Indonesia faces challenges in attracting investors to its geothermal energy sector, despite ambitious targets set by the government. State-owned electricity company PT PLN’s ( Perusahaan Listeik Negara) recent auction of nine geothermal projects, totaling 260 megawatts (MW), has seen tepid interest from businesses, highlighting concerns over financial viability and risk management.
Last year, PLN offered projects including Tulehu in Central Maluku and Tangkuban Perahu in West Java. Prospective investors were required to collaborate with PLN through joint ventures under the Geothermal Exploration and Energy Conversion Agreement scheme. However, major players like Barito Renewables, through its subsidiary Star Energy, expressed interest in the Kepahiang project before withdrawing, citing disagreements with PLN’s terms.
PLN’s geothermal executive vice-president, Christyono, confirmed that negotiations with Star Energy did not meet PLN’s expectations, leading to the decision to reauction the project. The outcome underscores the complexities and challenges faced by investors in navigating Indonesia’s regulatory and financial landscape for geothermal development.
Indonesia, with vast geothermal potential, aims to generate 9.3 gigawatts (GW) of geothermal power by 2035 but has achieved only 2.4 GW so far. Analysts estimate each megawatt of geothermal power requires approximately US$3.65 million in investment, necessitating over US$25 billion to reach the target.
Riza Pasikki, secretary-general of the Indonesian Geothermal Association (Inaga), pointed out that PLN’s terms and conditions have been a deterrent for potential investors. Concerns include the requirement for sole investor responsibility in costly exploration drilling and full liability in case of project failure.
Putra Adhiguna, managing director at the Energy Shift Institute, highlighted the critical need for balanced risk-sharing mechanisms and competitive tariff structures to attract investment. He noted that while PLN offers certainty in electricity sales, the utility’s risk tolerance for geothermal exploration may not align with investors’ expectations.
Businesses in Indonesia have long criticized the economic viability of renewable energy projects, especially compared to heavily subsidized coal power. They urge the government to revise policies and offer incentives that support a more competitive environment for clean energy investment.
