VZCZCXYZ0001
RR RUEHWEB

DE RUEHJA #0511/01 0730558
ZNR UUUUU ZZH
R 130558Z MAR 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 8309
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 0832
RHEHAAA/WHITE HOUSE WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

UNCLAS JAKARTA 000511 
 
SIPDIS 
 
DEPT FOR G, OES, F, EAP/MTS, and EB/ESC/IEC 
DOE FOR CUTLER/PI-32 AND NAKANO/PI-42 
USAID FOR ANE AND EGAT 
STATE PASS TDA FOR STEINGASS 
NSC FOR CEQ CONNAUGHTON, VAN DYKE 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EINV SENV ID
SUBJECT: Clean Energy Opportunities in Indonesia 
 
¶1. (SBU) Summary. Secretary Paulson's announcement of a Clean 
Technology Fund (CTF) comes at an opportune time for Indonesia and 
our bilateral relationship.  Indonesia is an environmental 
superpower with the world's largest store of biological diversity. 
It is also the third largest Greenhouse Gas emitter, producing 10 
percent of global carbon emissions annually.  Indonesia faces 
critical shortages of electricity and currently plans to build 
highly polluting coal-fired power plants to meet those needs.  CTF 
support can promote US clean coal technology in place of Indonesia's 
current plans to use highly polluting Chinese technology.  Indonesia 
also has more than 25,000 MW of geothermal potential.  Applying 
clean coal technology and promoting geothermal power both offer 
plentiful opportunities to lower Indonesia's carbon emissions.  It 
will also increase the likelihood of gaining Indonesia's support for 
US climate change policies.  Significant geothermal capacity can be 
on-line, yielding results within six years to reduce Indonesia's 
electricity-related emissions, according to our contacts.  End 
summary. 
 
Energy Plan Features Renewables 
------------------------------- 
 
¶2. (SBU) President Yudhoyono decided to change course with 
Indonesia's basic energy strategy in January 2006 by releasing a 
National Energy Blueprint.  He has sought a path to lighten the 
burden placed on the Indonesian treasury by fossil fuels.  The 
energy blueprint emphasizes large increases in coal, biofuels, and 
other renewable energy.  It targets a national fuel mix in 2025 as 
follows: 
 
Oil           20 percent or less 
Natural Gas   at least 30 percent 
Coal          at least 33 percent 
Biofuels      at least 5 percent 
Geothermal    at least 5 percent 
Biomass/Wind/Hydro/Nuclear/Solar  at least 5 percent 
 
In 2007, petroleum-based fuel stocks provided 41 percent of 
Indonesia's electricity needs, while new and renewables accounted 
for less than five percent. 
 
 
Coal Reigns But What Kind of Plant? 
----------------------------------- 
 
¶3.  (SBU) The Java-Bali grid, which provides electricity to more 
than 124 million people, has an installed capacity of approximately 
21,100 MW.  Indonesia has achieved six percent growth for three 
years, which has meant a seven percent annual increase in 
electricity demand.  Just to keep up with demand, Indonesia needs to 
add 12,000 MW of installed capacity by 2011.  Indonesia announced a 
major initiative in 2006 to build 10,000 MW of electric power by 
¶2009.  Relying primarily on highly-polluting Chinese-built 
coal-fired power plants, the so-called Fast Track electricity 
building program has encountered severe difficulties in contract 
negotiation and financing.  Only four of the forty projects have 
secured financing and begun construction, nearly two years behind 
schedule.  The delays mean Indonesia will only likely get 1,100 MW 
of power by 2010, which presents the opportunity to provide 
incentives to use US clean coal technology in place of 
environmentally unfriendly Chinese plants. 
 
Geothermal Already A Reality 
---------------------------- 
 
¶4.  (SBU) U.S.-firm Chevron is already here in Indonesia and has 365 
MW of geothermal installed capacity.  They tell us they are eager to 
do more projects, as are other firms.  Our mining and energy 
contacts generally agree that Indonesia has somewhere between 25,000 
and 27,000 MW of geothermal potential, equivalent to 7.5 to 8.1 
billion barrels of petroleum.  The GOI has already completed 
feasibility studies and maps for many steam fields.  Geothermal 
plants can be on-line, yielding significant results within six years 
to reduce Indonesia's electricity-related emissions, according to 
our contacts. 
 
¶5. (SBU) Before the 1998 Asian financial crisis, the GOI was 
targeting 5,000 MW of geothermal power by 2020.  Our electricity 
contacts say many of those projects remain viable with the right 
financial incentives.  Chevron geothermal managers tell us that most 
other geothermal producers simply do not think about projects in 
Indonesia, assuming that the chaos of the financial crisis and the 
fall of Suharto still reign.  Targeted CTF money can help spread the 
word that Indonesia's geothermal sector is again open for business. 
In January, the GOI announced greater flexibility regarding the 
price they will pay geothermal power producers: in Java, 4 to 5 
cents per kilowatt hour; outside Java, 7 to 8 cents per kilowatt 
hour.  The Java tariff is far too low to attract private geothermal 
investment, according to several contacts.  The 8 cent tariff 
outside Java-Bali is likely to attract limited interest, though it 
is still too low, they said.  CTF funding that bridges the gap to 
bring the tariff to 10 cents per kilowatt hour is likely to attract 
significant investor interest in the near-term, said several private 
business electricity contacts. 
 
 
Aceh Eager for Green Energy 
--------------------------- 
 
¶6. (SBU) The central government has struggled to create an 
attractive investment climate for infrastructure projects, but 
several reform-minded provincial governors have both new regulatory 
authority under the four-year old decentralization policy and highly 
prospective geothermal resources.  In December 2007 the GOI 
transferred to regions the authority to tender to geothermal 
concessions.  Successful implementation of a regional geothermal 
project would pressure the GOI to replicate more projects throughout 
the electricity-starved archipelago nation and spur other 
reform-minded provinces to seize the initiative. 
 
¶7. (SBU) We see particular promise for a showcase project in the 
once restive province of Aceh, which needs large increases in 
electricity generating capacity for economic growth and development. 
 Aceh has an energetic, forward-looking leader, who has developed a 
Green Economic Development and Investment Strategy.  It promotes 
geothermal energy, including a proposed 160 MW station.  Like many 
projects, the geothermal plant cannot compete commercially against 
coal-fired power, and the GOI is also pressuring Aceh's governor to 
put a 2 x 100 MW coal-fired power plant in the province as part of 
the Fast Track program.  Due to irregularities in the process, 
however, in July 2007 the GOI re-tendered the coal plant bid.  The 
delay offers us the possibility of offering Clean Technology Fund 
money to persuade the GOI to use less polluting technology than the 
Chinese are currently offering, while also providing support to the 
Aceh geothermal project.  Dual success in Aceh would create strong 
pressure to rethink the other 9,800 MW of dirty coal plants and 
motivate other provinces to seek out geothermal power options. 
HUME