Indonesia could top US as world’s largest geothermal market

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Lake Maninjau in West Sumatra

Indonesia ranks second to the United States in geothermal power generation. But if trends continue, it could surpass the U.S. by 2022, according to a report by Fitch Solutions.

The report notes that Indonesia’s location along a convergent tectonic plate boundary has made it ideally suited for geothermal power production. But the country’s geothermal power potential remains largely untapped. As of yearend 2018, Indonesia had only 2gw of operational capacity.

“Indonesia has supportive regulations in place to encourage investment in the geothermal sector, which we believe will allow the country to overtake the US as the largest geothermal market by installed power capacity over the coming decade,” Fitch Solutions noted in its report.

In this regard, it forecasted growth in Indonesia’s total geothermal generation to average 9.2 percent year on year growth between 2019 and 2022. At such a rate, Indonesia would indeed overtake the U.S. in geothermal capacity.

Despite its bullish outlook on the industry, Fitch Solutions noted that its forecasts only represent about half of the capacity currently included in its key projects database for Indonesian non-hydropower renewables.

“The majority risks which we have identified in the market all pertain to the economic and financial environment present in Indonesia,” the firm explained. The report said government-regulated electricity tariffs are set artificially low. This restricts potential returns on investment thus deterring risk-averse investors from entering the market.

The potential risks may also be exacerbated by the government’s stringent local content requirements and a preference for local firms in the tendering process. Such practices discourage private sector participation in the market.

Furthermore, the country’s vast hydrocarbon reserves make thermal energy an attractive low-cost alternative to geothermal power. This could put geothermal investment on the back burner in the medium-to-long term.

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