Indonesia’s geothermal quest: where massive potential meets structural reality

Indonesia has long been viewed as a geothermal powerhouse in waiting. Sitting atop roughly 40% of the world’s total volcanic energy resources, the country appears uniquely positioned to anchor its much needed energy transition to underground heat rather than fossil fuels, as Indonesia Business Post reports. However, entering 2026, the country must face a widening gap between theoretical reserves of geothermal activity, and operational capacity, which is prompting a thorough reassessment of how quickly that promise can be realised.

As the newly announced partnership between Star Energy Geothermal (the renewable energy arm of Barito Renewables) comes into being with US energy technology firm SLB, it serves to highlight a shift in approach. The collaboration marks the plan to advance the Sekincau geothermal field in Lampung as well as put into place exploration assets in North Maluku, with an emphasis on reducing subsurface uncertainty through advanced mapping and reservoir analysis.

The market itself has responded positively to SLB’s involvement, especially given its technical capabilities in mitigating exploration risk. However, the broader geothermal industry in Indonesia continues to grapple with deeper structural constraints that technology alone cannot fully address or even resolve.

Resource abundance failure

Despite holding an estimated 24–29 GW of technical geothermal potential, Indonesia currently operates only about 2.71 GW of that number, equivalent to around 10% of its resource base. Bridging the remaining gap requires not just ambition, but sustained capital, regulatory reform, and infrastructure expansion.

To meet the government’s 5.3-GW geothermal target by 2034, capacity must grow at an annual rate significantly above historical trends. Financing remains a central obstacle too. Geothermal projects typically require capital expenditure of around $4.5–5mn per megawatt produced, nearly three times the cost of utility-scale solar installations. In addition, development timelines are oftentimes lengthy, spanning in some cases seven to ten years from exploration to commercial operation becoming a reality.

This combination of high upfront risk, long lead times, and capital intensity has created what developers frequently describe as a “Valley of Death”, the exploration phase where commercial banks are reluctant to lend, and equity investors like it or not, have to bear the brunt of uncertainty.

The baseload imperative

Under Indonesia’s Just Energy Transition Partnership (JETP), though, geothermal energy is considered a critical dispatchable resource capable of stabilising the national grid. Unlike solar and wind, which are intermittent and depend on the weather, geothermal plants can operate at capacity factors exceeding 90%, making them a viable low-carbon substitute for coal-fired generation, particularly in the heavily populated Java-Bali system - the world's most heavily populated island

However, the JETP’s Comprehensive Investment and Policy Plan (CIPP) reveals a funding imbalance that must be addressed. A substantial share of the $21.8bn transition package has flowed toward lower-risk solar projects, while geothermal continues to face financing bottlenecks as a result of its exploration risk profile.

Regulatory frictions meets infrastructure barriers

Even with improved geological data, developers must navigate regulatory and commercial challenges. One persistent issue faced by most projects is tariff asymmetry. Indonesia's state utility PLN operates under a “least-cost” procurement principle, often favouring domestically subsidised coal over geothermal, despite the latter’s substantially superior environmental profile over its lifecycle.

Location also complicates economics. Many promising geothermal reserves lie in the more remote regions such as North Maluku, far from major demand centres. Building transmission infrastructure to connect these sites can exceed the cost of generation itself. As a result, developers increasingly consider phased approaches, deploying smaller modular units to generate early revenue before scaling up.

Policy reform and the road ahead

The government’s plan therefore to revise Government Regulation No. 7 of 2017, including the removal of certain geothermal-specific taxes, represents a supportive fiscal adjustment. Yet tax incentives alone may not be sufficient in Indonesia. Addressing pricing distortions that favour coal and improving risk-sharing mechanisms during exploration stage will be essential in unlocking large-scale private investment down the road.

The Sekincau development will likely serve as a test case to this end. If Star Energy and SLB can significantly compress development timelines and demonstrate more predictable exploration outcomes, the project could, in time, offer a replicable model for accelerating geothermal deployment.

For now, Indonesia’s geothermal ambitions remain technically sound. The challenge now, however, lies not beneath the earth’s crust, but in aligning capital, regulation, and infrastructure to convert volcanic potential into reliable, grid-connected power.