Govt appoints PGE as geothermal holding, to go public
In a bid to boost Indonesia’s green energy use, the government has appointed PT Pertamina Geothermal Energy (PGE) as a geothermal holding company, named Holding Geothermal Indonesia (HGI). HGI will acquire stakes of other state-owned geothermal companies, namely PT PLN Gas and Geothermal (PLN GG), PT Geo Dipa Energi and PT Indonesia Power.
PGE is a subsidiary of state-owned oil and gas company Pertamina, PLN GG and Indonesia Power are subsidiaries of state electricity company PT PLN and Geo Dipa is a special mission vehicle (SMV) under the Finance Ministry that specializes in drilling geothermal exploration wells. Together, they have a combined installed geothermal-powered power plant capacity of 1,022.5 megawatts (MW), or nearly half of Indonesian geothermal power plants’ capacity of 2,175.6 MW.
The State-Owned Enterprises (SOE) Ministry has claimed that the holding company would be the biggest in the world in terms of installed capacity1. The government aims to quadruple Indonesia’s geothermal capacity to 8,008 MW by 2030. The Energy and Mineral Resource Ministry estimated that Indonesia has a geothermal potential of around 23,965 MW, the second-largest in the world after the United States, which has around 30,000 MW.
The ministry aims to complete the process of making PGE the geothermal holding company before its planned initial public offering (IPO) in November this year2. However, the ministry is now facing opposition from the PLN Labor Union (SPPLN) and Indonesia Power Labor Union (PPIP) as they dislike the government’s plan to put all geothermal companies under PGE, which is under Pertamina. They also slammed the government’s plan to float PGE into the capital market, arguing that it would lead to the commercialization of electricity. They demand that the new holding be put under PLN, which has 39 years of experience operating and managing geothermal power plants3.
The SOE Ministry, however, is adamant that PGE should be the holding company, noting that PGE has the greatest assets among the three, operating 672 MW of geothermal plants with total assets of Rp 35.98 trillion (US$2.5 billion), compared to 12.5 MW under PLN and 120 MW under Geo Dipa. Also, PGE has better access to commercial funding. Moreover, according to SOE Ministry spokesman Arya Sinulingga, there were no objections from PLN’s commissioners and directors over the plan4.
With the consolidation under PGE, PLN needs to transfer geothermal assets of Rp 16.4 trillion to PGE, excluding the assets of Indonesian power5. It is not clear if PLN would be compensated. If not, it would worsen its financial standing as PLN has amassed Rp 650 trillion in debt as of the end of last year.
With 2,326.7 MW installed this year, geothermal power plants are the second-largest renewable energy source after hydro energy. This is only 9 percent of the total geothermal potential in Indonesia, far from the target of 3,109.5 MW set in the National General Energy Plan (RUEN)6.
Stakeholders have already identified several hurdles in developing geothermal power plants in Indonesia: low offtake prices, as well as complicated licensing and land permit issues, with most of the unexploited geothermal potential located in protected, isolated areas. This makes exploration costly and investors would need to build a grid to deliver the electricity to customers7.
Geothermal power plants contributed 52 percent of green energy investments last year, worth $1.36 billion. The ministry’s geological agency has allocated Rp 450 billion this year to drilling exploration wells in the Cisolok Cisukarame working area WKP in West Java, the Bituang WKP in South Sulawesi and Nage WKP in East Nusa Tenggara.
Most provinces have geothermal potential, with West Java leading with the greatest potential. To date, however, utilization remains low with uneven distribution, as geothermal electricity production is concentrated in West Java with an installed capacity of around 1,200 MW, or 52 percent of the country’s 2,326 MW total installed capacity.
Several sources in the government said the SOEs Ministry’s plan to establish the geothermal holding company was secretly rejected by PLN’s directors. One of the main objections was the obligation for PLN to transfer its geothermal power plant assets to Pertamina Geothermal Energy (PGE). PLN worried that the cost of transferring the assets would increase its production costs. PLN’s directors also believed that the company should be the one in charge of the holding company, not PGE, as PLN had more experience in the electricity business.
Geodipa also rejected the geothermal holding company, as they believed they had the competence to develop geothermal energy independently, even though Geodipa’s owner, the Finance Ministry, gave the green light for the company to transfer its assets to PGE.
These tensions caused a delay in the creation of the geothermal holding company, which was supposed to be established in the first half of 2021. PLN reportedly had reservations about sharing data on their geothermal power plants, and the SOEs Ministry was reportedly deeply angry at the SOEs that had rejected the geothermal holding company plan.
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