TOKYO -- Development of geothermal power plants is picking up in Indonesia and the Philippines, providing opportunities for many Japanese and Western companies.
At the Sarulla Geothermal Power Plant under construction on northern Sumatra in Indonesia, a tower over 55 meters high has been built to capture water heated by magma underground. As drilling equipment makes a groaning noise while it digs to a depth of 2,000 meters, steam shoots up from a test well. A path for heavy equipment has been created by clearing the forest around the site.
The plant, which is to begin operations in November 2016, will be the world's largest. Its planned capacity of 330,000kW is triple that of Japan's biggest geothermal plant, in Oita Prefecture. The price tag is estimated at more than 100 billion yen ($818 million).
Owner Sarulla Operations is a joint venture including local oil giant Medco Energi International, Japanese trading house Itochu and Kyushu Electric Power, the biggest geothermal business operator in Japan. About 1,600 workers are involved, including some from Java nearly 1,000km away because local labor in Sumatra is not enough.
The project has encountered many hurdles including securing labor, acquiring land and negotiating contracts for power sales. "Our experience with the resource business and building power plants worldwide has been put to use," said Sarulla Operations CEO Shinichi Aburaya, who was sent from Itochu.
Geothermal power projects can take 10 years from exploration to plant operation, and mistakes in estimating returns could leave operators unable to recover investments. But a push from the Indonesian government is fueling momentum.
The government is offering fixed-price power purchase contracts for geothermal producers. The Sarulla plant is set to sell its output to state-owned power company PLN under a 30-year contract. "We can recover initial investment in about 10 years," Aburaya said.
Indonesia also has simplified the process of land acquisition for projects. And international loans are available. The Sarulla project uses funding from the Japan Bank for International Cooperation.
President Joko Widodo on Aug. 22 touted the need to develop geothermal energy, saying the country is not taking full advantage of its resources and that "Indonesia can become a sovereign nation in terms of energy."
Indonesia has the world's second-largest geothermal reserves, amounting to 27 million kilowatts. But geothermal power accounts for just under 5% of the country's energy supply, and fossil-fuel power is the staple.
Amid rising demand for power, even the oil-rich Asian country has become a net importer of crude oil in recent years. Increasing fossil-fuel power generation could raise Indonesia's fuel imports and cause its current-account deficit to balloon. By focusing on geothermal, Indonesia targets a renewable-energy ratio of 25% by 2025. Geothermal output would rise sevenfold to 9.5 million kilowatts in 10 years under this scenario.
The Philippines is another hot spot for geothermal energy, with 6 million kilowatts of reserves, the world's fourth largest. In 2010, geothermal output of 1.9 million kilowatts accounted for nearly 15% of total power supply. Amid shortages of electricity, the government is offering companies tax benefits and project concessions to promote geothermal energy.
Opportunities for the West, Japan
Geothermal energy has few global titans, unlike fossil-fuel power, so Japanese and Western companies often partner with locals in various forms to take part in projects.
Philippine resource giant Nickel Asia acquired U.S. company Emerging Power this year to build and expand power plants. New Zealand geological survey company GNS Science partnered this month with Philippine company Energy Development.
Italy's Enel group will start test drilling in the Philippines as early as this year, working with Japanese trading house Marubeni. French concern GDF Suez has taken a stake in an Indonesian project planned by Marubeni and Sumitomo Corp. And U.S. company Halliburton is drilling at the Sarulla project.
Japan's Toshiba, Fuji Electric and Mitsubishi Hitachi Power Systems, which together command a global market share of about 70% in turbines for geothermal power plants, are eager to offer their products featuring special anti-corrosion technology vital to handle hot water with a high content of impurities.