Challenge and Opportunity

Tapping into pockets of hot water or steam below the Earth’s crust is increasingly being used as an affordable and sustainable alternative to fossil fuels. Geothermal energy is one of the few renewable sources of energy able to produce steady power on a 24-hour basis. Under the right conditions, it can be cost-competitive with coal or natural gas, which means countries can depend less on imported fuels and increase their energy security. Being a cleaner source of electricity, geothermal energy can also play a major role in decarbonizing the power sector. 

Despite this potential, high upfront costs for the initial exploration stage and the risk of unsuccessful exploration continue to be barriers for making use of this natural resource on a large scale. Global experience shows that risk mitigation, especially during the initial exploratory phase, can effectively unlock investment. A global scale-up of geothermal energy will require major mobilization of private sector investments facilitated by risk mitigation mechanisms that include using concessional funding from public resources, climate finance and guarantees.  

The World Bank’s Energy Sector Management Assistance Program (ESMAP) leads the Global Geothermal Development Plan to mobilize new funds for the initial investment phases which carry the greatest risk. So far, the plan has raised $235 million.

The International Finance Corporation (IFC), a member of the World Bank Group, is also providing financial and advisory services to support the exploration and development of private sector geothermal power projects in emerging markets. For example, in 2010, IFC arranged a $190 million financing package to support construction of Nicaragua’s largest greenfield geothermal power project. Once completed, the 72 megawatt San Jacinto project will provide nearly 20 percent of Nicaragua’s power needs. And in 2013, IFC signed an agreement with international reinsurer Munich Re to develop and pilot geothermal exploration risk insurance products in Turkey. The four pilot projects are funded by $420 million of private investment and are expected to add 140 megawatts of geothermal capacity.

Transformative Action

Indonesia has the world’s largest geothermal potential. The World Bank’s support to the development of geothermal power in Indonesia is a key component of the World Bank Group’s Country Partnership Framework for Indonesia, which focuses on government priorities that have potentially transformational impact.

At present, Indonesia is highly dependent on fossil fuels such as coal, its primary source of electricity production. Shifting to geothermal energy will help Indonesia reduce greenhouse gas emissions considerably, and support the national climate mitigation goals set out in its Nationally Determined Contribution (NDC) to the Paris Agreement.   To meet its increasing energy demand in an environmentally responsible way, the government has embarked on an ambitious plan to develop its geothermal resources.

To achieve its target of adding 5.8 gigawatts (GW) of electricity production with geothermal resources by 2026, Indonesia will need an estimated $25 billion of investments over the next eight years, a major portion of which is expected to come from the private sector.  

With support from the World Bank and other partners, the government of Indonesia is planning a new Geothermal Risk Mitigation Facility. This would leverage several billion dollars in private sector funding, unlocking investments through risk mitigation for exploration and early production drilling. This would allow investors to prove sufficient resources to attract commercial finance for large-scale development. Over the next seven years it is expected that the facility will lead to the development of more than 1 GW of new geothermal capacity. 

This new facility builds on a long engagement around geothermal energy in Indonesia. In 2012 the World Bank supported the government through a grant from the Global Environment Facility (GEF) to undertake key reforms to enhance the investment climate for geothermal development. It also helped Pertamina Geothermal Energy (PGE) to kick-start its ambitious geothermal expansion program through a $175 million IBRD loan, along with concessional financing of $125 million from the Clean Technology Fund (CTF). 

More recently, in 2017, the World Bank provided $55.25 million in grants to support the Geothermal Energy Upstream Development Project in Indonesia, which aims to facilitate investment in geothermal power generation in the country. The Clean Technology Fund (CTF) is contributing $49 million to support infrastructure development and exploration drilling. The Global Environment Facility (GEF) contributes an additional $6.25 million to support technical assistance aimed at building capacity in geothermal exploration, including safeguards due diligence. The Ministry of Finance and PT. Sarana Multi Infrastruktur, a state-owned infrastructure financing company, will match the CTF funding for the Project.

