Economic Policies and Incentives to Expand the Geothermal Energy Industry in Indonesia

Abstract: Indonesia is a country with a growing economy and in pararrel with economic growth, energy demand in the country is increasing rapidly. However, energy supply in the country is becoming an issue since Indonesia’s energy supply mainly depends on fossil fuel resources which is non-renewable and the national reserve of fossil fuel itself has been decreasing. At this rate, Indonesia will have to import a significant amount of energy because of insufficient domestic production. Moreover, Indonesia’s energy industry will contribute more to greenhouse gases emission if the country kept depending on fossil fuel resources. Renewable energy has to be developed rapidly in order to reach energy security and to ensure economic development as well as to tackle environmental issues such as climate change. Currently the Government of Indonesia is setting goal to significantly increase renewable energy share on final national energy mix. Geothermal energy has a large potential to help Indonesia in achieving this goal. The Government of Indonesia has been putting effort to support the development of geothermal energy industry through econormic policies and incentives such as Feed-in Tariff, tax incentives, and banking policies. However, are these economic policies sufficient to create a better investment environment in geothermal energy industry? This thesis tries to describes the current condition of geothermal energy development in Indonesia, and discuss whether the current implemented economic policies are sufficient to encourage further development on geothermal energy.