Geothermal Development in Indonesia

A Hot Tip about Coal Products in Indonesia

Posted on: 17 Feb 2010


Indonesia has the largest geothermal energy potentials in the world; however, the utilization of the resource is still low. The increase in mineral oil prices and the subsequent reduction of the fuel subsidy have considerably improved the feasibility of geothermal in Indonesia. The government plans to launch the second crash program of developing 10,000 MW power plants. Unlike the first crash program, which uses coal as the main resource for power plant, the second program will utilize renewable energy resources such as water, hydro, solar and geothermal. The program will generate power supply of 6,867 megawatt (MW) from geothermal power plants, with total investment of US$ 19.8 billion. This report focuses on recent developments and opportunities for U.S. suppliers of products and services in geothermal.


Market Demand

The power industry in Indonesia has experienced a high growth in demand, averaging 8% per annum in the last ten years. However, due the lack of infrastructure in the power sector between 2000-2005, Indonesia is still facing a power crisis in various areas. It is predicted, with an average growth rate of 7.2% per year, the electricity demand will increase from 106.456 gigawatt hours (GWh) in 2005 to 149.102 GWh in 2010. At present, renewable energy sources (hydro, solar, wind, biomass, geothermal) contribute only five percent to the total installed generating capacity of 29.5 GW. The Presidential Regulation No. 5/2006 on National Energy Policy stated that by 2025, renewable energy sources will contribute 17% to the total installed generating capacity. Geothermal is expected to contribute about 5% of the total renewable energy sources.


Indonesia, located in the "ring of fire" volcano belt, is estimated to hold about 40 percent of the world's geothermal reserves, equivalent to a total of 27,140 megawatts (MW) of power. According to the Ministry of Energy and Mineral Resources (MEMR), there are 253 geothermal locations in Indonesia, of which 2.7% has been utilized as resource for power plant generation. The majority of geothermal locations (63.7%) are in the stage of preliminary survey, 30.5% are in the geology survey and 3.1% in the exploration stage


The development of the use of geothermal resources is hampered by several factors such as high investment costs, high risk on exploration and exploitation, limited incentives, lack of technology, and lack of implementing rules and regulations. In order to provide a more conducive atmosphere to geothermal development in Indonesia, during the last 2 years, the Government of Indonesia (GOI) has issued several regulations. In addition, the GOI ratified the Kyoto Protocol and participated in the Clean Development Mechanism which provide the opportunities to reduce the investment cost of a geothermal plant by taking the advantage of the global carbon credit program.

The primary Indonesian government legal instruments/policies, include:

- Geothermal Law No. 27/2003 regulates the upstream business of geothermal

- Government Regulation No. 5/2007 on guidelines for geothermal preliminary survey assignment

- Government Regulation No. 57/2007 on the tendering process to obtain geothermal license

- Government Regulation No. 59/2007 on Geothermal Business Activities

- Minister of Finance Decrees No. 177/2007 and No. 178/2007 on the exemption of import duty on goods for development of geothermal, oil and gas field during the exploration phase

- Minister of Energy and Mineral Resource Decree No. 11/2008 on the procedure for acquiring geothermal working area

- Minister of Energy and Mineral Resources Decree No. 14/2008 on the standard selling price of geothermal electricity.


The latest MEMR’s decree sets a higher price for electricity from geothermal power plants than that generated from other power plants. The price is calculated based on 80-85% of the electricity basic production cost (BPP) of the state-owned electricity company, PT PLN in 2008. For geothermal plants above 55 MW, the selling price is 80% of the BPP power generation cost in the area concerned. Based on this scheme, geothermal power price are estimated at US$ 7 – 8 cent per kWh. The GOI also requires that geothermal operators have to pay 2.5% royalties of their revenues from electricity sales. The central government will receive 20% of the royalties and the regional government the remaining 80%.


In May 2008, the World Bank’s Global Environment Facility provides a US$ 4 million grant for the Geothermal Power Generation Development Project (2008-2011). The grant is intended to promote the expansion of geothermal power generation in Indonesia. The project has four components: policy framework for accelerating the geothermal developing, transaction management for mobilizing investments, technical capacity building and project management assistance.


Currently, there are 18 geothermal working areas that have been developed, which 15 of them are owned by PT Pertamina Geothermal Energi. From those areas, the total installed capacity of geothermal power plants reach 1,052 MW. In 2009, there will be additional capacity of 122 MW from the Wayang Windu unit 2 (110MW) and Sibayak (12 MW) power plants. Additional power capacity of 60 MW is also expected from the Lahendong power plant in North Sulawesi.


In 2008, the government offers several geothermal working areas, among them are: Seulawah Agam, Aceh (160 MW), Jailolo, West Halmahera (75 MW), Telaga Ngebel, East Java (120 MW), Gunung Ungaran, Central Java (50 MW), Gunung Tampomas, West Java (50 MW), Cisolok/Sukarame, West Java (45 MW), Tangkuban Perahu, West Java (100 MW), Jaboi, Aceh (50 MW) and Sokoria, East Nusa Tenggara (30 MW). Three of those areas have been tendered and announced the winners, PT Indonesia Power for Tangkuban Perahu and Cisolok, West Java and PT Wijaya Karya for Gunung Tampomas. The central government has encouraged the local government to speed up the tender process next year.


By Anasia Silviati

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Posted: 17 February 2010