Notes on the Development of Geothermal in Indonesia Generating Dialogue Clean Energy, Good Governance, and Regulation Forum Singapore, March 2008 Asclepias Rachmi S. Indriyanto Indonesian Institute for Energy Economics

Geothermal Development (1) Large estimated potential, low realization Most of existing capacity was the result of PD 45/91, which targeted to develop 4500 MW During the Asian Financial Crisis, various geothermal development contracts and price agreements were suspended. They were later renegotiated or cancelled; eventually negotiation agreed on lower price; but still many projects are not progressing.

Geothermal Development (2) Recent progress: 2003: Law 27/2003, the only RE governed by its own law 2004: Geothermal Blueprint 2005: Establishment of Directorate of Geothermal Enterprise Supervision & Groundwater Management, to strengthen sector management 2006: Master Plan Study for Geothermal Power Development in Indonesia (funded by JICA) 2007: Exemption of import duties for geothermal exploration equipments and exemption of taxes for exploration activities But SOE are still facing significant hurdles, and low participation of commercial financing and private sector

Geothermal Development (3) Challenges: –Economics: High initial costs to develop geothermal energy –Remote areas, limited infrastructure –Drilling deep wells Subsidized prices of fossil-based energy (petroleum fuels, and electricity mostly generated from fossil energy) Environmental benefits are not included in cost calculation –Regulations: Alignment of upstream and downstream regulations Required set of implementation regulation for Law 27/2003 Alignment with Forestry regulation (national parks, boundary of various forest categories, overlap uses) Role of local government in geothermal undertakings Procedure for tender & licensing Incentive for research & development, improve capacity of local contents Road map & master plan on energy mix is not binding