Geothermal Fund for Hastening the Development of Indonesia's Geothermal Resources

Abstract

Indonesia is blessed with substantial deposit of natural riches, one of these is geothermal resources. The majority of geothermal capacity came on line during the 1990s, but some of the projects have been suspended or terminated, due to the 1997 Asian Monetary crisis. The government has attempted to resuscitate the deferred programs, but with little progress. To hasten the exploration and development of their geothermal resources, Indonesia needs to provide an environment that will attract investments, and one of these options is the participation of Government of Indonesia (GOI) in the initial exploratory survey, in order to address the geothermal development risks. The decision to participate in the initial exploration by making available a Revolving Fund in the 2011 Sate Budget is intended to provide potential developers and investors with high quality and credible information on green field geothermal sites that will be offered during the tendering process of new areas. The cost of conducting the survey and initial exploration would be recovered in various forms, including data compensation to be paid by participants in the tender process and reimbursement of the drilling costs by the winner. It is expected that the Geothermal Fund may make the risk of geothermal venture more measurable, thereby it should reduce the expected project IRR, which will translate to reduced electricity price. The fund will support achievement of Indonesia's geothermal target of 9,500 MW by 2025 by discovering new sites and reducing the risk of investment in those sites, and allow GOI to negotiate more favorable terms with prospective developers by improving public knowledge on the value of the resources. Some International Financial Institutions have indicated interest in contributing to the Geothermal Fund utilizing green fund, climate change fund and other fund available for the development of renewable energy and reduction of CO2 emission in developing countries. This may entail development of a multi-tranche geothermal fund management that complies with Indonesian regulations as well as international best practice. This paper will discuss the program, its expected benefit and implementation, including the screening process fro the prospects that would receive the fund