Determining optimal incentives for geothermal projects procured within PPP framework under the tariff constraints  

Suardi Nur (Lead / Corresponding author), Bruce Burton, Nur Aida, M. Faisi Ikhwali

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A preliminary resource assessment of Seulawah Agam geothermal prospect in Aceh, Indonesia indicates strong geothermal potential with thermal energy produced ranging from 150 to 300 MW. However, for the first phase only a 55 MW geothermal power plant is planned. A public-private partnership (PPP) arrangement was adopted for the tendering process with the aim of providing a risk sharing scheme to reduce the amount borne by the private sector and therefore improve financial feasibility under the current tariff regime. In this study we explore the effectiveness of the financial support provided for the Seulawah Agam project in achieving these aims.

We employ a Monte Carlo simulation to examine the project cash flow to assess the impact of the government supports involved including convertible grants, equity contributions and guaranteed loans on project viability as indicated by project NPV and IRR. The simulation results show that under the current tariff regime, the extent of government financial supports provided is unable to improve the project viability to the targeted levels. Therefore, we explore the level of financial incentives required for the project to be viable. We find that in the case of the government only providing an exploration grant, the government should bear all the costs of exploration activities. Moreover, if full loan guarantee is also provided by the state, the extent of exploration grants can be reduced to 30% of the total exploration cost required. However, in the case of partial loan guarantee options, a guarantee attached to 40% of loan financing and 60% of exploration grant is proposed as the optimal basis for taking the project forward.
Original languageEnglish
Pages (from-to)21-39
Number of pages19
JournalRenewable Energy Focus
Early online date25 Feb 2023
Publication statusPublished - Jun 2023


  • Geothermal project
  • Public-private partnerships
  • Project financing
  • Renewable energy
  • Risk sharing
  • Monte Carlo simulation

ASJC Scopus subject areas

  • Renewable Energy, Sustainability and the Environment


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