IEI: The importance of guarantees in Indonesia’s geothermal movement

Jakarta — Guarantees play a key role in facilitating the development of geothermal infrastructure, one of the clean energy sources with great potential. Sunarsip, the Chief Economist of The Indonesia Economic Intelligence (IEI), highlighted the importance of the guarantee factor in the development of energy transition infrastructure.

“Energy is an enabler for all economic activities, so the economics of energy prices paid by buyers will determine economic progress,” he said.

Indonesia has affirmed its commitment to realising the energy transition to net zero emissions (NZE) by 2060 or earlier. In this context, derisking policies and the role of guarantees are the main focus. Derisking is especially important in the geothermal exploration stage, which requires large investments and high risks.

On the other hand, the government has taken strategic steps through Law No. 21/2014 on Geothermal and Government Regulation No. 7/2017 on Geothermal for Indirect Utilization. This policy facilitates exploration activities by involving the government in providing Geothermal Working Areas (WKP) before auction.

Sunarsip added, “The Ministry of Finance and the Ministry of Energy and Mineral Resources have provided state budget support to finance geothermal exploration activities.”

This concrete step is carried out through the Government Drilling program, which uses the Geothermal Sector Infrastructure Financing fund managed by PT Sarana Multi Infrastruktur (SMI) (Persero).

The government, in collaboration with the World Bank, has prepared a financing and risk mitigation facility through the Geothermal Resource Risk Mitigation (GREM) program. The program offers a risk-sharing scheme to attract private sector investment in geothermal development.

However, a significant challenge is the high investment cost in the early stages of development. Exploration activities, with significant risks and drilling costs, require credit enhancement to attract investment from the banking sector.

In this case, the role of PT Penjaminan Infrastruktur Indonesia (PII) (Persero) is key. PII provides guarantees that strengthen the bankability of geothermal projects, increase banking confidence in providing funding, and reduce risks for investors.

“Geothermal development is a long-term activity that requires continuous support,” explained Sunarsip.

“The de-risking policy and the role of guarantees are important to ensure the success and sustainability of geothermal development, as well as to strengthen national energy security in the future.” (Hartatik)

Banner photo: President Director of PT Pertamina (Persero) Nicke Widyawati inspects the Lahendong Geothermal Power Plant Units 5 and 6 in Tompaso, Minahasa Regency, North Sulawesi. (Photo: Hartatik)

Like this article? share it

More Post

Receive the latest news

Subscribe To Our Weekly Newsletter

Get notified about new articles