Depok, 5 February 2024 | The Institute for Research on Economics and Society, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI) launched Whitepaper entitled "Business and Policy Analysis to Encourage Investment in Geothermal Power Plants (PLTP) in Indonesia", Monday (5/2). Whitepaper This study comprehensively examines various aspects that play an important role in the development of the geothermal business in Indonesia, especially from a technical, regulatory and financial perspective. This White Paper also offers a number of policy recommendations aimed at increasing PLTP investment to accelerate the pace of mix improvement

geothermal energy in Indonesia. Representatives from government institutions and important business entities in the progress of PLTP in Indonesia such as the Geothermal Directorate of the Ministry of Energy and Mineral Resources, Bappenas, PT PLN (Persero), and PT Sarana Multi Infrastruktur also delivered material as panelists.

The findings and recommendations generated by our study are as follows:

• The study results show that the HPT of the Presidential Decree is too low, creating a significant mismatch with the desired economic price. The Project IRR target set between 12% and 16% is a key parameter in making investment decisions in the geothermal sector. This study uses an IRR target of 14% as the main assumption, with the results of economic price calculations showing a decrease as generating capacity increases. Even though we have taken into account the lower limit of the Project IRR Target of 12%, the economic price still exceeds the HPT range of Presidential Decree 112/2022, which ranges between 8,42 cents and 10,74 cents for the first ten years. Therefore, it is necessary to review the Presidential HPT policy to achieve a more optimal balance between investment attractiveness and reasonable electricity prices.
• The price agreement scheme between PLN and IPP needs to be changed by prioritizing the PJBL negotiation process. In the current business process, PJBL negotiations are carried out after the exploration phase. Changes to the scheme are proposed so that PJBL negotiations and agreements can be carried out at the outset before project exploration is carried out. Signing the PJBL before the exploration stage is useful for guaranteeing the purchase of electricity at the agreed price, reducing the risk of project delays, and providing more certainty to developers and investors.
• Licensing and procurement processes need to be simplified. The licensing and procurement processes currently running in the geothermal business are still considered quite complex, both from regulatory and bureaucratic aspects, thus potentially slowing down the operationalization of PLTP projects. Simplification of this process can shorten the time required during the exploration period so that the operational period of the plant can be maximized.
• The commitment to geothermal development in the "Fast track 2" program needs to be strengthened, by reviewing the list of credible projects. By taking this step, the government and related parties can prioritize the PLTP project for realization and ensure that the investment and efforts put into this project provide the best results for the community and the surrounding environment.
• PLN's burden needs to be reduced in one of the following ways: 1) Providing public financial support so that PLN is able to purchase electricity from IPPs at economically acceptable rates; 2) allow PLN to charge consumers a tariff that reflects the total cost of generation; 3) Open regulations so that mechanisms can be implemented power wheeling can be applied in Indonesia.
• It is necessary to formulate clear regulations regarding the authority of business actors to utilize carbon credits and other derivative products (green hydrogen, green ammonia, etc.).
• Geothermal governance and institutions in Indonesia need to be improved. This includes increasing the role and capacity of related government institutions such as the Ministry of Energy and Mineral Resources, KLHK, PLN, financing institutions and business associations in building the national geothermal industry.

To get access to this latest LPEM White Paper, Click here.