Incentives for private sector crucial for further geothermal development in Indonesia

Incentives for private sector crucial for further geothermal development in Indonesia Drilling Rig on site of the Muara Laboh geothermal project, Indonesia (source: Sumitomo Corp.)
Alexander Richter 31 Oct 2019

With 312 geothermal fields in Indonesia, so far only 70 areas have been designated as geothermal working areas (WKP). With limited ability of Indonesian state-owned players, further incentives are needed to attract private sector investment, so Surya Darma, METI.

The Indonesian Renewable Energy Society (METI) reports that Indonesia has development potential with 312 geothermal fields. Of these, only 70 fields have become Geothermal Working Areas (WKP). The rest can be developed into renewable energy projects. Surya Darma, the Chairman of METI, sees the exploration drilling program by the government for the working areas as a good step to attract investors.

However, according to him it is not easy for the government to explore all 312 fields. Therefore, private involvement is necessary. “We would be happier if there is certainty about the resources of those working areas when they will be tendered and there is no exploration risk.” he said in Jakarta this week.

He explained, beyond using geothermal government drilling programs, development is difficult due to the limited ability of the government for further support. Moreover, the government has a direct assignment program to work on WKP. The company that gets the assignment can do a study on the WKP and can submit an offer if interested. However, he considered that the government’s efforts to boost WKP exploration through the assignment program were not yet optimal.

He also considered, the assignment scheme made the developer bear all the risks of drilling. In fact, in the Philippines, all the risks were borne by the government and then then the company could develop the resource. “When the risk is taken by the government, and the project then handed over to the private sector – even without incentives – things look different,” he said.

Moreover, according to him the developer may not necessarily get the results of the drilling in the WKP, despite bearing all the risks. Investors need around US$ 10 million to drill one well, with three wells per project things add up.

Surya Darma hopes that there is a leader in the government that is specifically focused in dealing with renewable energy development. The person would have to be able to overcome various problems, especially related to the development of new renewable energy. “That is what drives the existence of a deputy minister who takes care of that matter,” he said.

Source: KataData