Strengthening Geothermal Investment Decisions in Indonesia: A Systems-Based Approach to Uncertainty

Indonesia holds one of the world’s largest geothermal reserves—estimated at 24 GW, or roughly 35–40% of global potential. Yet, despite this vast resource, only 2.34 GW had been harnessed by the end of 2022. A new study led by Samuel Adam, Andri D. Setiawan, and Marmelia P. Dewi explores how to make geothermal investments more resilient in the face of deep uncertainty.

Geothermal projects are notoriously complex and risky—especially during exploration and exploitation phases. High upfront costs, uncertain subsurface conditions, and policy ambiguity often deter investors. This study introduces a hybrid decision-support framework combining:

• Real Options Analysis – to capture managerial flexibility
• Exploratory Modeling – to simulate thousands of uncertain scenarios

Using Indonesia’s geothermal landscape as a case study, the authors identify seven key uncertainties that influence investment robustness, including electricity price, fluid dryness, drilling costs, and well success ratios.

Key Findings

• Exploration Phase: Robust investment requires fluid dryness above 22%, drilling costs below $8.14 million, and electricity prices above 8.36 cents/kWh.
• Exploitation Phase: Success ratios and well development costs are critical to financial viability.
• Real Options: Incorporating managerial flexibility (e.g., delaying or scaling investment) can expand robustness thresholds and reduce risk of early abandonment.

The study ran 50,000 simulations using Latin-Hypercube sampling to explore scenario space and identify resilient investment pathways.

Policy Implications

To accelerate geothermal development and meet Indonesia’s revised targets of 7.87 GW by 2030, the study recommends:

• Designing adaptive investment strategies that account for uncertainty
• Enhancing pricing mechanisms and incentives to attract private capital
• Integrating exploratory modeling tools into national energy planning

This approach supports more informed budget allocation and risk mitigation, especially for early-stage geothermal projects.

Conclusion

By combining systems thinking with financial modeling, this research offers a powerful lens for navigating uncertainty in geothermal development. It equips decision-makers with tools to make robust, flexible, and data-driven investment choices—essential for unlocking Indonesia’s geothermal potential and advancing its clean energy transition.

Read the Paper here: Energy Journal