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

F I g u r E 3 . 4
Policy and Regulatory Instruments Supporting Deployment of Renewable Electricity

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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 
for the electricity. The actual price to be included in the PPA is determined through bidding in a tender. 
The key determinant of the bidder’s success in the tender process is the power price submitted, and 
the final price can be well below the ceiling price.
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This approach has its pros and cons. On one 
hand, it can make the process more competitive and potentially reduce the overall cost of the incentive 
system. On the other hand, potential investors in renewable energy generation tend to see such 
schemes as much less attractive, since the price ceiling does not protect them from pricing risk.
The market structure and the context of the country’s electricity sector reform influences the choice 
of renewable energy support instruments as well. In most developing country contexts, conditions for 
RPS and TGC would not be ideal due to lack of competition in generation. Thus, while the government 
can assign quotas for geothermal energy, the main driver of economic efficiency in meeting the quota 
obligation would be lost. In the case of Indonesia, for example, until or unless private developers 
are allowed to contract directly with the off-taker, the national power utility, PLN, would be buying all 
geothermal energy from PGE, the national geothermal development company.