Industry required equipment to regulate the geothermal steam, a geothermal steam turbine, generator, direct contact condenser, hotwell pumps, cooling tower, distributed control center,

Investing in Indonesia’s

Geothermal EnergyIndustry

An overview of opportunities, capabilities and provisions

European Union Desk at BKPM

© 2014 by Indonesia Investment Coordinating Board (‘BKPM’). All rights reserved

The Investment Coordinating Board of the Republic of Indonesia

2

Contents

An introduction 3

Why Indonesia? 4

Market opportunities 5

Existing and future capabilities 13

Government provisions and support 25

Six good reasons to invest in Indonesia’s geothermal sector 34


3

An introduction

Indonesia offers an abundance of opportunities for investment in its vast and booming

energy industry.

With a growing population of nearly 250 million people, an increasing proportion of which

is living in dense urban areas, Indonesia’s need for new, clean and sustainable sources

of energy has never been greater.

Supporting this market opportunity, Indonesia’s capabilities and activities in geothermal

are growing, as is the level of support being provided by the Indonesian Government and

its supporting authorities to ensure both the country and investors can benefit from the

advantages of geothermal energy.


4

Why Indonesia?

Put simply, Indonesia’s offering to potential investors in geothermal energy strikes a

crucial balance between a host of market opportunities, the right capabilities and a

supportive regulatory framework with attractive incentives and provisions:

MARKET

OPPORTUNITIES

EXISTING & FUTURE

CAPABILITIES

GOVERNMENT

PROVISIONS & SUPPORT

Possess potential 40% of

global geothermal reserves

299 identified potential

geothermal locations

9% increase in electricity

demand in 2012/13 alone

35% of Indonesians have no

access to main electricity

Established and growing

geothermal energy

specialisation talent pool

Existing cluster of successful

foreign and domestic

geothermal businesses

Competitive labour costs –

lowest of the geothermal

markets in S.E. Asia

USD 39 million Risk

Exploration Fund

National target to generate

9,500MW of geothermal

energy by 2025

Up to 95% foreign capital

ownership in surveying and

drilling projects

5-10 year tax holiday, with

subsequent tax reductionsSources: IEA, PLN, Ministry of Energy and

Mineral Resources Source: Financial TimesSource: Ministry of Energy Decree (2009) and 22/2012, DNI Reg.39 (2014) KBLI 71100

Market opportunities

© 2014 by Indonesian Investment Coordinating Board. All rights reserved


6

The size of Indonesia’s Potential Geothermal Market

Indonesia’s geothermal energy market potential is unsurpassed anywhere in the world –

with an estimated 28.5 Giga Watt Hour (GWh), Indonesia holds around 40% of global

reserves and is the equivalent to approximately 50 large coal-fired power stations.Based on 2012 findings*, there are currently 299 identified potential geothermal locations

throughout the Indonesian archipelago – the most important sites and their respective

potential in Mega Watts (MW) are presented below:

Potential (MW)

201 – 500

151 – 200

101 – 150

51 – 100

1 – 50

All others

Sources: *BKPM Geothermal Study 2012, Ministry of Energy and Mineral Resources


7

Meeting Indonesia’s growing energy demands

In spite of Indonesia’s immense resources in geothermal

energy, much of the country’s vast potential remains

untapped. Less than 5%* of Indonesia’s estimated

geothermal potential (or 1,341 MW) is currently utilised

and is only the third largest producer of geothermal energy -

behind the USA and the Philippines.

The International Energy Agency (IEA) estimates that 35%

of Indonesia’s population does not have access to

mains electricity. In the broader South-East Asian

context, this equates to 134 million people.

Indonesia’s demand for energy is set for continued rapid

growth - current electricity capacity for the entire country

stands at 31 GW, with a 9% increase in electricity demand

in 2013, according to Indonesia’s State Electricity Company

(PLN)

Meanwhile, the IEA has predicted that Indonesia’s primary

energy demand will grow from 150 Mtoe** (million tonnes of

oil equivalent) in 2010 to nearly 400 Mtoe by 2035.

Sources: IEA Southeast Asia Energy Outlook (2013) and PLN, *Directorate of Geothermal Energy (Sep 2014)**1 Mtoe = 11,630 GWh (www.unitjuggler.com)


8

The rise of clean energy

Clean energy will form an increasingly vital part of both Indonesia’s and ASEAN’s energy

mix as industrial outputs from the region’s booming economy continue to rise and global oil

and gas prices remain subject to potential hikes and fluctuations.

By 2035, the IEA estimates that 20% of the region’s electricity generation will come from

renewables, with a predicted 50 TWh coming from geothermal energy.

