Trend Focus. Geothermal - Enormous potential for renewable energy. Trend Focus October 10, 2017

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1 Geothermal - Enormous potential for renewable energy October 10, 2017 PT. Mirae Asset Sekuritas Indonesia Nur Marini (ext: 237) marini@miraeasset.co.id We visited a giant geothermal power plant located in Salak, West Java. The plant, which is owned by Star Energy, has a total area of 10,000 ha. Given the current volatility of commodity prices (oil and coal) and abundant potential renewable energy resources (geothermal, hydro, wind, etc.), we believe the Indonesian government is currently seeking to shift from fossil fuels to renewable energy for power generation. Moreover, Indonesia s declining oil reserves should further drive demand for renewable energy resources over the longer term. About time: Shifting to geothermal energy During the last decade, Indonesia s total oil reserves have experienced a decline, mainly due to the fact that oil production has significantly outpaced the discovery of new reserves. Indonesia s proven oil reserves stand at no more than 4.0bn barrels, with production of around 0.4bn barrels per day and a reserve-to-production (R/P) ratio of no more than 12 years. As such, we believe the government is seeking to replace non-renewable energy with renewable energy, such as geothermal, hydro, bioenergy, solar, wind, and hybrid, for electricity generation. Indonesia: A top five country in terms of installed capacity According to data from the World Geothermal Congress, Indonesia is the world s third-largest geothermal electricity producer (after the United States and Philippines). However, despite sitting on the world's largest geothermal energy reserves, Indonesia currently only generates 1,341 MW from geothermal wells, less than half of the United States' geothermal power output (3,450 MW) and lower than the Philippines (1,870 MW). Geothermal resources and portential The National Geological Agency of Indonesia (NGAI) has reported that Indonesia is home to 312 potential geothermal sites. These sites hold 12,386 MW of resource potential and 16,524 MW of reserve potential. However, proven reserves stand at only 2.3 GW, concentrated in Java. On the other hand, Sumatra has the largest geothermal potential (12.8 GW, or 44% of the total level). In sum, despite Indonesia s 28.9 GW of geothermal power reserves (the greatest in the world), conflicting laws, a complicated pricing scheme, and opposition from local communities have hampered the effective harnessing of resources. Our visit to SEGS power plant On September 28, 2017, we visited Star Energy Geothermal Salak (SEGS) in Salak (93.6km from Jakarta), West Java. The plant, which has a total area of 10,000 ha, is one of three geothermal power plants in the portfolio of Star Energy Holding Pte. The company boasts installed capacity of 875MW across its three operating sites (Salak, Wayang Windu, and Darajat). Figure 1. Indonesia lies in the Pacific Ring of Fire Source: Internet, Mirae Asset Sekuritas Indonesia

2 A country blessed with geothermal resources The Indonesian archipelago lies in the Pacific Ring of Fire, between the eastern end of the Mediterranean Volcanic Belt and the western side of the Circum-Pacific Volcanic Belt. This means the country is an active site for earthquakes and volcanoes, with more than 200 volcanoes located along the islands of Sumatra, Java, Bali, Nusa Tenggara, Maluku, and Sulawesi. Given this, the country is blessed with abundant geothermal resources. Figure 2. Indonesia lies in the Pacific Ring of Fire Source: Internet, Mirae Asset Sekuritas Indonesia About time: Shifting to geothermal energy Back in the 1980s and early 1990s, Indonesia mainly used fossil fuels (petroleum, coal, and natural gas) for its electricity generation. However, the country s total oil reserves during the last decade have experienced a decline, mainly due to the fact that oil production has far outstripped the discovery of new reserves. Indonesia has at most 4.04bn barrels of proven oil reserves, with production of around 0.4bn barrels per day and an R/P ratio of no more than 12 years. According to National Energy Council data, the proportion of electricity demand in total energy demand will reach 19%, or 45mn tonnes of oil equivalent (ToE), in 2025 and 28%, or 193mn ToE, in 2050, representing average growth of 7.1% per year. Table 1. Potential and production of fossil energy Fossil Energy Resources Proven Reserves Ratio Production R/P ratio (years) Oil (billion barrel) % Gas (TSCF) % Coal (billion ton) % Figure 3. Electricity consumption ( ) Figure 4. Electricity growth projection ( ) Source: PLN, Mirae Asset Sekuritas Indonesia 2

