Supreme Energy Boss: Govt Needs to Guarantee Geothermal Energy
19 October 2018 22:20 WIB
For Supramu Santosa, geothermal energy offers new hope. When other investors doubted the renewable energy business due to its high risk and low returns, Santosa was a pioneer.
He has proven how this business could be successful through Supreme Energy, which he established in 2008. Santosa is now known as one of the geothermal "rulers" in Indonesia. Supreme Energy is ready to supply up to 440 megawatts of electricity using its three plants in Sumatra.
Two weeks ago, Santoso took the time to meet Tempo’s Yostinus Tomi Aryanto and Bernadette Christina and talk about Supreme Energy and the obstacles he faces in geothermal development in Indonesia. Excerpts from the interview are as follows:
Can you tell us about the development of Supreme Energy?
Supreme Energy was established in 2008 specifically for the development of geothermal energy. At that time, we conducted a preliminary study in Muaralaboh (West Sumatra), Rantau Dedap (South Sumatra), and Rajabasa (Lampung). It turned out that the energy potential was extremely high and we decided to construct 220-megawatt power plants in each of these locations. We then partnered up with GDE Suesz, Sumitomo, and Marubeni. Unfortunately, it was not easy to execute this project.
What obstacles did you face during your first project?
Since it was established in 2008, we were only able to begin explorations in 2011. We were hampered in trying to convince the government, trying to adjust the economic scale, and even determining the price. After negotiating with (state-owned electrictiy company) PLN, we also fought to get a guarantee from the government. Only in March 2012 were we able to finally sign an electricity buy-sell agreement with PLN. So it took four years before we were able to get investors and a fund of US$2.3 billion to construct the 700-megawatt power plant. No geothermal investment has ever happened as fast as ours.
With such an investment, what do you expect the cost of electricity to be?
A good tariff for geothermal is around US$0.11 cents. Go ahead, try and audit it. Drilling used to cost US$7 million per exploration well. But now, we can spend up to $9 to $11 millino per well. The cost is huge because the geothermal space is located on the mountains. Before drilling, we had to put expensive infrastructure in place. For example in Muaralaboh, we used up to $30 milion just to construct the roads before exploration.
How did you convince the government to provide you with a guarantee?
The government’s guarantee is crucial to the geothermal business because PLN, the one to purchase the electricity, is still being subsidized by the government. Imagine, if the economic selling price is $0.11 cents per kWh (hour kilowatts), but PLN is only licensed to purchase $0.7 cents per kWh. Therefore, the development of geothermal can only start when the project has received a guarantee for production above 110 megawatts. The key is just that.
Aside from funding, what are the other challenges in the geothermal project?
We were hampered during our efforts to obtain a permit to acquire land. Aside from that, despite the permit having been issued and land already available, we could not avoid all conflicts with the community. Especially in places where the community is not afraid of the law. So we really had to approach the people. This was difficult because they were hoping for short-term compensation without realizing that geothermal needs an investment for at least seven years or more.
What do you expect from the government?
Permits. Many are hampered despite already having recommendations from the region, they did not get a permit from the Forestry Miinisty. Aside from that the government must review dormant geothermal permits that cannot be implemented. From a fiscal point of view, the government can also rethink the issue of tax incentives. Forget about getting an income from a renewable energy project. This project should be pushed to help fulfill the nation’s required energy. Do not expect any taxes from them either, just search for the multiplier effect. (*)