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

Other risks
Besides the risks specific to geothermal or any other grid-connected power generation there are other, 
market-wide risks that a geothermal project investor should also keep in mind. These include the 
foreign exchange risk, interest rate risk, and commodity price risk.

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C h a p t e r 2
B O x 2 . 4
Indonesia’s Limited Success in Tendering Geothermal Concessions
In 2003, the Government of Indonesia issued Geothermal Law No. 27/2003, which required all new 
geothermal concessions to be competitively tendered for development. To be consistent with the country’s 
law on decentralization, the authority to carry out most geothermal tenders rested with the local or provincial 
governments. 
However, most subnational institutions lacked the capacity and experience to carry out multimillion dollar 
international tenders. Equally important, many public institutions faced capacity constraints in planning and 
managing geothermal developments. The result was a number of poorly structured geothermal development 
opportunities being tendered and none achieving financial closure. 
With a lack of preliminary information regarding the field and the credibility of the information offered being 
questioned (despite Indonesia having a vast database of mapped geothermal fields and related information), many 
top geothermal developers did not participate in the tenders. Those that did participate proceeded to renegotiate 
the terms after the concession was awarded. Since the tenders did not include a “bankable” PPA with Perusahaan 
Listrik Negara (PLN), the national power company and primary off-taker, the financial prospects of the offer were 
undermined. If Indonesia is to carry out successful, competitive concession tenders to develop its geothermal 
resources, it will be necessary to strengthen the capacity of Indonesia’s public institutions to plan and manage 
geothermal developments, to clarify the policy and regulatory frameworks to eliminate several key barriers to 
investments, and to structure bankable transactions. 
Source | Migara Jayawardena and Authors, based on Ibrahim and Artono (2010).
The disruption caused by these macroeconomic risks to any infrastructure project investment may be 
profound. The impact of macroeconomic risks on geothermal project investments was illustrated by the 
experience of Indonesia following the Asian crisis of 1997 (Box 2.5). 
B O x 2 . 5
Indonesia’s Currency Devaluation Triggered Renegotiation of PPAs in the 
1990s
The 1997 Asian financial crisis resulted in an unprecedented devaluation of Indonesia’s national currency, making 
dollar-denominated PPAs unaffordable for the state-owned power utility. The government was compelled to 
suspend and renegotiate the PPA contracts. These renegotiations took years to complete and resulted in electricity 
prices almost 50 percent below pre-crisis contracts—an average of US$ 0.0452/kWh.
These lower prices created a disincentive for future developers. The geothermal industry practically ground 
to a halt, and no greenfield geothermal projects have come on-line since 1997. In an effort to rejuvenate the 
geothermal industry, the Indonesian government is now considering schemes to provide more incentives by 
purchasing geothermal power at higher prices. 
Source | Migara Jayawardena and Authors, based on Schlumberger Business Consulting 2009.

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