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  • October 2010
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Indonesia is located between the eastern end of Mediterranean Volcanic Belt and western side of Circum Pacific Volcanic Belt, and is blessed with abundant geothermal resources, i.e. approximately 27 GWe or 40% of world’s geothermal resources. Half of these potential are found on Java and Bali, the most densely populated islands in Indonesia . However, the utilization of this geothermal energy is still very small compared to its high potential. At the present, only 807 MWe geothermal installed capacity have been developed.

Geothermal development in Indonesia was started in 1974. The government has issued the President Decree No.16/1974, President Decree No.22/1981, President Decree No.23/1981, President Decree No. 45 in 1991 and President Decree No.49/1991. These decrees appointed the Pertamina, National Oil Company to conduct exploration, exploitation and utilized the steam into energy. However, the development of geothermal in Indonesia is still facing some barriers.

Monetary crisis since mid of 1997 have significant impact on Indonesia economic. It caused slow down geothermal business. To speed up geothermal development, recently, Government has issued the Geothermal Law No. 27/2003 to regulate the up-stream side and Government Regulations No. 3/2005 concerning Supply and Utilization of Electricity to regulate down-stream side. These Regulations also prioritizing the renewable energy especially in the local needs. In line with these regulations, Government and Parliament are still preparing the Energy Law following the 2003 National Energy Policy to support geothermal development in Indonesia .


Indonesia consists of more than 17,000 islands and 210 millions of populations, located between the eastern end of Mediterranean Volcanic Belt and western side of Circum Pacific Volcanic Belt. Indonesia is blessed with abundant geothermal resources. Trial calculations indicate that forty percent of world’s geothermal energy potential is in Indonesia which put Indonesia as the biggest geothermal energy potentials in the world. However, the utilization of geothermal energy is still low. Until 2003, only 7 areas exists to generate electricity with 807 MWe installed capacity, or 3-4% share to the national electricity installed capacity.

The use of geothermal energy would eliminate the dependency on oil to generate electricity, diversify source of energy to meet Indonesia ‘s growing energy demand and introduce clean energy to reduce greenhouse gas. Therefore, geothermal development should be accelerated.

To speed up geothermal development, new regulation on the power sector and geothermal development are introduced to encourage investor to develop geothermal energy in order to fulfill Indonesia ‘s increasing electricity demand.

Geothermal Resources and its development

Indonesia has a huge potential of Geothermal energy sources. In 2003, the countries geothermal energy potential was about 27 GWe in which the high temperature geothermal resources spread in 170 regions of Indonesia , mostly within the Sumatra, Java, Sulawesi , and Eastern Island Volcanic Zone. Twenty one (21) areas among those high temperature geothermal resources with electricity-generating capabilities exist and being developed in:

  • Sibayak, Salak, Wayang Windu, Kamojang, Darajat, Lahendong, and Dieng, which has seven high temperature systems. These are used for electricity generation of 807 MWe operated by PERTAMINA – a state owned oil company, own or with its contractors (Table 2).
  • Sarula, Sungaipenuh, Hululais-Tambang Sawah, Lumut Balai, Ulu Belu, Kawah Cibuni, Patuha, Karaha, Iyang- Argopuro, Bedugul, and Kotamobagu, which has eleven high temperature systems, non of which is used for electricity, and currently are under developing of by PERTAMINA own or with its contractors for electricity generation.

Tulehu, Mataloko, and Ulumbu, which has three high temperature systems outside of Pertamina Geothermal Energy activities, are operated by PLN, National Electricity Company.

Barriers to Geothermal Development

In the effort to develop geothermal energy, Indonesia is facing some barriers i.e.:

  • Electricity price of geothermal is not competitive yet;
  • Geothermal steam as an energy resource, at the present is relatively more expensive than other sources of energy available in Indonesia ;
  • High investment cost and lack of energy industry and services capability;
  • Lack of supporting policy;
  • Limited of infrastructure in region;
  • High risk on exploration and exploitation; etc.

Law No. 27/2003 concerning Geothermal

The development of geothermal energy in Indonesia has undergone its ups and downs owing to the lack of consistent legal basis, security for the operators that might increase the risks in their investment, and aggravated by the economic crisis that affects the commercial aspect. It is worth noting that the recent political and structural changes in Indonesia have created a business environment that is more conducive than ever before to convince the stakeholders. Furthermore, the implementation of the Indonesian regional autonomy starting January 1, 2001 will give impetus to various energy projects that contribute to regional development.

The issue of commitment and clarity of the Indonesian Government’s vision, and the efforts to introduce law reforms for creating a healthy and competitive investment conditions will be the important aspects to be discussed in the developing of geothermal industry. Also the efforts the Government is making to gradually decrease the subsidy in Oil Fuel and Electricity would make geothermal energy to be competitive against diesel-powered electricity generating station. The Indonesian Government is fully aware that operators in the energy sector are largely dominated by global and multi-national companies, which will not only consider good business prospects when investing, but also the support of a more reliable and stable Government, and better security and certainty of law.

In order to support this effort, the legal basis required for geothermal exploitation/ utilization needs to be strengthened with Geothermal Law. The Parliament, government and geothermal stakeholders initiated a discussion on the preparation and the draft making of a Geothermal Bill. Fortunately, the initiation of strengthening the legal basis for the exploitation and utilization of geothermal is beginning to appear with the approval of the Geothermal Law in 23 of October 2003.