Expected Results

Indonesia has a target of increasing the share of new and renewable energy in its primary energy mix to 23 percent by 2025, including by adding 5.8 GW of geothermal capacity. The Geothermal Risk Mitigation Facility will help Indonesia meet this target by leveraging billions of dollars in commercial financing to develop more than 1 GW of new geothermal capacity. Indonesia currently has around 1.8 GW of geothermal electricity; its total potential is 29 GW. Using Indonesia as a model, other countries can potentially apply a similar approach to scaling up the use of geothermal energy.

Key Facts & Figures

  • Global geothermal power generation potential is between 70 to 80 gigawatts (GW). However, just 15% of known geothermal reserves around the world are exploited for electricity production, generating just 13 GW.
  • An exploration campaign and initial test drilling program of three to five geothermal wells costs anywhere from $20 to $30 million.
  • Geothermal power is the second-largest renewable energy resource in Indonesia after hydropower and a clean alternative to coal-fired power generation. Some 30 million Indonesians, or 12 percent of the population, lack access to modern and reliable electricity.


Source: The World Bank

Illustration Photo: Geothermal power plant in Lampung, Sumatera Island, Indonesia (credits: Geo Thermal / Flickr Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0))


No comments to display.

Related posts

Call for Applications: Communication projects which mitigate anthropogenic climate change

The Minor Foundation for Major Challenges (MFMC) is inviting applications from all over the world to fund communication projects which mitigate anthropogenic climate change.
Application Deadline in a month

EU's Call for Proposals: Digital technologies for improved performance in cognitive production plants

Proposals need to develop new technologies to realise cognitive production plants, with improved efficiency and sustainability, by use of smart and networked sensor technologies, intelligent handling and online evaluation of various forms of data streams as well as new methods for self-organizing processes and process chains.
Application Deadline in 4 months

Study reveals best use of wildflowers to benefit crops on farms

For the first time, a Cornell University study of strawberry crops on New York farms tested this theory and found that wildflower strips on farms added pollinators when the farm lay within a "Goldilocks zone," where 25 to 55 percent of the surrounding area contained natural lands.

EU's Call for Proposals: Reinforcing the EU agricultural knowledge base

Activities shall analyse and compare the approaches taken on their performance and impact for farmers/foresters as well as effectivity of the communication and information channels used for dissemination in countries and regions.
Application Deadline in 3 months

The Bali Fintech Agenda: A Blueprint for Successfully Harnessing Fintech’s Opportunities

In response to the Bali Fintech Agenda, the World Bank will focus on using fintech to deepen financial markets, enhance responsible access to financial services, and improve cross-border payments and remittance transfer systems.

EU's Call for Proposals: Sustainable solutions for bio-based plastics on land and sea

Activities shall focus on sustainability strategies and solutions for bio-based productsand support the Plastics Strategy. They shall include innovative product design and business models facilitating efficient reuse and recycling strategies and solutions, including ensuring the safety of recycled materials when used for toys or packaging food stuffs.
Application Deadline in 3 months

EU's Call for Proposals: Startup Europe for Growth and Innovation Radar

Actions should help startups and scaleups achieve market success and mature the innovation excellence of high potential innovators.
Application Deadline in 5 months

Gartner Identifies the Top 10 Strategic Technology Trends for 2019

“The Intelligent Digital Mesh has been a consistent theme for the past two years and continues as a major driver through 2019. Trends under each of these three themes are a key ingredient in driving a continuous innovation process as part of a ContinuousNEXT strategy,” said David Cearley, vice president and Gartner Fellow.

Volvo and NVIDIA will jointly develop AI-capable core computer for the next generation of Volvo cars

The new computing platform will use NVIDIA’s advances in AI as well as its unrivalled computing power, allowing Volvo Cars to take considerable steps forward in implementing advanced driver support systems, energy management technology and in-car personalisation options.

A Quick Look At The Latest Happenings In The Diode Laser Market

The Laser diode Market earned a revenue of $5.11 billion in 2017 and is estimated to grow at a CAGR of 5.44% during the forecast period of 2018-2023. By far, Asia-pacific is the largest and fastest growing market with a CAGR of 9.9%. Emergence of new market opportunities, innovative and power efficient product launches from companies are the key growth drivers for the diode laser market. The green laser diode is the fastest growing product type when compared with other diodes.