Resolving Indonesia’s geothermal paradox

For capital-intensive geothermal development to work, accepted wisdom prescribes a secure and large revenue base. This would imply a market with commercially supportive prices, combined with iron-clad power purchase agreements (PPAs). Indonesia’s subsidy-reliant energy market lacks both, hence the scarcity of private capital.

Geothermal power’s risks are front-loaded in exploration. With huge capital invested before the first drill is sunk, a failed venture sets back an investor by several millions of US dollars.

To “de-risk” the venture, private capital insists on securing PPAs before parting with their money. On closer examination, this is the height of folly. One cannot commit to deliver before knowing how much reserves could be exploited.

Indonesian geothermal drilling is heavily influenced by the ...

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