Indonesia eyeing cost recovery contract scheme for geothermal exploration

Indonesia eyeing cost recovery contract scheme for geothermal exploration Drilling rig on site at Sorik Marapi, Indonesia (source: KS Orka)
Alexander Richter 2 Feb 2020

With increasing international pressure and lack of investor interest in development, Indonesia is now eyeing the development of a cost recovery contract scheme for geothermal exploration in the country. This would look similar to schemes available to oil and gas exploration.

The government is trying to attract investors to invest in the New Renewable Energy (EBT) sector. The Ministry of Energy and Mineral Resources (ESDM) is preparing a formula to attract investors, including developing a cost recovery contract scheme for the development of the geothermal sector.

“We are making a new formula that can benefit both parties (government and private),” Energy and Mineral Resources (ESDM) Minister Arifin Tasrif said at a conference this week in Jakarta, Indonesia.

Arifin said that development in the geothermal sector has a higher risk than development in other EBT sectors. Therefore, according to him, incentives are needed to encourage investment in the sector. He mentioned considering the cost recovery contract scheme in geothermal exploration.

“In the future we will think about how to encourage geothermal, one of which is similar to oil and gas exploration, where the risk is borne by cost recovery,” Arifin said.

Based on data from the Ministry of Energy and Mineral Resources, Indonesia still has a large potential for developing EBT. Among them the geothermal sector still has a potential of 28.5 GW with the realization only absorbing only 2.1 GW (7.4%).

Then the development of clean water energy, mini hydro, micro hydro which has the potential of 75 GW with the realization of the absorbed is only 5.9 GW (7.9%).

Next, bioenergy which has a potential of 32 GW with the realization absorbed is only 1.9 GW (5.9%). Then, solar panels that still have the potential of 207 GW p with the realization that are only absorbed by 0.1 GW p (0.1%) and finally the wind / wind with the potential of 60 GW and the new realization of 0.2 GW (0.3% ).

On the other hand, Chief Executive Officer of Landscape Indonesia Agus Sari assessed that the transition from fossil energy to clean energy is very important to do immediately. Even so, the development of clean energy in Indonesia is still experiencing its own challenges, especially related to the selling price. Because the rules given for the development of EBT are considered less economical for investors.

The use of clean energy is increasingly important after the World Bank or World Bank has announced it will stop funding assistance for oil and gas exploration. “Investors are aware that the fossil energy business is a sunset industry (not attractive anymore), it is no longer excellent,” he said.

Source: Kata Data