In an attempt to attract investments in Indonesia's geothermal power sector, the Ministry of Energy and Mineral Resources plans to offer higher prices for geothermal-based electricity. Based on a recommendation from the World Bank, the new proposed geothermal-produced electricity price will range between 11.5 and 29 cents per KwH and will be effective until 2025. Currently, state-owned Perusahaan Listrik Negara pays between 10 and 18.5 cents per KwH to independent geothermal power producers (feed-in tariff).
Having approximately fourty percent of the world's total geothermal energy reserves, Indonesia contains great potential for geothermal energy exploration. The largest reserves are located in the western part of the country (Sumatra, Java and Bali). However, currently the country only taps about four to five percent of its geothermal potential because both exploration and exploitation are hindered by law. Geothermal exploitation is lawfully defined as a 'mining activity' (Law No. 27 2003) and thus prohibited to be conducted in protected forest and conservation areas (Law No. 41 1999) despite the fact that geothermal mining activities have a relatively small impact on the environment (compared to other mining activities). As approximately 60 percent of Indonesia's geothermal energy is located in such conservation areas, exploitation of the country's geothermal potential is blocked. In order to overcome this situation, the Indonesian government designed a new law (that separates geothermal development from mining activities) and which is expected to come in force in mid-2014.
Earlier this week, Ridha Mulyana, General Director at Indonesia's Ministry of Energy and Mineral Resources, said that the government will re-introduce auctions for geothermal energy station opportunities. Contractors who had recently won the right to establish geothermal power projects based on the old pricing scheme are permitted to hand projects back to the government and participate in the re-auctioning. Contractors that have already begun construction of a project can opt to re-negotiate the price scheme with PLN.
The government targets to enhance the role of renewable energy in the country's energy mix in order to reduce dependency on expensive and exhaustive fossil fuels. Geothermal energy is projected to contribute 12 percent to Indonesia's energy mix by 2025. However, this will require considerable investments.