Exploration Insurance for Geothermal Energy Development in Indonesia

Abstract

In its diversification policy, the Government of Indonesia has made geothermal one of preferred domestic energy resources. Geothermal energy is a renewable, non-exportable and relatively clean source with a large potential in Indonesia. However, to enter to energy market, the price of geothermal energy must be competitive with other energy prices. One of the causes of a high geothermal energy price compared to other energy prices is that a contractor has to offer the electricity price before signing an agreement, while the uncertainty is still high because no exploration well has been drilled. The price will be lower if it is decided after exploration and the exploration results show that the geothermal fields can be produced with higher productivity wells or lower costs. However, in order that such a program can be accepted by contractors, there must be exploration insurance funded by the government. The government has to repay the exploration costs when the results of exploration show that the geothermal fields cannot produce electricity at the competitive market price. There are two alternative resources for the insurance, i.e.: (1) geothermal energy tax from producing fields; (2) depletion premium from oil and gas. The paper discusses the importance of exploration insurance for geothermal development in Indonesia.