Geothermal Energy Development in Indonesia: A Strategic Investment in Energy Transition and Infrastructure

Indonesia's geothermal energy sector is emerging as a cornerstone of its energy transition strategy, offering a unique blend of untapped potential, policy innovation, and long-term infrastructure opportunities. With an estimated geothermal potential of 23,742 megawatts (MW), the country ranks second globally, trailing only the United States, according to Antara News. Yet, as of 2025, it has developed just 10% of this capacity, leaving vast room for growth. For investors, this represents a compelling case for strategic investment in a sector poised to reshape Indonesia's energy landscape-and its global standing.

Policy Reforms and Regulatory Certainty

The Indonesian government has prioritized geothermal development through aggressive regulatory reforms. A landmark achievement is the reduction of geothermal project licensing from 18 months to as little as five days via the Geothermal Energy Information System (GENESIS) platform, according to ThinkGeoEnergy. This digital transformation, coupled with the introduction of online single submission systems, has streamlined bureaucratic hurdles, enhancing transparency and investor confidence. Such reforms align with broader goals outlined in the IETO 2025, which emphasizes strengthening policy frameworks and mobilizing financing to meet renewable energy targets.

The government's ambition is clear: to increase geothermal capacity to 7,241 MW by 2025 and 5.2 GW by 2034, as noted in Geothermal on the Rise. These targets are underpinned by new auctions for geothermal working areas (WKPs) and revised electricity pricing mechanisms to improve project viability. Notably, the recently established sovereign wealth fund, Danantara, has partnered with state energy giants Pertamina and PLN to fast-track 19 projects totaling 530 MW, signaling a shift toward public-private collaboration, according to Indonesia Investments.

Infrastructure and Market Dynamics

Infrastructure development remains critical to unlocking Indonesia's geothermal potential. While installed capacity reached 2.74 GW in 2025-a 3.8% increase from 2024-experts highlight that high upfront costs, complex exploration, and land-use conflicts continue to hinder progress, according to a comprehensive study. However, recent projects like the Ijen and Salak Binary plants, which added 50 MW combined, demonstrate the sector's resilience.

Investment inflows are also gaining momentum. The government reports that geothermal projects have attracted $2 billion in capital and created 1,533 jobs since 2023, according to Tempo. International partnerships, such as Sinar Mas Group's collaboration with First Gen Geothermal and the re-entry of Chevron and INPEX into the market, further underscore the sector's appeal. These developments are not just about energy security but also about positioning Indonesia as a global leader in geothermal utilization, surpassing the United States by 2034, according to Genienergi.

Challenges and Mitigation Strategies

Despite progress, challenges persist. Land-use conflicts and inadequate exploration funding remain significant barriers, particularly in remote geothermal-rich regions. To address these, the government is reforming tariff mechanisms to ensure competitive returns for developers and promoting community benefit-sharing schemes, such as production bonuses for local stakeholders .

Strategic Implications for Investors

For long-term infrastructure investors, Indonesia's geothermal sector offers a dual opportunity: participation in a decarbonization-driven energy transition and exposure to a market with structural growth. The government's commitment to increasing renewable energy's share to 31% by 2050 creates a predictable demand environment, while digital platforms like GENESIS reduce operational risks.

However, success will depend on sustained policy execution and private-sector innovation. Investors must navigate the sector's technical complexities but are rewarded with a stable, scalable asset class. As Indonesia races to harness its geothermal potential, the window for strategic entry is narrowing-but the rewards for early movers are substantial.