3 From the above data, we can see that the government is seeking to replace non-renewable energy with renewable energy, such as geothermal, hydro, bioenergy, solar, wind, and hybrid, for its electricity generation. Table 2. New renewable resource potential in Indonesia Energy source Resources Installed capacity Utiliation Hydro 94,476 MW 5,024 MW 5.3 % Geothermal 29,544 MW 1,403.5 MW 4.8 % Bioenergy 32 MW 1,740.4 MW 5.4 % Solar 4.8 kwh/m2/day GW 78.5 MW Wind and Hybrid 3-6 m/s 60 GW" 3.1 MW Marine Energy 61 GW 0.01 MW Shale Gas 574 TSCF Coalbed Methane TSCF In order to support the utilization of new renewable energy for electricity generation, the government has formulated the National Energy General Plan (Rencana Umum Energi Nasional/RUEN), which is to be issued soon to regulate policy harmonization in energy utilization and especially industrial zone development, licensing simplification, and one-stop integrated services. Figure 5. Geothermal feed-in tariff (2015) Area distribution: Region I: Sumatra, Java and Bali Region II: Sulawesi, NTB, NTT, Halmahera, Maluku, Papua and Kalimantan Region III: Remote areas in I-II where the majority of electricity is generated fm fuel oil power plants Indonesia: A top five country in terms of installed capacity According to data from the World Geothermal Congress, Indonesia is the world s thirdlargest geothermal electricity producer (after the United States and Philippines). However, despite sitting on the world's largest geothermal energy reserves, Indonesia currently only generates 1,341 MW from geothermal wells, less than half of the United States' geothermal power output (3,450 MW) and lower than the Philippines (1,870 MW). Table 3. Top five countries in terms of installed capacity (2010 and 2015) Country Installed capacity Geothermal Electricity (GWh/y) Installed capacity Geothermal Electricity (GWh/y) USA 3,098 16,603 3,450 16,600 Philippines 1,904 10,311 1,870 9,646 Indonesia 1,197 9,600 1,340 9,600 Mexico 958 7,047 1,017 6,071 New Zealand 762 4,055 1,005 7,000 Source: World Geothermal Congress, Mirae Asset Sekuritas Indonesia 3

4 Geothermal resources and portensial National Geological Agency of Indonesia (NGAI) reported that Indonesia is home to 312 potential geothermal sites. These sites hold 12,386 MW of resource potential and 16,524 MW of reserve potential. However, proven reserves stand at only 2.3 GW, concentrated in Java. On the other hand, Sumatra has the largest geothermal potential (12.8 GW, or 44% of the total level). Despite Indonesia s 28.9 GW of geothermal power reserves (the greatest in the world), conflicting laws, a complicated pricing scheme, and opposition from local communities have hampered the effective harnessing of resources. Table 4. Indonesia s geothermal energy potential Island Number of location Energy potential Total Installed Resources Reserve Speculative Hypothetic Possible Probable Proven Sumatera 93 3,183 2,469 6, , Java 71 1,672 1,826 3, ,815 9,757 1,134 Bali- Nusa Tenggara , ,872 5 Kalimantan Sulawesi 70 1, , , Maluku ,071 - Papua Total 312 7,377 5,009 13, ,288 28,910 1,341 Expected potential 28,910 Source: NGAI, Mirae Asset Sekuritas Indonesia Currently, Indonesia s installed geothermal capacity stands at 1,341 MW, with fields operating in ten locations: Gunung Salak (377 MW), Darajat (260 MW), Wayang Windu (227 MW), Kamojang (200 MW), Dieng (60 MW), Sibayak (11 MW), Lahendong (87 MW), Ulu Belu, South Sumatra (110 MW), Ulumbu, Flores (5 MW), and Mataloko, East Nusa Tenggara (2.5 MW). Table 5. Existing and planned geothermal power plants in Indonesia Geothermal field Developer Installed capacity Development planning up to 2025 Total number of wells drilled Salak Star Energy Darajat Star Energy Wayang Windu Star Energy Kamojang PGE Ulu Betu PGE Lahendong PGE Dieng Geodipa Sibanyak PGE Ulumbu PLN Mataloko PLN/GIA Sarulla Medco Power Lumut Balai PGE Patuha Geodipa Karaha PGE/KBC Bedugul PGE/BEL Hulu Lais PGE Sungai Penuh PGE Kota Mobago PGE Iyang Argopuro PGE Ciater WSS Tulehu PLN Cibuni Yala Teknosa Jaboi Sabang Geo Energy Muaralaboh Supreme EM Rantau Dedap Supreme ERD Rajabasa Supreme ER Source: Ministry of Energy, Mirae Asset Sekuritas Indonesia 4

5 Our visit to SEGS power plant We visited SEGS, a giant geothermal power plant located in West Java (93.6 km from Jakarta) with a total area of 10,000 ha. The plant is one of the three geothermal power facilities in the portfolio of Star Energy Holding Pte. The company boasts installed capacity of 875MW across its sites in Salak, Wayang Windu, and Darajat. (Please refer to our company update Geothermal business: From the bottom up for more details.) Figure 6. SEGS power plant Figure 7. Small geothermal power plant Figure 8. Small oil reservoir, turbine and generator unit Figure 9. Mirae Asset and other brokerages during the visit SEGS: Core business Star Energy Geothermal Salak generates electricity from sustainable geothermal resources based on a joint operation agreement with Pertamina. The company also supplies steamgenerated electricity to the Indonesian state-owned electricity company (Perusahaan Listrik Negara/PLN). Resource characteristics Liquid dominated reservoir (hot water and steam) Reservoir temperature celcius ( fahrenheit) Well flash (16%-100%) Chemical composition of reservoir Sodium chloride (NaCI) brine; TDS 17,500ppm Non-condesable gas in steam from % w/w Facilities and equipment Wells: 107 wells have been drilled at depths of appromaintly 1,250m-3,211m Steam pipeline: 17km 5

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