Geothermal Energy in Indonesia - Why Is It Difficult to Tap Huge Potential?

It has been quite difficult for Indonesia to speed up development of geothermal power in its quest to shift from its traditional dependence on fossil fuels (most notably coal and oil) to renewable energy sources. Information from the Energy and Mineral Resource Ministry reveals that installed capacity of geothermal energy in Indonesia rose modestly from 2.64 GW at the end of 2024 to 2.74 GW in the present.

Growth of geothermal power over the past year primarily stems from (1) the Ijen Geothermal Power Plant, developed by Medco Cahaya Geothermal in East Java, that added 34 megawatts (MW) to the power grid, and (2) the Salak Binary plant, developed by Star Energy Geothermal (a subsidiary of Barito Renewables) in West Java with a capacity of 16 MW.

This is a weak growth rate, particularly considering Indonesia targets national geothermal power capacity at 5.2 GW by 2034 (based on the Electricity Supply Business Plan 2025-2034, released by Indonesia's fully state-owned electricity company Perusahaan Listrik Negara, or PLN). Almost doubling installed capacity over the time of nine years only simply seems an impossible undertaking due to the presence of structural bottlenecks for geothermal energy development in Indonesia. As a consequence, few investors are interested.

Currently, Indonesia is estimated to tap only around 10 percent of its geothermal power potential.

Contribution of Renewable Energy to Indonesia's Energy Mix:

	2021	2022	2023	2024	2025
Realization	12.2%	12.3%	13.2%	14.7%	n/a
Target	14.5%	15.7%	17.9%	19.5%	23.0%

^{Source: Ministry of Energy and Mineral Resources}

What Are the Strucural Bottlenecks?

Firstly, it is very expensive to start a geothermal power project. Particularly at the start a project is capital-intensive, while later on costs are relatively cheap once it is running. This makes it difficult to find funding. Stakeholders argue that it is crucial to have low interest rates for loans in the context of geothermal power projects.

For comparison capital expenditure is on average about five times more expensive for geothermal power plants than when developing a natural gas power plant. For a geothermal power plant, it costs around USD $2.7 billion per 1 GW of power generated, while for a natural gas plant it costs an average of USD $500 million per 1 GW. In fact, a recent report by the International Renewable Energy Agency (IRENA) claims that the cost of electricity generated by geothermal power plants in Indonesia is the most expensive among the major countries in the sector.

It would be impossible for PLN to fund the government's geothermal power targets on its own. PLN targets to take on 11 percent of additional geothermal power development up to 2034, and therefore independent power producers (private sector) are needed.

Secondly, there is high risk involved when doing geothermal exploration. Unlike solar or wind, you cannot be certain that a geothermal site has a hot, permeable reservoir with enough fluid to generate power commercially. Exploratory drilling, which is very expensive, may not find a suitable resource, leading to a complete loss of the initial investment

Moreover, geothermal drilling is more complex and costly than oil and gas drilling. It involves high temperatures and pressures that can damage equipment, and the risk of hitting unexpected geological formations can lead to significant delays and budget overruns.

Because of the high resource and drilling risks, securing financing for the exploration phase is very difficult. Lenders are often hesitant to invest until a viable resource has been proven, which requires a substantial upfront capital commitment from developers.

Thirdly, it takes a long time before a geothermal power project starts generating income, let alone profit. Based on input from stakeholders it takes about six to 13 years before a geothermal power projects becomes operational.

For comparison, developing a natural gas power plant is a much faster process than a geothermal one, typically taking two to five years from the initial planning stages to full operation. This shorter timeline is because the fuel source is already known, thereby eliminating the high-risk, multi-year exploration phase that geothermal projects require.

Fourth, geothermal power plants are almost always located in remote areas because they must be built directly on top of a geothermal resource. These resources are not found everywhere on Earth as they require a very specific set of geological conditions that are most common in areas far from population centers.

These conditions are found in geologically active regions, such as near volcanoes, plate boundaries, and major fault lines. These areas often have volcanic terrain, mountainous landscapes, and are far from the urban centers where most of the electricity is consumed. This therefore implies that heavy investment in infrastructure is needed when developing a geothermal power plant (not only to reach the site, but also infrastructure to transport the electricity to customers).

