Indonesia announces incentives to lure geothermal investment

It will raise the feed-in tariff (FiT) for geothermal power plants from 9.7 US cents per kilowatt hour (kWh) to between 10 and 17 cents per kWh. The FiT, or guaranteed price paid for energy by state electricity company PLN, will vary according to where the electricity is generated to reflect the "different need" of different areas, according to a statement by the Ministry of Energy and Mineral Resources.

Energy and Mineral Resources Minister Jero Wacik told the Jakarta Post that the increased tariff would attract investment into the country's potential geothermal market. Indonesia currently uses only 1.226MW of its 29MW geothermal potency, according to the Ministry.

"If we set [the geothermal price] at only nine cents it means the price is only one-fifth to the price of electricity from fuel-fired energy," Wacik told the paper. The current price for energy from fuel-fired power plants is between 35 to 45 cents per kWh.

Hong Kong-based energy law expert John Yeap of Pinsent Masons, the law firm behind Out-Law.com, said that the new FiT had been "eagerly awaited" by the Indonesian power industry.

"Indonesia is blessed with a tremendous amount of geothermal potential but it has been challenging to commercialise that potential to date given the tariff levels," he said. "This higher tariff will help facilitate more geothermal projects going forward."

Geothermal energy is thermal energy created and stored in the earth. It can be used directly for heating purposes or used to generate electricity.

The new FiT will only apply to new projects or extension contracts between independent power producers and the PLN. Prices will vary across regions depending on where power plants are located, from 10 or 11 cents per kWh in Sumatra and Java respectively to 17 cents per kWh in Papua. The Indonesian Government will offer additional incentives to investors, according to Wacik, including tax holidays during their exploration activities.

Renewable energy currently accounts for only 5-6% of Indonesia's national energy mix; however the country has significant ambitions in this area. A 2006 Presidential Regulation created a renewable energy target of 17% of the total national energy mix by 2025, although the Government has since revised that target to 25%, according to the Energy Ministry's website.

Earlier this month a report (110-page / 6.9MB PDF) by environmental group WWF said that by making greater use of its natural resources, Indonesia could reduce its reliance on fossil fuel imports.

"Geothermal power is site-specific – it can't be exported," the group's coordinator, Indra Sari Wardhani, said. "As a result, it can be used to protect against international energy competition. Countries who control fossil fuels control prices. If prices are too high, we could find ourselves with an energy shortage."