Source: IEA Southeast Asia Energy Outlook 2013, *Sourceswatch (2009).


9

Ambitious plans – lucrative potential gains

Major opportunities exist for foreign investors in Indonesia’s geothermal sector, given

national plans to install up to 9,500 MW of geothermal energy by 2025*

The government has set a target of more than doubling the share of geothermal in

the country’s overall energy mix between 2010 and 2025 – as demonstrated in the

two charts below.

Further details on the government’s provisions, initiatives and support for investment in

geothermal energy are provided in the “Government provisions and support” section

Source: BKPM Geothermal Study (2012), *Ministry of Energy and Natural Resources (2012) Vision 25/25, President

Decree No.5/2006 National Energy Policy and Geothermal Energy Development Roadmap (2009 – 2025)


10

Sample of ongoing investment project:Tampomas Geothermal Power Plant Project,West Java

Located on Sumedang Regency

Area: 152.22 ha

Offered Investment Schemes:

- Build Operation and Transfer and or its

derivatives

- Build Operation and Own and or its

- derivatives

- Turn Key and or its derivatives

- Joint Venture and or its derivatives

- Concessionary Period

Incentives :

- Land provision by the Provincial

Government of West Java

- Pricing Policy (12 – 12.5 cents

USD/kWh)

Estimated Cost : USD 100.48 million


11

Available investment project opportunities:Hu’u Geothermal Power Plant Project, West Nusa Tenggara

Location: Dompu Regency, 70 km

from Salahuddin Local Airport,

Bima Regency

Prospective area: 10 km2, total of

7 sites

Estimated Cost: USD 400 million

Business opportunity: Local

consumption in Sumbawa Island -

4 Regencies & 1 Municipality with

a total population of 1.33 million

Potential: 69 MW (based on

research by the Ministry of Energy

and Mineral Resources)

Elevation: 90 - 500 Above Sea

Level (ASL)


12

Available investment project opportunities:Sembalun Geothermal Power Plant Project, West Nusa Tenggara

Location: East Lombok

Regency, 140 km from

Selaparang Local Airport,

Mataram Municipality

Prospective area: 14 Km2, total

of 6 sites

Estimated cost: USD 410

million

Business opportunity: Local

consumption, in Lombok Island

– 4 Regencies & 1 Municipality

with a total population of 3.2

million

Potential: 70 MW

Average Elevation: 1000 ASL

Existing and future capabilities



14

The corporate landscape

Indonesia already hosts a dynamic cluster of foreign and domestic

companies operating in the geothermal sector


15

What are investors and geothermal sector leaders saying?

“We built our first geothermal power plant in Indonesia

back in 2000. It has been running extremely well since then

in Lahendong, North Sulawesi. .”

Edward Thiessen

President, Alstom Indonesia

“The tenders are out there, they just need the investors to

come in…there is still lots of room for new companies to

come in and develop the resources.”

Paul Brophy

President, EGS, Inc.

“I see geothermal as the future energy and Indonesia

inevitably has to develop its geothermal potential….Within

the next few years, geothermal will be able to compete with

coal on price in Indonesia.”

Sumpramu Santosa

President Director, Supreme Energy


16

Investor case studies:Chevron Indonesia

Chevron Geothermal has stakes in various geothermal

projects in Indonesia, including:

The Darajat project (Java): supplies geothermal steam,

which generates 259 MW of electricity. All power from the

site is sold directly to the national grid. Chevron holds a

95% operating interest in Darajat.

The Salak project (Java): one of the largest geothermal

operations in the world, with a total operating capacity of

377 MW

The combined output from Chevron’s Darajat and Salak

geothermal operations now produces sufficient renewable

energy to supply approximately 4 million homes in Indonesia.

The Indonesian government recently issued Chevron a

license to explore the area – first steps toward geological and

geophysical assessment have been taken. If successful,

additional development could potentially add about 200 MW

to Chevron's geothermal portfolio.


17

Investor case studies:Alstom

In 1995, Indonesia’s state electricity company, PLN,

granted Alstom a contract as part of a consortium for the

supply of a 20MW geothermal power plant under the

supervision of the Compagnie Française de Géothermie

(CFG), and financed on French assistant credits.

The technical specifications of PLN’s call for bids were to

build a turnkey geothermal power generation unit, including

the required equipment to regulate the geothermal steam, a

geothermal steam turbine, generator, direct contact

condenser, hotwell pumps, cooling tower, distributed control

center, turbine control, motor control and electrical

equipment rooms, substation, engine room, traveling

derrick; as well as civil works, project management and

commissioning.

