Indonesia, known for its vast geothermal resources accounting for 40% of the global total, is making significant progress in harnessing this immense potential. With ambitious targets set by the government to achieve 23% renewable energy by 2025 and reduce carbon emissions by 29% by 2030, the country is taking a decisive step towards utilizing geothermal energy to control carbon emissions and minimize its environmental impact.
Geothermal energy, a renewable source, is harnessed by drilling deep into the Earth’s surface to tap into the heat emanating from its molten core. The most favourable locations for this process are where tectonic plates converge, allowing white-hot magma to rise through the gaps, giving birth to hot springs and volcanoes.
Marit Brommer, the executive director of the International Geothermal Association, noted that the extraordinary aspect of Indonesia is that all its islands are situated on tectonic plates, which makes its geothermal energy potential truly remarkable. The nation, located in Southeast Asia, boasts the largest geothermal reserves globally, primarily concentrated on the islands of Sumatra and Java.
Nevertheless, experts hold differing opinions on whether substantial amounts of energy can be generated, considering the high costs of drilling and the lack of adequate government support. Developers and investors are seeking greater incentives and assurances for their investments, given the significant challenges associated with the cost and risk factors involved in each phase of a geothermal project.
As the sixth-largest emitter of carbon dioxide worldwide, Indonesia faces immense pressure to decarbonize its energy sector. In a bid to achieve this crucial objective, the Indonesian government is actively seeking green investments at Cop28, a global climate conference, to accelerate its transition towards a sustainable energy landscape.
Geopolitical and Economic Advantages
The utilization of geothermal energy has the potential to contribute significantly to the diversification of the economy and attract foreign direct investment. Moreover, it can foster sustainable economic growth by providing a reliable source of power. Geothermal energy is a renewable and non-intermittent source, making it a sustainable option that can ensure a stable and uninterrupted supply of electricity. This, in turn, reduces reliance on fossil fuels and helps to potentially reduce carbon emissions, aligning with Indonesia’s commitment to the Paris Agreement.
The abundance of resources on islands with large populations presents an opportunity for poverty alleviation through the provision of electricity to rural areas. By utilizing geothermal energy for domestic needs, Indonesia can improve its energy security and reduce its dependency on fossil fuels, shifting its focus towards sustainable and renewable options.
Collaborations with global energy companies will play a crucial role in enabling Indonesia to continue harnessing this valuable resource. These partnerships not only aid in Indonesia’s economic development but also promote regional cooperation and reduce the country’s imports of fossil fuels.
However, despite Indonesia’s immense potential for geothermal power, there are significant challenges that need to be addressed. These include high drilling costs and the necessity for increased government support. Additionally, the country faces pressure to reduce carbon emissions, which further complicates its energy strategy.
Generating geothermal power requires a significant initial investment, especially for the exploration and drilling of production wells. This is because geothermal energy is an expensive resource to tap into, with costs ranging from $2-$7 million for a 1-megawatt capacity plant. The high upfront costs can be a deterrent for many potential investors.
Around 60% of Indonesia’s potential geothermal resources are located within protected areas, such as the Conservation Forest Area and Tropical Rainforest Heritage in Sumatra. This presents environmental and regulatory challenges, as these areas are protected for their biodiversity and ecological value. The State Party’s commitment not to grant permits for geothermal energy exploration within the property is commendable, and the State Party should consider enacting legislation to prevent future geothermal development proposals within World Heritage properties.
Indonesia is currently facing a significant demand for electricity due to its large population and status as a global manufacturing leader. However, the COVID-19 pandemic has hurt the economy, resulting in a stagnation of electricity demand in 2020 compared to 2019. This is a significant reduction compared to the average annual growth rate of around 6% in the previous five years. The limitation of electrical price and demand poses social issues and policy challenges, including the potential resistance from local communities due to environmental concerns and the high costs of geothermal development.
To address these challenges, the Indonesian government is taking measures to provide fiscal support, such as tax allowance, tax holidays, import duty facility, and discharge of land tax. Additionally, they are optimizing resources by utilizing technology innovations and expanding small-scale power plants. These efforts can help Indonesia overcome the challenges and fully utilize its geothermal potential. However, further policy reforms and increased investment in the sector are necessary to achieve this goal.