With the largest potential for geothermal energy in the world, Indonesia has an estimated 29 gigawatts of electricity that can be generated through geothermal sources but only 5 percent, or around 1,340 megawatts, of Indonesia’s geothermal resources are being exploited. 2014 will see Indonesia raise its overall geothermal capacity to 1,405 MW as three plants totaling 62 MW will become operational by the end of the year.
In the coming months, the Indonesian government is looking to issue a new law that will make it easier for investors to tap the country's huge geothermal energy potential. The legislation is aiming to help Indonesia to develop its geothermal potential by removing a number of current obstacles to increased development and to spur investments through providing a better legal framework.
One key aspect of the new law would be to remove geothermal exploration and exploitation from the mining activities category. This will allow the development of geothermal projects within restricted forested areas, which currently are home to an estimated 42% of Indonesia’s geothermal resources.
In conjunction with the new geothermal law, the Indonesian Ministry of Energy and Mineral Resources also recently issued a revision to the geothermal tariff pricing regime. The Ministry's Regulation No. 17 of 2014 ("Regulation 17") reverts back to a previously used geographically based tariff regime enhanced with an added dimension of the timing of reaching a particular project's commercial operation date (to cater for inflationary effects).
Regulation 17 also makes clear that the responsibility for constructing transmission lines to connect with geothermal projects rests with the state electricity regulator (PLN). PLN has also been tasked under Regulation 17 to prepare a 'model' power purchase agreement ("PPA") for geothermal power projects.
The Indonesian government has ambitious intentions to reduce the country's dependency on expensive and exhaustive fossil fuels by making renewable energy an important asset in the country's energy mix and the new push towards exploiting Indonesia's geothermal resources aims to be part of that effort.