The 20 MW unit began its commercial operation in 2001

after an extended construction period following the Asian

financial crisis in 1997.


18

Investor case studies:Raya Group joint venture with Bakrie Powers

Australia-owned Raya Group, formerly Panxs Geothermal, has

several projects in Indonesia in joint ventures with Indonesian PT

Bakrie Power to explore, develop and generate power from

geothermal resources across Indonesia, including:

The Daira Prima Project

Location: Northern Sumatra, IndonesiaEquity: 51%, Raya as Operator

Key features:• 30 megawatt project• Most advanced geothermal field in the region with established

geothermal reserves and 10 existing production wells• Substantial amount of exploration and study works completed• Electricity provided to PT Dairi Prima Minerals for its proposed lead and

zinc mine• USD150 per megawatt hour for 8 years and USD125 per megawatt hour

thereafter, plus 50% of carbon creditshttp://www.panaxgeothermal.com.au/projects-indonesia.htm

http://www.panaxgeothermal.com.au/projects-indonesia.htm


19

Investor case studies:Foreign-domestic consortium

In early 2013, PT Supreme Energy Muara Laboh (SEML), a

company owned by GDF SUEZ, PT Supreme Energy and

Sumitomo Corporation, completed the drilling of its first

exploration well at Muaralaboh, West Sumatera.

In December 2012, a first test confirmed the existence of a

geothermal system and a well with a conservative estimate

of 20 MW power capacity. The target is to produce a

sufficient amount of steam to supply a 220 MW power

plant, to be built in 2014.

The output of the project has been sold under a 30-year

PPA to PT PLN (Persero), the state-owned utility of

Indonesia.

Other GDF SUEZ geothermal projects in Indonesia include

the Rajabasa project - a partnership between PT Supreme

Energy and Sumitomo Corporation.

The project is situated in South Sumatera.


20

Associations, institutes and centres of excellence

Organisations supporting Indonesia’s geothermal sector are growing

in prominence, as are academic centres of excellence


21


The Indonesia Geothermal Association is a scientific, educational and cultural

organization established in 1991 to promote geothermal energy. It’s a non-profit NGO

with the principal aim of encouraging, facilitating and promoting coordination of activities

related to research, development and application of geothermal resources. It currently

has 500 members.

http://inaga.org

The Geothermal Research Centre (GRC) at the University of Gadjah Mada in Yogyakarta

was established in 1995. In addition to teaching and conducting research in geothermal,

the GRC actively promotes geothermal energy development through seminars and

publications to build public awareness independently or jointly with the Indonesian

Geothermal Association. More than 20 academic staff with geothermal credentials are

employed by the centre, while more than 130 geosciences undergraduates and

postgraduates have received qualifications from the university in the past 15 years.

http://geothermal.ft.ugm.ac.id

http://inaga.org/

http://geothermal.ft.ugm.ac.id/


22


The Indonesian Institute for Energy Economics was established in

1995 with the primary aim of enhancing energy economics studies

that motivate and support national policies for prudent development

and utilization of energy resources in Indonesia.

http://iiee.or.id

The Magister (Master’s) Program in Geothermal Technology at the

Bandung Institute of Technology in West Java was established in

2008. Approximately 15-20 students are enrolled on the programme

each year.

http://geothermal.itb.ac.id

The Geothermal Research Centre at Diponegoro University in

Semarang, Central Java, has recently been established and is run

by the Faculty of Science and Mathematics to examine potential

geothermal resources in Indonesia.

http://webeng.undip.ac.id/

http://iiee.or.id/

http://geothermal.itb.ac.id/

http://webeng.undip.ac.id/


23

How do labour costs in renewable energy compare?

The chart below presents the Financial Times’ analysis of the average total annual

labour costs* for a renewable energy technology centre in Indonesia and other emerging

markets in South-East Asia and beyond with geothermal energy production and potential.

Source: fDi Benchmark 2014 (Financial Times)

* Based on a renewable energy technology centre headcount of 30, comprising: 1 chief engineer / technical manager, 3

senior engineers, 10 engineers, 4 assistant engineers, 1 head of R&D, 2 R&D team leaders, 1 senior technical drawer, 2

technical drawers, 3 software development engineers, 2 technology engineering specialists and 1 trainee / apprentice

Labour costs in renewable

energy technology in Indonesia

are either more attractive or on

par with other key markets in

South-East Asia, and significantly

more attractive than other

emerging market geothermal

hotspots such as Mexico.

