Supramu Santosa – Founder, President Commissioner, Supreme Energy, Indonesia
Indonesia’s foremost proponent and pioneer of geothermal power speaks about revolutionizing the country’s energy mix. He sheds light on the challenges and triumphs encountered in steering the country down the geothermal pathway, outlining the crucial factors driving his company’s success and the critical milestones on the road ahead.
Last time we talked to you, you were in charge of Star Energy. Since then, you’ve become active in Supreme Energy which is pioneering geothermal energy in Indonesia. What brought about this change of direction?
When I stepped into this industry, we had identified the decline of oil production as inevitable and regarded renewable energy as very much the future face of Indonesia’s energy identity. The country possesses huge geothermal resources with estimates of up to 29,000 Megawatts. With that opportunity in mind, I left the oil industry to concentrate on alternative energy. We picked up three blocks in Sumatra, which we estimated at the time to be the best geothermal resources in the country.
Since then, however, developments have been moving at a much slower pace than we had first envisioned. The government was simply not ready with appropriate regulations and pricing structures to make geothermal development practically and economically viable. It took us a full four years to more or less walk the government through the correct process and to get to the point where we can start to develop the resources as we had originally planned. Four years is a long time for private investment, and the road has not been easy. Having said that, we really are situated at the cutting edge of our country’s energy transition, and these challenges could therefore be considered understandable and a natural part of the process.
What other obstacles did you encounter for it to take so long?
Another difficulty that we faced was having only one market: PLN, a company that, if left entirely to its own devices, would probably refrain from purchasing geothermal energy that is comparatively expensive when compared to other energy sources. PLN internally would almost certainly prefer to opt for significantly cheaper coal power. As it stands, we are dependent upon explicit policies originating from the government compelling PLN to use clean energy. In other words, the local success of geothermal energy is partially contingent upon state activism and government support.
How, then, would you describe Supreme Energy’s main milestones to date?
In 2014, we signed a landmark agreement with PLN to develop 660 Megawatts in three areas, and to that end we’ve started exploration. The first geothermal well we drilled was in West Sumatra, the second in South Sumatra, and right now we are drilling in Lampung. We are still in the evaluation stage, but unfortunately what we are finding so far is less than we would expect. All of this demonstrates that geothermal development is no easy ride. It’s an expensive and risky business that requires huge levels of up-front capital investment. Nevertheless we can be proud of our progress in pioneering a new energy pathway for the country. In 2010, the government awarded 15 geothermal areas to different companies, but so far we are the only one to be taking tangible steps towards development.
You’ve spoken about how the state pro-activeness is crucial for the successful development of renewables. How do you evaluate the willingness of the current government to act?
The political will is there, but there are too many different stakeholders. You have the Minister of Energy of course, but you also need onboard the Ministry of Finance, Pertamina and the local authorities. Each actor possesses his or her own objectives. The Minister of Finance for example doesn’t want to see high-cost electricity because that means forking out more to sustain the subsidies. Even if the Minister of Energy wants to encourage renewables, this may drive up the price of electricity which runs counter to the will of the Treasury. To get these players together and moving in the same direction is a tough task, even if the political will is there in principle.
You’ve mentioned that there isn’t much incentive on the side of PLN to engage in renewables. How crucial is it that they do?
If you only consider electricity subsidies, then coal-fired power is by far the best option as it is very cheap. So, in the short term, coal may relieve pressure on the public purse. In the long term, however, we are going to eventually run out of coal, so we need to develop renewables even if they are expensive, as an investment for our future generations.
It is very reminiscent of the situations faced by PLN back in the 1990s. At that time they didn’t want to move into gas as that was expensive. As a result, any company which produced gas ended up exporting it. Then when oil reached 100$, PLN suddenly realized that it needed gas. Now they complain about foreign companies selling the gas overseas when it is needed in the local market, but that was a direct consequence of their own inability to foresee their future needs.
Is it not the case, though, that such changes are usually spurred forward by crisis? Geothermal is recognized as having huge potential, but only around 1% of that has been developed to date?
That’s correct, in Indonesia for example only 1000 MW inbeen developed so far out of an estimated potential of 26,000 MW. So we need to educate the government on this, to share this vision and the realization that, when we use coal, there is leakage from the system. This is a cost to the country. When you use geothermal there is no leakage. That inherent cost is not there. In essence then, although geothermal may be more expensive on paper, the indirect costs of geothermal are much, much lower.
