Indonesia is home to the largest geothermal reserves globally, with an estimated potential of 27.79 GW. However, as of 2024, only 2.6 GW of this capacity has been harnessed, representing just 11% of its total potential. Over the past decade, the country has steadily increased its installed geothermal capacity, growing from 1.25 GW in 2009 to 2.6 GW in 2024.
This untapped potential positions Indonesia as a hotspot for renewable energy investments, particularly as the government works toward ambitious targets of 23% renewable energy in its energy mix by 2025 and 31% by 2050. These goals, alongside the country’s commitment to the Paris Agreement, signal a strong push for geothermal development, presenting significant opportunities for both local and international investors.
A Supportive Regulatory Framework: Policies Paving the Way
Indonesia’s geothermal sector benefits from a supportive regulatory environment anchored by Geothermal Law No. 21/2014, which redefined geothermal activities as non-mining operations. This change unlocked access to resources in protected forest areas, which house a significant portion of Indonesia’s geothermal reserves.
To incentivize investment, the government offers tax holidays, import duty exemptions and other fiscal benefits. These measures have helped attract substantial funding, with total geothermal investments over the past decade estimated at US$8.7 billion. Recent reforms, including the “One Map Policy,” have streamlined land acquisition processes, reducing delays caused by overlapping claims.
Market Opportunities: Unlocking Regional Potential
Geothermal resources in Indonesia are concentrated in key regions, including Java, Sumatra, and Sulawesi. These regions host some of the country’s most promising ongoing and planned projects, such as:
- Lahendong Phase 7 and 8 in North Sulawesi (40 MW).
- Sarulla Phase 2 in North Sumatra (50 MW).
- Ijen Phase 2 in East Java (30 MW).
- Salak Phase 7 in West Java (55 MW).
By 2030, Indonesia aims to add 3.3 GW of geothermal capacity, requiring significant private and public sector collaboration. Long-term Power Purchase Agreements (PPAs), averaging US$75 to US$100 per MWh, make geothermal projects financially viable and attractive compared to other renewables like solar or wind, which may have lower rates but higher variability.
The Investment Landscape: Key Players and Strategies
Indonesia’s geothermal sector features a mix of domestic and international players. Key contributors include PT Pertamina Geothermal Energy, which has spearheaded multiple projects, alongside global partners like Chevron and Star Energy.
For foreign investors, entry strategies include joint ventures, wholly owned subsidiaries, or partnerships with local firms. However, navigating the licensing process is crucial. The average capital expenditure (CAPEX) for geothermal projects is US$4-5 million per MW, underscoring the need for strategic financial planning. Investors should also be prepared to engage with local communities and governments to facilitate land acquisition and regulatory compliance.
Challenges and Risk Mitigation: Addressing Barriers to Entry
Investors in Indonesia’s geothermal sector face challenges such as land acquisition disputes, exploration risks, and high upfront costs. Land disputes have historically delayed projects, but the One Map Policy is helping to address these issues by providing standardized geospatial data.
Exploration remains a risky and capital-intensive phase, with high costs and no guarantee of resource viability. To mitigate these risks, the government offers drilling guarantees and financial support for early-stage exploration. Environmental compliance is another critical consideration, with developers required to complete comprehensive Environmental Impact Assessments (EIAs).
Innovative financial models, such as public-private partnerships and blended financing, can help reduce financial risks while attracting diverse funding sources. Successful examples from other markets demonstrate the value of such approaches.
Future Outlook: A Bright Horizon for Geothermal Energy
Indonesia’s geothermal sector is on track for rapid growth, with a projected compound annual growth rate (CAGR) of 10-12% until 2030. The government expects geothermal energy to account for 10% of the country’s energy mix by 2030, driven by an additional US$15 billion in required investments.
Technological advancements, such as binary cycle power plants and Enhanced Geothermal Systems (EGS), are unlocking previously inaccessible resources, further boosting capacity. Collaborative efforts with international organizations, including the World Bank and Asian Development Bank, are enhancing funding and technical expertise, accelerating project development.
Indonesia’s geothermal potential offers a transformative opportunity for investors. Those who enter the market now stand to benefit from stable revenue streams, government support, and the country’s growing demand for renewable energy.
Partner with MAP Resources Indonesia for Geothermal Success
Navigating Indonesia’s geothermal investment landscape requires deep expertise and local insights. At MAP Resources Indonesia, we specialize in guiding investors through every stage of the process, from securing permits to managing risks and maximizing returns.
Contact us today at info@mapresourcesindonesia.com to learn how we can support your geothermal venture and help you achieve success in Indonesia’s renewable energy sector.