Average annual labour costs in

Indonesia stand at D615,000


24

Kenya Indonesia Philippines Thailand Malaysia Mexico

Assistant Engineer 9,300 8,620 8,980 11,950 13,140 19,980

Chief Engineer /

Technical Manager

82,500 82,760 78,700 101,790 93,750 212,600

Engineer 4,575 13,050 12,300 17,840 20,350 30,300

Head of R&D 11,940 87,630 103,480 89,000 107,190 249,200

R&D Team Leader 26,950 28,800 29,500 39,240 41,000 71,800

Senior Engineer 18,200 18,400 17,880 26,650 27,690 43,200

Senior Technical

Drawer

18,200 18,400 17,880 26,650 27,690 43,200

Software Development

Engineer

16,100 17,740 17,100 24,200 25,200 40,100

Technical Drawer 11,900 13,050 12,300 17,840 20,350 30,300

Technology

Engineering Specialist

16,100 17,740 17,100 24,200 25,200 40,100

Trainee / Apprentice 6,130 4,100 5,550 6,940 8,670 10,580

Source: fDi Benchmark 2014 (Financial Times)

Note: the original dataset takes overall labour cost of each job type. These figures were divided by the average number of

employees for each job type (shown on previous slide) to provide an average cost per employee.

Renewable energy labour costs by job type and country (USD)

Government provisions and support



26

Paving the way for a new era of investments in geothermal

The Indonesian Government and other supporting institutions have

established a host of provisions and incentives designed to encourage and

facilitate foreign investment in Indonesia’s geothermal sector, including…

95% foreign

investor ownership

option for geothermal

surveying and drilling

services

USD39 million Risk

Exploration Fund

for geothermal

projects

95% foreign

investor ownership

option for electricity

transmission and

distribution

companies

Power Purchasing

Agreement (PPA)

established to ensure

purchase of

geothermal power

Guaranteed feed-in

tariff up to 18.5

cent USD/kWh

for electricity from

geothermal*Subject to location


27

Key organisations: Ministry of Energy and Mineral Resources (ESDM)

The Geothermal Directorate sits within the Directorate

General of New Energy, Renewable and Energy

Conservation, which is a part of the Ministry of Energy and

Natural Resources (ESDM)

In 2011, the ministry set up a USD39 million Risk Exploration

Fund for geothermal projects with a view to making

investment in the sector more attractive.

In 2014, ESDM increased the price of geothermal energy from

11 to 12 US cents per kWh, again partly in a bid to attract

more investment in geothermal.

For existing geothermal power plants, price adjustments will

be negotiated with the State Electricity Company (PLN).

http://www.esdm.go.id/index-en.html

http://www.esdm.go.id/index-en.html


28

Key organisations (continued):

Ministry of Research and Technology (RISTEK):

RISTEK supports the formulation of national policies and implementing coordination

in the field of research, science and technology. RISTEK’s Energy Programme is

one of the ministry’s six focus programmes. Its objective is to contribute to a

sustainable energy supply through the creation and use of new and renewable

sources energy. http://international.ristek.go.id

Agency For The Assessment & Application Of Technolog (Badan Pengkajian danPenerapan Teknologi or ‘BPPT’):

BPPT was established in early 1974 as a non-departmental government agency under the coordination of RISTEK. It publishes the Indonesia Annual Energy Outlook Book and, following its success in developing piloted Kamojang 5Mw power station, it is currently bidding* for further involvement in operating smaller scale Geothermal projects with a capacity under 20 Mw. http://www.bppt.go.id

State Electricity Company (PLN):

PT. PLN (Persero) is Indonesia’s state-owned Electricity Company and the single

buyer for all power generation projects. In 2011, a Power Purchasing Agreement

(PPA) came into force which obliges PLN to purchase electricity from all future

tenders of geothermal concessions. http://www.pln.co.id

Source: News from Berita Headline (2014)

http://international.ristek.go.id/

http://www.bppt.go.id

http://www.pln.co.id


29

Key incentives:

Risk Exploration Fund:

In 2011, the Ministry of Energy and Natural Resources established a Risk Exploration Fund

for the geothermal sector. Valued at USD 39 million, the fund was established to

compensate for previous failures in geothermal exploration and with a view to boosting

investments in geothermal projects.

National Innovation System Research Incentive 2014:

Aims to support R&D practitioners in optimising their resources as well as establishing

innovative collaboration with industrial bodies. This incentive is also intended for assisting

industrial entities in strengthening their science and technology (S&T) capacities. For each

approved proposal, the maximum amount of disbursed funds for non-consortium research

shall be Rp. 500 million (USD 50,000).

Tax Holiday:

5-10 year tax holiday is available from the commencement of commercial production for

investments in pioneer industries (including renewables). After the expiration of the tax

holiday, the taxpayer will be entitled to an income tax reduction of 50% for a further 2

years. Minimum capital injection of Rp 5 trillion (or apprx USD 500 million) is required.


