Indonesian geothermal sector asks for certainty and economics-aligned incentives

Indonesian geothermal sector asks for certainty and economics-aligned incentives City skyline Jakarta, Indonesia (source: flickr/ Charles Erbianco, creative commons)
Alexander Richter 24 Jun 2020

Indonesia's geothermal sector sees it as crucial that tariffs and incentives for geothermal power are in line with the economics of the projects in Indonesia, something the government needs to solve.

The Geothermal Association (API/ INAGA) hopes the rules regarding incentive schemes for the development of geothermal power plants (PLTP) can accommodate the economics of the project and provide certainty for developers.

The Chairperson of the Geothermal Association, Prijandaru Effendi, said that the tariff for buying electricity in accordance with the economics of the project is non-negotiable. The gap between the economics of the project and the affordability of electricity tariffs is the duty of the government to find a solution.

“If there is an affordability problem, it is the government’s obligation to be able to bridge how the affordability and economics of the project meet. It cannot be left to PLN or the industry,” he told local news lat week.

In order to boost development and attract renewable energy investors (EBT), the government through the Ministry of Energy and Mineral Resources (ESDM) is currently drafting regulations related to the purchase price of EBT-based power plants that will be set forth through a Presidential Regulation (Perpres).

This includes an incentive scheme regarding tariff arrangements that takes into account the economics of the PLTP project.

According to Prijandaru, there are two options that the government is considering related to the geothermal tariff scheme, namely the feed in tariff scheme and the highest benchmark price. He assessed the two schemes as having their own strengths and weaknesses.

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However, if he wants geothermal development to progress, he considers the feed in tariff scheme option as the most appropriate. With feed in tariff, it means that the purchase price of PLTP electricity will be based on the economics of the project.

“With feed in tariff, once we get (permission), all settle up front. The problem is there is no negotiation with PLN, assignments are immediately given. If the highest benchmark price is still negotiating. PLN is definitely negotiating to lower the price,” he said.

In addition, according to Prijandaru, the government also offers a number of other incentives to developers. The incentives offered, such as tax exemption incentives, reimbursements, cheap interest offers, and others. He hopes the incentive does not require complicated procedures so as to give uncertainty to developers.

“Do not let the government promise [many things] to get the procedure very long and there is a possibility it cannot be too. Finally, if one of the incentives cannot, the [project] economy will fall,” said Prijandaru.

Therefore, he continued, one of the keys to the development of geothermal energy is the purchase price of electricity in accordance with the economics of the project and the certainty of the government to obtain the incentives offered.

EBT Perpres is highly expected and awaited by EBT developers. The new policy will replace the current EBT power plant price formula which is calculated based on the cost of supply (BPP) set by PLN as stipulated in the Minister of Energy and Mineral Resources Regulation No. 50 of 2017.