In a groundbreaking study published in the ‘International Journal of Energy Economics and Policy’, lead author Yan Xiaojun from the School of Business and Management, Institut Teknologi Bandung, Indonesia, highlights the immense potential of Indonesia’s geothermal resources. As global temperatures rise and the specter of climate change looms larger, Indonesia faces a pressing need to transition to renewable energy sources. The research focuses on the techno-economic feasibility of a 60 MW Organic Rankine Cycle (ORC) geothermal power plant, integrating carbon credits as a pivotal financial mechanism.
The study is particularly timely, given NASA’s alarming prediction that rising sea levels could submerge 15 Southeast Asian islands by the year 2100. As Indonesia’s energy consumption is projected to increase by 3% and power demand by 8.5% by 2030, the reliance on fossil fuels—expected to meet two-thirds of this demand—poses significant challenges. CO2 emissions are anticipated to rise by 35%, underscoring the urgency of developing sustainable energy solutions.
Xiaojun’s research employs RETScreen software for a comprehensive techno-economic analysis, examining various scenarios that could impact the project’s viability. The findings reveal that with a pre-tax equity Internal Rate of Return (IRR) of 20.7% and a Net Present Value (NPV) of $97.52 million at a carbon credit price of $2 per ton, the ORC geothermal power plant stands as a commercially viable option. “Our analysis shows that increasing carbon credit prices significantly enhances the financial attractiveness of geothermal projects,” Xiaojun stated, emphasizing the link between carbon pricing and investment profitability.
The study further demonstrates that raising the carbon credit price to $18 per ton can elevate the IRR to 26.1% and the NPV to $142.74 million. Extending the project lifespan to 30 years while utilizing a carbon credit price of $46 per ton leads to an equity payback period of just 2.9 years, alongside a reduction in the Levelized Cost of Energy (LCOE). These results illustrate how strategic financial planning and innovative technologies can significantly reduce costs and accelerate the development of geothermal energy in Indonesia.
Drawing inspiration from successful geothermal initiatives in the Philippines and Kenya, Xiaojun advocates for government incentives, tax benefits, and expedited project approvals to foster a robust geothermal sector. “By optimizing exploration and adopting cutting-edge technologies, Indonesia can not only meet its energy demands but also work towards its goal of achieving zero carbon emissions by 2060,” he added.
This research not only illuminates the path forward for Indonesia’s energy transition but also serves as a model for other nations grappling with similar challenges. As the world shifts towards cleaner energy sources, the integration of carbon credits could redefine investment strategies in the geothermal sector, paving the way for sustainable economic growth while addressing the urgent climate crisis.
