Low Investment Returns from Geothermal Energy in Indonesia

Indonesia has immense potential in the geothermal energy sector, with about 24 gigawatts, yet actual implementation faces significant challenges. Investment returns or the Internal Rate of Return for existing geothermal projects is measured at just under 5%. These findings were made by the Indonesian Geothermal Association (API) in collaboration with consultancy firms and universities.

Existing regulatory norms, such as Presidential Decree No. 112 of 2022, according to API, do not provide adequate economic justification for attracting investments. API Director Riza Pasikki emphasizes that the set tariffs do not allow the market to develop and require revision towards a more flexible approach.

Investment in geothermal energy is characterized by significant upfront costs, requiring confidence in sustainable returns. However, the current level of regulation increases risks for companies planning to invest in this area.

API hopes for a regulatory review in the format of dialogue with the government, which could improve conditions for the industry’s development without compromising the state’s financial stability. Discussions about revising the Presidential Decree are ongoing, but partners need to find common ground on the economic and investment front.