30

Geothermal energy purchase price and tariff

In the United States (US), various findings* concluded that geothermal power plant would cost cheaper than coal plants. As such, prices corresponded as follows: 3.6 cents USD/kWh for geothermal power, versus 5.5 cents USD/kWh for coal.

As part of its carbon strategy, in 2012 the The Ministry of Energy and Natural Resources (MoENR) stipulated a guaranteed feed-in tariff based on locations – see table. – Prices were higher than in the US indicating growing demand in such investment today.

kWh: kilowatt-hourSource: BKPM Geothermal Energy Study (2012 & 2013), IEA Southeast Asia Energy Outlook 2013, *Sourceswatch (2009),

ESDM Decree 22/2012

Province

Geothermal Energy Generator Prices

(cent USD/kWh) (2012)

High Capacity Medium Capacity

Sumatra 10 11.5

Java, Madura, Bali 12 12.5

South Sulawesi, West Sulawesi,

South East Sulawesi13 13.5

North Sulawesi, Central Sulawesi, Gorontalo 14 14.5

West Nusa Tenggara, East Nusa Tenggara 15 16.5

Maluku and Papua 17 18.5


31

Key legislation:

Law No. 27/2003 on Geothermal Energy:

The law was formulated to regulate the management and development of geothermal resources through

both direct and indirect use. Based on this law, the government participates in risk-sharing in developing

upstream geothermal activities.

Regulation No. 70/2010 - Amendment to Regulation No. 59/2007 on Geothermal Business Activity:

The authorised time limit for geothermal development following the issuance of a permit was extended, in

the event that exploitations have not yet begun. The purpose of this regulation is to provide a conducive, fair

and transparent business climate for geothermal development. It also provides business assurance where

the Government determines the buyer and highest electricity price before development.

Ministry of Energy and Natural Resources Decree No.22 Year 2012 concerning Geothermal Energy

Prices:This decree focuses on energy price, and on the law protection towards the investor for the maximum use of Indonesian geothermal energy. These policies are issued to support to have a total Geothermal Power Plant Installed Capacity of 9,500 MWe by the year 2025. Cost of geothermal energy produced is slightly lower than those generated from fossil fuel such oil and gas, but still un-compete to that generated from coal fire plant. It is slightly higher specially than those from main mouth fire power plant. Thus, the opportunity to develop geothermal power plant in Indonesia is widely open to private.

This slide provides a concise summary of the key legislation governing

investment in Indonesia’s geothermal sector. BKPM can provide you with

further details on specific pieces of legislation.


32

Areas restricted for foreign direct investment

Certain types of activities are partially restricted when it comes to FDI. Key

areas relevant to the geothermal sector are detailed below. BKPM can

provide further details and answer your questions

Geothermal surveying:

Foreign ownership limited to

max. 95%

Geothermal

drilling:


max. 95%

Geothermal

operating and

maintenance services:


max. 90%

Electric power generation

<1MW:

100% domestic capital

required

Electric power generation

1-10MW:


max. 49%

Power transmission,

distribution and

installation consultancy:


max. 95%*

* In the case of power transmission and distribution, foreign ownership can be extended to 100% within the scope ofa Government-Private Cooperation during a concession period


33

The investment approval and licencing process

The chart below illustrates the core steps in the investment approval and

licencing process. BKPM can provide further details on the process and

specific requirements at each stage


34

6 good reasons to invest in Indonesia’s Geothermal sector

Strong existing

ecosystem of

geothermal centres of

excellence

Demonstrable

government support

through increased

geothermal price, tax

holidays / relief and

risk exploration fund

Unsurpassed

geothermal

potential: 40% of

global reserves

(Ministry of Energy and Mineral

Resources)

Increasing demand

for clean, sustainable

energy among

Indonesia’s booming

population of 250

million

Proven investment

success stories in

Indonesia’s

geothermal sector

Up to 95% foreign

ownership options

in various geothermal

operations


35

For further information, contact us at:

EUROPEAN UNION DESK INDONESIA INVESTMENT COORDINATING BOARD (BKPM)Jl. Jend. Gatot Subroto No. 44, Jakarta 12190P.O. Box 3186, IndonesiaMobile : +62 812 1863 1551Email : [email protected] : www.euind-tcf.com

This presentation has been developed for BKPM with the support of:

BKPM International Representatives Offices:

mailto:[email protected]

Documents

Industry required equipment to regulate the geothermal steam, a geothermal steam turbine, generator, direct contact condenser, hotwell pumps, cooling tower, distributed control center,