The Potential for Investment in Indonesia’s Geothermal Resource

Indonesia has around 40% or the world‟s capacity for geothermal energy production, yet lags behind neighbors, such as the Philippines, in developing this resource. There are ambitious plans to increase production to nearly 6GW and then to 9.5GW, with the bulk of the investment coming from the private sector. With Chevron being the only overseas company currently investing in Indonesia, this paper explores the potential economic and other barriers investors perceive to exist. The paper reports on the outputs from a spread sheet time series model, which collates the estimated costs and revenues that investors could expect. Based on these outputs a form of sensitivity analysis has been performed which identifies the required tariff to encourage investment. Overall the model suggests that current feed-in tariffs are too low to stimulate the large scale investment Indonesia requires and particularly in eastern Indonesia where electricity shortages are most acute. Although the paper explores some potential solutions to the issues, the overall conclusion is that Indonesia‟s geothermal plans are likely to remain unfulfilled, with only limited investment occurring.