Geothermal power plant investment evaluation study case: Indonesia


Fuadi Arif Nasution

ST, M.Eng
Bina Nusantara University, Jakarta, Indonesia



Indonesia as an island country and has more than 28,000 MW (NGAI 2010) geothermal potential still facing problem due to low electrification rate which is only at level 66%. To address this issue, the government of Indonesia is issuing several Policies that give legal basis for geothermal to produce electricity and expected to attract private investors to participate.
The objective of the paper is to develop different scenarios to assess attractiveness of geothermal investment in Indonesia. Those scenarios are for instance state-owned modeling projects, private sectors modeling projects and external additional income in term of carbon values were imposed for both scenarios. For investment evaluation, further analysis was conducted to check sensitivity analysis with usage of NPV and IRR as parameter analysis. The comparison results could be found in Table 7 page 8 in content of the paper.
The simulation results for all of the scenarios have indicated that the geothermal as a business investment in Indonesia is not very attractive. This is due to Indonesia being a developing country which already facing certain risks leading to a higher expected rate of return calculated by Weighted Average Cost of Capital (WACC). It could be further exploited with the issue of risk regarding climate investment and the guarantee for long term investment. Besides that, it could be seen that external additional income from CERs would contribute rise from a value around 3% increase of IRR. When observed from a further optimistic expectation on CERs revenue at US$ 20, the IRR gap will increase at level 5%. From above results, some program still recommended to support the geothermal power plant development such as renewable energy pricing policy, lift-off subsidy for fossil-fuels price, taxes or carbon charges, exemption of taxes or some other relevant policies that expected conducted by government to support geothermal development.

Keywords: Geothermal, Investment, IRR, NPV, Policy

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