Indonesia to set up RM1.6b geothermal risk-sharing fund

The Green Climate Fund will provide US$100m as contingency assistance to cover possible failures in exploration

JAKARTA • Indonesia is in talks with the World Bank and the United Nations-backed Green Climate Fund to establish a US$400 million (RM1.62 billion) fund to provide risk cover to private investors in the country’s geothermal power sector.

The government will contribute US$300 million, of which US$225 million will be drawn from the World Bank as a soft loan, to help finance geothermal exploration by the private sector, according to Emma Sri Martini, president director of state-owned financing company PT Sarana Multi Infrastruktur.

The Green Climate Fund will provide US$100 million as contingency assistance to cover possible failures in exploration, and the fund is set to be managed by Sarana, she said.

Indonesia is pushing for renewable energy (RE) to account for almost a fourth of the country’s energy needs by 2025.

Geothermal energy is set to make up about a third of the new RE projects totalling 14.3GW in the next six years, according to a government forecast.

The South-East Asian country is home to 40% of the world’s geothermal reserves and already has 1.95GW of geothermal power capacity, the second-largest in the world behind the US.

Geothermal projects require large initial investments as developers need to drill at least three wells in the exploration phase, each costing up to US$8 million, to determine the reserves and economic scale of a working area, Martini said.

As there is no certainty regarding exploration result, private investors are reluctant to pour their money without government support, she said.

“Through this new scheme, the government will provide a concessional loan for covering the exploration cost of a private developer,” Martini said in an interview.

“Then, when the exploration is successful, the company will only need to repay some of the amount spent to the government in instalments,” she said.

Indonesia secured US$55 million in grants from the World Bank in 2017, which was later combined with the government’s so-called Geothermal Fund Facility worth 3.1 trillion rupiah (RM885.08 million) to finance exploration in some remote areas.

Sarana is doing a feasibility study before it drills wells in the Wae Sano and Jailolo working areas in East Nusa Tenggara and North Maluku.

“If we are able to find the reserves through the drilling activities, we will offer those two working areas to private developers or state companies through auction,” Martini said.

Financing remains the biggest challenge in developing geothermal projects as private developers find it difficult to secure soft loans from lenders, said Ida Nuryatin Finahari, the geothermal director at the Energy and Mineral Resources Ministry.

“That’s why the government is trying to mitigate the risk of geothermal exploration, including through the drilling programme,” Finahari said.

“If everything goes right, Indonesia will be able to surpass the US as the world’s biggest producer by 2023, as it seems like the US has now reached its maximum geothermal power capacity.” — Bloomberg