Fifth, developing a geothermal power plant in Indonesia is often hindered by significant licensing and regulatory challenges, primarily related to bureaucratic complexity, conflicting land-use policies, and pricing uncertainty. For example, being located in protected forest areas, developers typically needed permits from two separate government bodies: the Ministry of Energy and Mineral Resources to manage the geothermal resource, and the Ministry of Environment and Forestry to allow development within the forest. This dual-licensing process can lead to long delays and jurisdictional disputes, making it difficult to secure the necessary land.

While geothermal power is an environmentally clean energy source, its development can lead to significant social trouble if not managed carefully. The conflicts typically arise because the power plants are built in remote areas with existing communities.

Improving the Investment Environment

In line with ambitions of Indonesian President Prabowo Subianto, Energy and Mineral Resource Minister Bahlil Lahadalia said he wants the government to auction off various geothermal working areas. In that context the Energy Ministry has been busy improving the regulatory environment by giving more regulatory certainty to investors. Over the past year, the government has worked on slashing regulations that undermined investment in geothermal power development in Indonesia, although no clear examples were given.

Eniya Listiani Dewi, Director General of New Renewable Energy and Energy Conservation at the Ministry of Energy and Mineral Resources, said that the length of the licensing procedure has been cut from 1.5 years to one week only, and is now fully digital (through the online single submission system). However, the first real (test) case still needs to start.

In 2024, the Energy and Mineral Resource Ministry also launched a digital platform for geothermal power, called Genesis (www.genesis.ebtke.esdm.go.id/gdr/) which offers a lot of interesting and updated information regarding geothermal power in Indonesia, including geothermal power project tenders.

Danantara Comes to the Rescue?

The presence of Indonesia's recently launched sovereign wealth fund (and asset manager) Danantara might bring a wave of fresh air to the energy sector of Indonesia. Recently, Danantara, through Danantara Asset Management, facilitated a strategic collaboration between two state-owned enterprises: Pertamina and PLN. The partnership's goal is to accelerate the development of geothermal energy for power generation. The partnership is expected to accelerate 19 geothermal projects with a total combined capacity of 530 megawatts (MW).

The agreement specifically focuses on two immediate projects: the Ulubelu Bottoming Unit in Lampung (30 MW) and the Lahendong Bottoming Unit in North Sulawesi (15 MW). These are seen as "quick-win" strategies to help Pertamina Geothermal Energy achieve its goal of reaching 1 GW of installed capacity by 2030.

Danantara's role was to facilitate the signing of the Memorandum of Understanding (MoU) and the Heads of Agreement between Pertamina Geothermal Energy and PLN Indonesia Power. They are responsible for ensuring that the initiative is executed with professional and accountable governance, aligning with national strategies.

Electricity Transmission Lines

To support geothermal energy development, Energy Minister Lahadalia added that the transmission network will be improved with the construction of a total length of 48,000 kilometers of new electricity transmission lines. These lines are planned to be built between 2025 and 2034, as outlined in the RUPTL 2025-2034. It comes with an estimated price tag of USD $103.1 billion. 

These line are not exclusively for geothermal power, however. It is a target for the overall national electricity grid development as new infrastructure is crucial for several reasons, including connecting new power plants to the main grid, safeguarding grid stability (as it becomes necessary to handle a larger and more complex mix of energy sources, many of which - such as solar and wind - are intermittent, and improving distribution toensure more equitable and reliable electricity supply across the Indonesian archipelago.

At the Indonesia International Geothermal Convention and Exhibition (IIGCE) 2025, held between 17 and 19 September 2025 in Jakarta, Bahlil witnessed the signing of seven Memorandum of Understandings for the development of a combined 265 MW of geothermal power, with a combined investment value of USD $1.5 billion. Sides involved state-owned companies, private companies and foreign companies.

Installed Geothermal Power Capacity in Indonesia (in GW):

	2019	2020	2021	2022	2023	2024
Capacity	2.43	2.43	2.53	2.54	2.60	2.64

^{Source: Ministry of Energy and Mineral Resources}

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