Indonesia has the largest class geothermal energy potential in the world - approximately 27.0 GW. It is strongly expected for Indonesia to make use of these affluent geothermal resources to reduce CO2 emissions. The barriers which hinder smooth development of geothermal energy are the burden of enormous up-front investment and the development risks of underground resources. Therefore, the purchase price of geothermal energy should include a reward for challenging these barriers. Consequently, although it is lower than the price of diesel or heavy-oil power plant energy, the price of geothermal energy becomes higher than that of coal-fired plant energy. Therefore, PT PLN, a buyer of geothermal energy, is reluctant to purchase geothermal energy at a higher price than coal-fired energy. The unattractive purchase price of PT PLN causes private Independent Power Producer (IPP) companies' hesitation in investing geothermal projects in Indonesia. To settle this question, the government should play an important role to provide appropriate incentives. In this study, (a) the price gap of geothermal and coal-fired plant, (b) the benefits of geothermal energy and (c) the costs and the effects of possible incentives are discussed.
The selling price of a 600 MW coal-fired IPP project and a 60 MW geothermal IPP project are calculated by a price model and compared to find the price gap of these two energies: 8.2 USD Cents/kWh for coal-fired and 11.9 USD Cents/kWh for geothermal. Geothermal energy has several values. These values are calculated as follows: (i) energy value (a benchmark price) at 8.2 USD Cents/kWh, (ii) fuel cost reduction value at 0.3 USD Cents/kWh, (iii) saved fuel export value at 5.7 USD Cents/kWh, (iv) increased tax revenue value at 1.6 USD Cents/kWh and (v) carbon dioxide reduction value at 1.9 USD Cents/kWh. The total value is 17.7 USD Cents/kWh. Among them, the government receives 3.8 USD Cents/kWh. The effects and costs of some possible incentives such as Feed-in Tariff, tax reduction, government subsidy for surveys and construction costs, and soft loans are examined by a price model. Based on them, the following incentives are considered appropriate for Indonesia: (a) Feed-in Tariff incentives of 11.9 USD Cents/kWh, (b) Tax Reduction of 5% corporate income tax rate for 15 years and (c) Geothermal Development Promotion Survey in initial stage carried out by the government. The cost and benefit analysis of these incentives indicates that all these incentives bring significant benefits both to the government and to the society.
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