stifled advances for the Indonesian economy. In 2009, only 64% of Indonesian households had access to electricity and frequent power outages have interrupted industrial production activities. The flickering power in the country has fallen prey to outdated infrastructure, and insufficient backup and transmissions lines. Without question, sufficient electrical generation is crucial if Indonesia hopes to reach its target of 7% growth by 2014.

And geothermal energy will be the key to reaching this goal. By pumping the boiling hot water from beneath the earth’s surface and converting it to steam, massive electrical turbines can be powered. Today, over 24 countries including the U.S., China, Indonesia and New Zealand make use of geothermal energy to generate electricity. A total of 215 commercial projects are in operation across these 24 countries and they have a cumulative installed capacity of around 10.5 gigawatts of electricity.

The Indonesian archipelago, made up of more than 17,000 islands, is perched upon the infamous Pacific “Ring of Fire” belt, so named for its very lively volcanic activity. The country is home to around 265 volcanoes and thought to possess more than 40% of the world’s geothermal power. As of now, Indonesia generates 1,200 MW of electricity from geothermal sources. According to Surya Darma, the chairman of the Indonesian Geothermal Association, this is a mere fraction of the country’s estimated capacity of 28,000 MW, the equivalent of 12 billion barrels of oil.

To harness this potential, the Indonesian government has outlined some lofty goals. By 2035, Indonesia hopes to generate 9,000 MW of electricity from geothermal power, with 95% of households in the country enjoying a sustained supply of electricity, and 15% of this power serviced by renewable energy sources.

Already, Indonesian President Susilo Bambang Yudhoyono has stated that 44 fully functional geothermal plants will be set up by 2014, which will triple the country’s geothermal energy capacity to 4000 MW. To support Indonesia’s geothermal efforts, the World Bank extended $400 million in funding to the country in March 2010, and one month later, $5 billion worth of funding agreements were inked at the Geothermal Energy Conference in Bali.

Indonesian President Yudhoyono at the Geothermal Energy Conference
in Bali: “Nations are striving to liberate themselves from overdependence
on fossil fuels. And to many countries, including Indonesia, a large part
of the solution to that problem is the successful tapping of vast resources
of geothermal energy.”

The country will need all the funds it can gather. Although geothermal power is environmentally friendly, it is not cost-effective. Exploration expeditions leech capital in large amounts, with construction of geothermal plants requiring double the amount of investment needed for a coal plant. The first phase of Indonesia’s geothermal power plan is expected to eat up $12.4 billion. Add to this Indonesia’s notorious reputation for inefficient and corrupt government officials and bureaucratic red tape, and this geothermal venture will indeed be an expensive proposition.

With the largest geothermal energy potential in the world, Indonesia has chosen volcanic power to juice up its economy, despite these challenges. South East Asia’s largest economy has already injected $354 million into clean energy in 2009 and exploratory studies to examine the technical and financial feasibility of locations known as ‘hot spots’ for extracting this alternative power have already been commissioned.

So the energy trapped beneath volcanoes might be the factor that liberates Indonesia from its dark doldrums. And while volcanic forces disrupt normal life elsewhere, they will recharge Indonesia’s economy. It appears that for this Asian country, volcanoes may light up the path to an empowered future.




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