Indonesian Government promoting country’s geothermal business opportunity

Unit 1 of Sarulla Geothermal Power Plant, North Sumatra/ Indonesia (source: Ormat Technologies)
Dwina Soerono 4 Dec 2017

Indonesia is pushing to accelerate geothermal development, and opens business opportunities to private investors and developers.

Through the Paris Agreement in October 2016, Indonesia made a commitment to reducing greenhouse gas (GHG) emission by 29% by 2030. This goal is supported by the continuous development in the new and renewable energy (NRE) that has been augmenting within their primary energy mix. Indonesia has the goal to incorporate 23% of NRE in their primary energy mix by 2025, and to 31% in 2050. With the abundant of untapped geothermal resources, Indonesia aims to reach installed capacity of 7,241.5 MW in 2025 and 17,546 MW in 2050. If the target is achieved, this could potentially position Indonesia to be the leading geothermal producer surpassing the current reigning geothermal producers such as the United States and the Philippines. Currently, there are 52 new Geothermal Working Areas (GWAs) on top of the existing 19 GWAs. This creates a great business potential for many stakeholders including investors and developers, both nationally and internationally.

The Ministry of Energy and Mineral Resources (MEMR) in Indonesia has created a geothermal development roadmap for 2015 to 2025 to assist in reaching the installed capacity target. Target requirements consist of ensuring harmonious regulation among related sectors, simplifying licensing process, provide fiscal and non-fiscal incentives for geothermal development as well as optimizing geothermal potentials in the country.

Supporting regulations and policies are also created to promote the growth and development of the geothermal sector. Budi Haryanto, the Indonesian Deputy Director for Geothermal Exploration and Exploitation Supervision from the Ministry of Energy and Mineral Resources (ESDM) highlighted these regulations and policies during the IGC: Invest Geothermal conference in Frankfurt on November 2017. Specifically, in relations to the principal substances of Law 21/2014 which stated the following conditions:

  • “Geothermal is not classified as mining activity
  • Indirect use is fully under Central Government Authority
  • Developers are imposed of Production Bonus
  • Government can conduct Exploration, Exploitation and Utilization
  • Assignment of GWA to the State-Owned Enterprise in geothermal
  • Tender process based on program and exploration commitment
  • Creating attractive geothermal tariff for the developers”

Many of the stated regulations were created to increase attractiveness of geothermal development as business potentials amongst developers. As geothermal is no longer classified as mining activity, it opens wider potential for GWA as exploration can be done in nature reserved areas. Furthermore, Production Bonus is created with the goal to augment local society awareness hence increasing social acceptance to ensure the smooth implementation and construction of potential power plants in the area.

Budi Haryanto illustrated the structuring of geothermal development through the Geothermal Enterprising Scheme (GR 07/2017). The emphasis was put on the cooperation between private companies and the Indonesian government as a well-defined structure, which would aid in simplifying the process of licensing. Through organized GWA tendering and the clear GWA assignment by the State-Owned Enterprise (SOE), private developers are able to get a clear sense of each step taken in Indonesian geothermal development.

The other highlighted regulation, which has been an on-going point of interest among many stakeholders, is the geothermal tariff policy. Currently, the national average cost of generation is 7,36 cent/kWh. MEMR created tariff ceilings for geothermal projects with the following conditions:

  • If the project is located on a grid where the local average cost of generation is higher than the national average
  • If the project is located in Sumatra, Java, Bali or a grid where the local average cost of generation is equal to or lower than the national average, the tariff is then determined by negotiation between PLN (the state-owned utility distributor and producer) and the developer

With the existing supporting regulations and policies, investment opportunities can be summed by cooperating with SOE, further development in preliminary survey and exploration assignment, and acquiring new GWA through open tender mechanism. Business opportunities in geothermal sector also include geothermal direct use, low temperature geothermal potential, creating small scale power plants, and supporting core infrastructure of geothermal development.

Source – Presentation at the recently held IGC Invest Geothermal conference in Frankfurt/ Germany – Nov. 7, 2017

Budi Haryanto, Deputy Director for Geothermal Exploration and Exploitation Supervision, Ministry of Energy and Mineral Resources (ESDM), “Indonesia Geothermal Update and Business Opportunity”