Globally Unprecedented Geothermal Expansion in Indonesia

Indonesia has the world’s largest estimated geothermal potential at 27 GW, but less than five percent were exploited to produce electricity by the start of the millennium. The country was experiencing looming blackouts in the face of growing demand and was undertaking a major expansion of coal-based power in response. This trajectory was acknowledged to be unsustainable as people were already raising concerns about the increasing levels of pollution and the harmful impacts from such heavy dependence on fossil fuels. The government responded with a plan to undertake a globally unprecedented scale-up of 4,000 MW of geothermal, which would substantially reduce the need for further coal expansion, with Pertamina Geothermal Energy (PGE) responsible for a quarter of the expansion. The World Bank mobilized a range of support including funding from the Clean Technology Fund (CTF), the Global Environment facility (GEF), Prototype Carbon Fund, and the Governments of the Netherlands and New Zealand, to facilitate the scale-up. Some highlights include:

  • Facilitated $300 million financing package to help kick-start the first 150 MW of PGE’s 1,000 MW investment plan, which prompted more calculated risk-taking to overcome upstream resource uncertainties.
  • Appraised investment through an integrated project evaluation, assessing multiple perspectives including:
    • The global economic justification for mobilizing concessional climate funds to contribute to combating climate change
    • The local pollution benefits related to health from the avoidance of nitrogen oxide, sulfur dioxide, and particulate emissions.
    • Helped engineer a financial solution to bridge an initial viability gap to ensure that PGE can move forward with the operation.
    • Assessed key investment risks through Monte Carlo stochastic analysis to design a robust operation that can better address uncertainty
    • Identified and quantified the impacts of key stakeholders that share the costs and benefits from the operation.
  • Carried out environmental and social due diligence including brokering a multi-party agreement of mitigating hydrogen sulfur emissions from the geothermal operations.
  • Facilitated about $10 million in grant funding to strengthen PGE’s capacity in geothermal resource assessment, drilling, engineering and other skills in feasibility and safeguard assessments, construction, and operations, so the company can better undertake its scaled-up expansion plan.

The team that helped the World Bank design, appraise, and secure funding for the geothermal investments included Migara Jayawardena, Noureddine Berrah, Jamil Sopher, and Stan Peabody.

  • You can download the paper on the integrated analysis of green finance investment by clicking here.
  • You can download a country-wide statistical assessment of geothermal resource risks here.
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