MODELING GEOTHERMAL ENERGY AS LOW CARBON SOURCE IN INDONESIA
Joni Jupesta, United Nations University-Institute of Advanced Studies, +81 45 221 2375 , jupesta@ias.unu.edu
Aki Suwa, United Nations University-Institute of Advanced Studies, +81 45 221 2317 , suwa@ias.unu.edu
Agung Wicaksono, Bandung Institute of Technology-School of Business Management, +62 21 83793458,
agung.wicaksono@sbm-itb.ac.id
Overview
A low carbon economy can be achieved with clean energy provision. With a population of 237 million (2009),
Indonesia is the fourth most populous country in the world. The country faces serious energy problems, with a
changed status from net oil exporter to net importer since 2004, a highly subsidized price of fossil fuel, depleting oil
resources and a strong dependency on oil and gas export for the government`s revenues. For these reasons, the
government enacted the so-called Energy Mix Policy (2006) to reduce the dependency on oil by using a mixture of
energy sources, utilizing local resources other than fossil fuels. Through this policy it is expected that the share of
both biofuel and geothermal demand will increase each to 5% in the total energy mix by 2025. The introduction of
biofuel faces problems since biofuel production spurs food prices and also increases land use for agriculture which
casues deforestation. In 2010, to accelerate the shift to clean energy, the National Energy Agency proposed to
enhance the share of renewable energy to 25% by 2025, in a plan called “Vision 25/25”. This proposal is still under
discussion between the government and parliament and not yet formalized into legislation. Among several energy
options, geothermal energy has the largest potential in Indonesia as an alternative fuel source for power generation,
compared to other renewable sources such as hydropower, biomass thanks to the country’s high volcanic activity and
available technology. Through this policy, it is expected that the share of geothermal energy will make up 5% of
Indonesia’s total energy supply by 2025. This study explores the potential of geothermal energy to fulfil the energy
demand in Indonesia under different scenarios.
Methods
The most relevant tool for energy planning purposes are models which represent a mathematical simplification of
reality. The tool for this study is the GEOTHERM model, which is based on the supply side with the purpose of
balancing the energy sources and macroeconomics parameters. The model uses an optimization method. This
dynamic non-linear programming is written in the GAMS (General Algebraic Modeling System) modeling language
with MINOS as the solver. The time intervals are set at 3 years from 2007 until 2040.
Results
Four scenarios are developed for a cost optimization of geothermal energy production, using data from 2010 or
earlier. The first scenario is `business as usual’, where nothing changes: geothermal energy and fossil fuels are still
subsidized. There is lack of investment in the geothermal scenario since building a power plant costs millions of
US$.
The second scenario is the `no oil subsidy` scenario, in which the subsidy on fossil fuel is eliminated in Indonesia.
Market Analysis is done using a price model. The cost of geothermal energy is based on plant investment and plant
operational cost. The price of fossil oil is uncertain due to geopolitics, supply and demand, management of
technology transfer, logistic problems, long-term investment and subsidized fossil fuel price. By reducing the subsidy
on fossil fuel, the gap in price between geothermal energy and fossil fuels may be reduced as well.
The third scenario is the ‘climate` scenario in which the international climate regime is considered. The price of
geothermal energy in this scenario decreases due to economies of scale. Presently, the hypothesis is that an increase
in international pressure will make the share of renewable energy, such as that of geothermal, in the energy mix
increase. This scenario shows the impact of international climate policy on the price of geothermal energy.
The fourth scenario is a combination of the second and the third scenarios.
Conclusions
The introduction of geothermal energy in Indonesia has a positive impact, increases energy security and minimizes
green house gas emissions as it partially replaces coal for electricity generation. Technology learning is expected to
decrease the production costs and increase the electricity efficiency due to technological improvement and economy
of scale. The GAMS model projects that, at capacity and with technological constraints, geothermal energy could
cover domestic demand for electricity according to the Energy Mix Policy.
Renewable energy does not have a competitive advantage over fossil fuel prices as long as the Indonesian
government continues subsidizing fossil fuels, thus renewable energy from geothermal sources will remain
unattractive. On the other hand, if oil prices hike, geothermal energy will become more attractive than fossil fuels.
Foreign investment and national policy support are very important factors influencing the dynamics of Indonesia’s
geothermal fuel energy systems. Innovative energy systems could be developed in future by either horizontal (focus
on diversifying energy sources) or vertical development (radical change from one energy source to another). The
integrated assessment model uses a multifaceted approach covering technology, the market and the environment, to
give a clearer picture of the complexity of the biomass system in Indonesia and supply flexible tools to apply in other
developing countries.
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