Geothermal handbook: PlanninG and Financing power Generation t e c h n I c a L r e p o r t 2 / 2

INSTITuTIONS
The second key element in successful geothermal energy development is the strength of institutions 
and their structural organization with respect to geothermal energy development. The legal framework 
for geothermal resource use—starting with the definition of property rights—is the foundation for 
the strength and organization of all institutions dealing with the resource. In most countries, natural 
resources, including geothermal energy, belong to the state (at national or subnational levels), with a 
provision to this effect often included in the constitution.
44
While the right of ownership rests with the 
state, various forms of private sector participation in the exploration, development, and exploitation of 
geothermal resources have evolved in many countries.
44
There are relatively few countries where the owner of the land holds the title for the subsurface resources. 

---

C h a p t e r 3
77
The treatment of geothermal resources within the legal framework varies substantially from country 
to country. Indonesia, for example, has introduced a special geothermal law as a piece of primary 
legislation, recognizing the unique characteristics of geothermal energy and its prominent role in the 
national economy. The existence of a self-standing geothermal law, however, is not essential. In many 
countries, geothermal resources are subject to general mineral extraction or mining laws governing 
access to land, and exploration and development licensing. Separate legislation often governs 
environmental and water use permitting procedures. Renewable energy legislation also plays a strong 
role in supporting geothermal development in many countries. 
Various aspects of geothermal energy development often involve regulation by one or more 
government agencies, whose actions need to be well coordinated to avoid imposing too many 
regulatory hurdles that can discourage investors. For example, obtaining multiple permits or licenses 
for the same project may cause delays detrimental to private sector interest.
The government should be able to develop strategies, plans, targets, and policies for geothermal 
energy. Geothermal resources need to be properly delineated and characterized before they can be 
counted on in the country’s power system planning. Thus, the government’s role in this area starts 
with setting up and maintaining services to generate and continuously enhance geothermal resource 
knowledge, and such knowledge should be industry-oriented rather than just academic. This means 
institutional capability is needed to properly plan geothermal development and to sufficiently engage 
suitable developers. 
The experience of successful countries points to the need for a country to have: (a) a dedicated 
national geothermal exploration and development organization or company capable of managing 
large-scale infrastructure projects consistent with international and industry standards; (b) a committed 
and adequately staffed ministry or similar department of government in charge of the energy 
sector, whose functions include explicit planning for geothermal energy development; (c) a similarly 
adequately staffed and committed national power utility; and (d) a capable regulator—especially in the 
context of a liberalized electricity market—whose functions include the enforcement of the country’s 
renewable energy policies and balancing the interests of generators and consumers.
When the entire supply chain of geothermal electricity is considered, the institutional landscape for 
geothermal power generation can be relatively complex, especially in the context of a liberalized 
power sector (e.g., the Philippines) or in a country which is on a path to electricity sector reform. The 
example of Kenya’s institutional framework for the energy sector (Figure 3.2) illustrates the place of 
the national geothermal exploration and development company within the power sector of a country 
where the market for geothermal energy includes both the national power generation utility (KenGen) 
and independent power producers (IPPs). The geothermal exploration and development company, 
Geothermal Development Corporation (GDC), confirms the viability of potential geothermal resources 
through a program of technical studies and exploratory drillings, and offers geothermal resources to 
potential power developers through competitive tendering. This includes selling steam to both IPPs 
and KenGen for electricity generation (World Bank 2010a).

---

78
G e o t h e r m a l H a n d b o o k : P l a n n i n g a n d F i n a n c i n g P o w e r G e n e r a t i o n 
In some cases, regional or subnational level institutions play a distinct and important role in geothermal 
energy development. The African Rift Valley, where cross-border interconnections and synergies are 
of paramount importance, is one example. Indonesia, on the other hand, is an example of a country in 
which the geothermal exploration and development process has been substantially decentralized to 
subnational (district and provincial) authorities, highlighting the importance of transparent regulation 
and institutional strengthening at the local level.
Finally, as with other extractive industries, the government and civil society should seek to enhance the 
governance standards applied to companies involved in the geothermal sector. In many resource-rich 
countries, the quality of governance is viewed as a key factor influencing the ability of countries to use 
revenues from their extractive industries for development. Geothermal resources are no exception in 
this regard.