Geothermal Law No. 27/2003 clarifies and answer the conditions below such as:

  • Indonesia has the world largest geothermal potential reserves, yet only 3 – 4% of these reserves have been developed for power generation.
  • Geothermal energy is a renewable and environmentally clean energy that could substitute depleting fossil energy. Its utilization produces low air emission thereby it is entitled for Clean Development Mechanism.
  • The utilization of geothermal energy as a substitute of oil fuel will reduce oil fuel domestic consumption and thus add value through higher export of crude oil and other fossil fuels.
  • Geothermal energy utilization is side specific, can only be used within its discovery area, either for direct usage or indirect usage for generating electricity.
  • The Upstream Geothermal Energy Business undertakings is similar to the upstream oil and gas business: capital and technology intensive with high risk.
  • Geothermal reserves can be found in certain remote areas that are remote from oil fuel supply facilities; its utilization could give positive impact to remote area development.
  • Presidential Decrees No. 22/1981 and No. 45/1991 have attracted investment in Geothermal Energy Business for generating electricity amounting US$ 1.4 billion for 11 projects prior to the economic and monetary crisis that hit Indonesia in 1997/1998.
  • No new investment in geothermal business has taken place since the issuance of Presidential Decree No. 76/2000 which substitutes Presidential Decrees No. 21/1984 and No. 45/1991.
  • Geothermal energy business is different from other energy business whereby it should be managed as an integrated business from the upstream to the downstream.
  • To attract this high risk investment and produce usable energy at affordable price certain incentive programs based on law, including tax facilities, are required.
  • To be competitive with non-renewable fossil energy in the electrical power market, the geothermal business competition should be based on its “level of playing filed”.
  • Geothermal Energy is a natural heat energy that is contained in hot water, water vapor, and rocks, together with by-product minerals and other gasses, all of which are genetically inseparable in a Geothermal Energy system. Its utilization requires a mining process.
  • The geothermal heat and fluid are non-mineral materials. As in the case of crude oil and natural gas which are non-mineral energy resources, it is prudent that geothermal energy business is regulated by its own law to coincide with the implementation of Law No. 22 /1999 and No. 25 /1999.

The formed process of geothermal law is aimed at removing any obstructions that will make the competition in this sector more challenging and rewarding. For example, new opportunities for investments will emerge in the geothermal energy sector, underlying vast opening in the upstream activities and the release of the downstream sides to private sector. This is also true in oil/gas and coal mining as well as electricity business.

This Law regulates the upstream business of geothermal which consists of 15 Chapters and 44 Articles. The downstream business that engages in electric power generation shall subject to prevailing Electric Law No. 15/1985 and Government Regulation No. 3/2005 concerning the supply and utilization of electricity.

Strategic Plan to Geothermal Development

To overcome the need to develop geothermal energy, following are some actions required (base on National Energy Policy 2003), i.e. :

  • Measures are taken to intensify inventories and evaluations of geothermal potentials to change the status of speculative and hypothetic potentials to suspected, probable and proven reserves.
  • Measures are taken to increase exploitation of geothermal steam for large-scale electric generators through amendments to laws and regulations and improvement of its economics by, among others, fiscal restructuring.
  • Measures are taken to step up exploitation of geothermal steam for small-scale local electric generators in areas that do not possess sources of alternative energy.
  • Measures are taken to increase direct consumption as energy for heating and drying machines in small industries, geo-tourism, agro-industries, etc.
  • Related strategic action are taken to improve the economics of geothermal development in order to enable geothermal power to compete with other sources of domestic energy, e.g. :
  • Government has been gradually increase electricity price and lift-up oil subsidiary and will became marketed price by the year of 2005.
  • The government willing to share the upstream development risk by implementing various geothermal energy-related projects, including surveys of resources, especially for the remote areas.
  • Government Regulation No. 3/2005 concerning Supply and Utilization of Electricity that it gives a priority to renewable energy sources including geothermal to fulfill the domestic electricity demand. It is an obligation to electricity companies to use at least 5% of its production comes from renewable energy source.
  • In an effort to accelerate geothermal development, the government has invited private participation, including foreign interest. Recently eight companies have signed Joint Operation Contract with Pertamina.
  • Regional autonomy starting January 1, 2001 has give significant impact on district infrastructure development. More industries will expect to grow and consequently more energy is needed. Diversification of fuel is a must to ensure a stable and economically priced electric power.

Future Development Planning

Up to now, energy is solely evaluated by cost competitiveness; however, this criterion will no longer be meaningful in the 21st century. We must evaluate energy by the cleanness to the global environment. From this viewpoint, geothermal energy can be regarded as one of the excellent energy sources. Cleanness of geothermal power in terms of carbon dioxide emissions ranks it second among various energy sources, following medium to small-scale hydropower. Compared to the present energy composition, geothermal power is the most effective energy to reduce emissions of carbon dioxide in terms of cost.

Economic-driven development has solely dominated in the energy production field. However, to solve the global environmental problems, government commitment development must replace it. From this viewpoint, geothermal power development could play a worldwide role in the global environmental issue, so that future development could be expected not only by market force but also by government commitment.

This year, the Government Regulation on Geothermal Development will declare in order to the new law be implemented and workable. Accordingly, the Geothermal Blueprint and Road-map of Geothermal Development in Indonesia until the year of 2020 are now being prepared. In the short, medium and long-time planning of these two guidance show that government encourage the geothermal industries to explore and develop geothermal field in Indonesia . Furthermore, geothermal energy contribution is planned to develop for electricity generation for 2000 MW by the year 2008, for 3400 MW by 2012, and 6000 MW by the year 2020 (targeted)

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