Indonesia, Philippines Coal Reliance Hinders Geothermal Investment
Existing coal power plants in Southeast Asia weaken the business case for new clean energy projects, despite a US$170 million derisking facility in the Philippines for geothermal exploration.
Coal's Market Dominance
The Association of Southeast Asian Nations Centre for Energy (ACE) warns that power systems dominated by existing coal plants in Indonesia and the Philippines impede investment in new geothermal projects. In 2023, coal supplied 61.8 per cent of Indonesia’s electricity and 61.9 per cent of the Philippines’ electricity, according to energy think tank Ember.
This heavy reliance, nearly two-thirds of their power, complicates the market entry for new clean energy capacity, ACE Lead Modeller Yudiandra Yuwono stated at the Asean Energy Business Forum in Manila on 5 October.
Persistent Investment Barriers
Geothermal development faces substantial upfront capital risks, as developers must commit significant funds for exploratory drilling without guarantees of commercial viability. The World Bank previously identified this early-stage uncertainty as a primary obstacle to attracting private financing.
In Indonesia, an additional challenge is the geographical mismatch, with two-thirds of geothermal resources located in Sumatra and Java, while new industrial electricity demand emerges elsewhere, Yuwono noted.
Displacing existing captive coal plants that directly supply industrial facilities, often located away from geothermal sources, further complicates efforts to transition to cleaner power.
Government Support and De-risking
Government backing remains crucial for mitigating geothermal exploration risks. The Philippine government has established a US$170 million geothermal derisking facility to support early-stage exploration. This initiative, backed by a sovereign loan from the Asian Development Bank, is implemented through the Department of Energy and state-owned LandBank.
Historically, the Philippines absorbed significant exploration costs in the 1970s and 1980s. Indonesia, meanwhile, continues to share these risks through government-led drilling before tendering sites to private developers, explained Joeffrey Caranto, Director of PT Daya Mas Bumi Sentosa, an Indonesia-based geothermal joint venture.
For investors and developers, the challenge is not solely about de-risking exploration but also about integrating new geothermal capacity into coal-heavy grids. Financing mechanisms, such as Indonesia’s Just Energy Transition Partnership (JETP), must account for the costs and risks of connecting clean electricity to industrial users.
Unless policies address the market advantages of existing coal generation, new geothermal projects will struggle to displace fossil fuels. Indonesia’s net zero emissions goal offers an incentive for expanding geothermal as a potential replacement for ageing coal assets, providing some comfort for resource development.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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