Indonesia favours deregulation over increase in tariffs for geothermal

Indonesia favours deregulation over increase in tariffs for geothermal Power lines in the sunset in Java, Indonesia (source: flickr/ uncle.capung, creative commons)
Alexander Richter 2 Nov 2015

New government regulation draft on geothermal utilisation in Indonesia, favours deregulation over electricity tariffs that would be above the economic price.

As part of policy work of the Indonesian government, the Energy and Mineral Resources Ministry has announced it will not support an increase of geothermal electricity tariffs above the economic price.  In a statement to, the Ministry said that the economic deregulation policy package was launched as an adjustment with the geothermal investment economic value in a bid to improve the country’s investment climate.

“If [the electricity price] was above the economic price, the state electricity company (PLN) would suffer losses. We want to find a win-win solution,” Yunus Saefulhak, the director for geothermal at the Energy and Mineral Resources Ministry said last week.

The adjustment with the economic price is implicitly stated in the government regulation draft on geothermal utilization. The regulation was claimed as a solution to break a negotiation deadlock related to prices between geothermal power plant operators and the PLN.

The direct tariff, as stated in the draft bill, is set at capacities between 5 MW and 220 MW. Yunus said that lower capacity would mean higher tariff to be pained by the PLN.

“The policy adjusts investment in geothermal that needs huge amount of money,” Yunus said.

However, to gain such a tariff, investors must immediately start geothermal working area development as soon as the preliminary study and exploration are completed. Therefore, investors must immediately find geothermal reserves ready to be exploited.

As the geothermal energy reserves are proven to exist, investors can immediately start to operate upon government’s appointment. Yunus said that such an appointment would be possible with the Law on Geothermal.

Yunus said that the policy was a form of deregulation instead of incentive. Yunus explained that the incentive had been provided by the government by removing value added taxes and import duties for products related to geothermal energy.