There is an age-old dilemma as well of course: look at today or plan for the future. In my view, however, there is an international responsibility to demonstrate our willingness to push through sustainable energy production. Secondly, no matter what your views are on the environmental impact of coal, it will be gone one day. At a certain point we are going to run out of economically recoverable coal for the production of power. Our challenge has really been to educate others on this and to change their way of thinking.
It seems that in 2008 when you started off, there was a window of opportunity for renewables with high energy prices. Today, with the price of oil at half of what it was, how bankable are these high-cost projects for you?
The government still looks very positively on geothermal. As long as the price is right we will continue to move forward. Even now, the low oil price is resulting in many companies putting projects on hold and not drilling, which means a lack of investment. If we developed geothermal right now we would have no problem in financing it.
For exploration however, there is no private bank that will give you money. Exploration is risky, and it is all at your own risk. Fortunately, there is a project being started at the World Bank which helps companies with this. If you have drilled two successful wells, the World Bank will help you finance further exploration. We have just received 50 million USD from the Asian Development Bank to explore South Sumatra, and this was the first time they have ever released this financing, so in a sense we are making history.
Once we finish exploration, financing becomes a multilateral negotiation, but I do not see any difficulties here as long as our projects are economically viable. This certainty largely stems from our strong contract with PLN and the government guarantees we have received.
Where do you see the bottlenecks in bringing your projects to fruition?
The bottleneck right now is pricing first of all. Secondly we are waiting for the regulations to come through allowing us to enter protected forests. The law used to treat us exactly the same as mining companies, but that is changing now and when the law comes into effect it will be much easier for us. This needs to be initiated by the Minister of Forestry, and negotiations are still ongoing. It comes back to the problem of many stakeholders needing to find a common direction.
What we really need is a good tariff. Currently it is set at 13 cents, which would be ok if we find large resources, but if we find smaller resources that will be a problem as many of the fixed costs would still be present irrespective of the size. To solve this issue, we are pushing for a sliding scale tariff that would allow us to have different tariffs depending on the scale of the resources we find.
The other option which the government is considering is for them to do the exploration themselves via Pertamina. However, I do not agree with this. As long as the price is right, investors will take the exploration risk. There is no need for the government to do this. Their resources are limited and I would prefer they spend it on other things such as infrastructure and education, not energy exploration which the private sector could also undertake very capably.
You’ve managed to establish some headline partnerships with GDF Suez for example. Tell us about these partnerships and what each side brings to the table.
I was quite proud of these partnerships; they were not easy to get. It required a lot of investment and research by our subsurface team and by outside consultants. We tried to do everything that was bankable ahead of time, as we were inviting partners who had no experience in geothermal to the table. So the subsurface team is ours, and the board is going to be a mix of the partners. So far we have been extremely pleased with them, with a lot of positive progress registered. These sorts of achievements have led Supreme to become a beacon for the geothermal sector, people are looking at us to see if we succeed.
You mentioned earlier that the government has awarded licenses to other organizations for the exploration of geothermal energy, but to date you are the only one who has really made use of that. What is it that makes you different?
We have an organization that is equipped to realize our dream. I have a vision, but I need the support of the company to move forward with it. As I said we are dealing with a lot of people; the Minister of Finance, the Minister of Energy, the Minister of Forestry, with PLN and so on. Luckily we have people who have very good networks. We have an excellent subsurface team, we have excellent government negotiators and very good finance people to deal with the banks. We are also persistent. The determination that I have seen come out of this organization over the last eight years is unbelievable. Just to give you an example, it would have been thought of as impossible to get a government guarantee, yet we got it.
So the key is having good people, strong relationships within the industry and an excellent reputation. I would not say we have had success yet, but we are on the road to success, and I believe it will make it in the end.
How do you see yourself and Supreme Energy in 2018 when we come back to Indonesia?
I think we will have completed the development of two of our resources: West Sumatra and South Sumatra. We will also have finished the exploration in Lampung. So if everything goes according to plan and the government keeps supporting us we should have 100-160 Megawatts operating by then and we will be looking into more exploration and resource to strengthen and expand our position. I will be 70 years old in 2018, so I would like to get us to that point by then.