Geothermal energy is one of the most promising renewable energy sources for a sustainable future. As a base load energy source, capable of providing a stable and continuous supply of electricity, geothermal power has become a strategic commodity in the global transition from fossil fuels to clean energy. Countries with substantial geothermal reserves are highly attractive to foreign investors due to their long-term growth potential, contribution to carbon emission reductions, and support for environmentally sustainable economic development.

Indonesia’s geographic position along the Pacific Ring of Fire has endowed the country with vast geothermal reserves, distributed across regions from Sumatra to Papua. This potential not only serves as an environmentally friendly alternative for electricity generation but also functions as a strategic instrument to strengthen national energy security.

The Government of Indonesia therefore continues to promote the development of geothermal power plants (Pembangkit Listrik Tenaga Panas Bumi – PLTP) to optimize the use of green energy and to realize a cleaner and more sustainable energy system in the future.

Indonesia’s Geothermal Reserves as a Global Investment Magnet

Indonesia is widely recognized as the country with the largest geothermal reserves in the world. According to official data from the Ministry of Energy and Mineral Resources (MEMR), Indonesia’s total geothermal potential reaches approximately 27 GW (gigawatts), placing the country at the top globally in terms of geothermal resources.

Despite this significant potential, utilization remains far below capacity. To date, installed geothermal power plant capacity accounts for only approximately 10–11% of total potential, or around 2.6–2.7 GW. This gap demonstrates substantial room for expansion and presents compelling opportunities for foreign investors seeking long-term investments in the clean energy sector.

The Government and industry stakeholders continue to strengthen Indonesia’s international position through forums such as the Indonesia International Geothermal Convention & Exhibition (IIGCE), where multi-billion US dollar geothermal project collaborations are discussed and formalized. At IIGCE 2024, for example, potential investment cooperation reached approximately USD 3.7 billion, covering various projects and strategic memoranda of understanding.

For the 2025–2034 period, the Government targets an expansion of renewable energy capacity by up to 76%. This policy direction has increased the attractiveness of the renewable energy sector, as reflected in foreign capital participation and investments from major corporations.

Another key factor appealing to global investors is geothermal energy’s ability to provide consistent electricity supply independent of weather conditions, making it highly suitable to support Indonesia’s net zero emissions target by 2060 and its broader national energy resilience agenda.

Legal Framework and Regulatory Certainty in the Geothermal Sector

Legal certainty is a fundamental prerequisite for foreign investment in large-scale energy projects. In Indonesia, the primary legal framework governing geothermal activities is Law No. 21 of 2014 on Geothermal (“Geothermal Law”), as amended and harmonized with other regulations, including Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation as Law (“Job Creation Law”).

Under the Geothermal Law, geothermal energy is classified as a natural resource controlled by the state and utilized for the greatest benefit of the people, as stipulated in Article 4 paragraph (1):

“Geothermal resources constitute national wealth controlled by the state and shall be utilized for the greatest prosperity of the people.”

Several key provisions relevant to geothermal utilization include:

Article 9: Distinguishes geothermal business activities into direct utilization (e.g., tourism, agribusiness, industry) and indirect utilization (including electricity generation).
Article 10: Establishes indirect utilization for geothermal power generation (PLTP) as the primary priority.
Article 22 (Pricing Mechanism): Provides that the Government determines geothermal energy prices for indirect utilization by considering economic feasibility.
Articles 23–24: Require business entities to obtain a Geothermal License (Izin Panas Bumi) granted by the Minister based on the offering of a Geothermal Working Area. These provisions regulate the rights and obligations of license holders, including license term, working area scope, and the phased relinquishment of working areas to the state.

This legal framework provides a clear institutional structure, enabling investors to understand their rights and obligations, an essential element in fostering confidence and mitigating long-term regulatory risks.

Also read: Choice of Law and Choice of Forum: Legal Certainty in Cross Border Clean Energy Projects Involving Indonesia

Incentives and Investment Opportunities for Foreign and Domestic Investors

In addition to sector-specific geothermal regulations, foreign investment in Indonesia is governed by Law No. 25 of 2007 on Investment (“Investment Law”) and related regulations. The Investment Law allows foreign ownership of up to 100% in certain sectors, including renewable energy such as geothermal, subject to applicable licensing and regulatory requirements.

The Government has formulated policies to attract foreign direct investment (FDI) in renewable energy, including geothermal, to support energy transition targets and clean energy development. These policies focus on licensing simplification, openness to foreign ownership, and fiscal and non-fiscal incentives. Article 55 of the Geothermal Law explicitly provides:

“The Government may grant fiscal and non-fiscal incentives to Business Entities to develop and utilize geothermal resources in accordance with prevailing laws and regulations.”

To attract capital and technology, the Government offers various incentives, including:

Simplified licensing procedures through the Online Single Submission (OSS) system, enabling integrated processing of business and operational permits;
Tax holidays of up to 100% for a specified period;
Exemption from import duties on renewable energy equipment;
Accelerated depreciation for capital-intensive infrastructure;
Feed-in Tariff (FiT) schemes in designated regions; and
Up to 100% foreign ownership in key subsectors such as solar, wind, hydro, and geothermal energy.

This combination of incentives, together with abundant resource potential, creates a highly promising investment environment within Indonesia’s renewable energy legal framework.

The liberalization of foreign capital participation in renewable energy has generated a positive signaling effect among global investors. Indonesia demonstrates a commitment to fostering a more open investment climate through full foreign ownership opportunities, attractive incentives, and facilities focused on accelerating the clean energy transition.

International institutions such as the OECD have also noted that improvements in ease of doing business and investment reform will help Indonesia attract greater renewable energy investment. Nevertheless, continuous enhancement of the regulatory framework and technical implementation, particularly in land acquisition and infrastructure access, remains necessary.

Indonesia’s geothermal potential ranks among the largest in the world and represents one of the most attractive renewable energy commodities for foreign investors. With reserves reaching tens of gigawatts but project realization still in the single-digit percentage range, extraordinary opportunities exist for long-term investment in geothermal power projects. A relatively robust legal framework under the Geothermal Law, combined with supportive investment schemes and government incentives, positions Indonesia as a potential global hub for geothermal development.

However, challenges such as licensing complexity, the need for regulatory simplification, and harmonization between national policies and investor expectations must be addressed. Effective collaboration among the Government, investors, and all stakeholders will be key to unlocking Indonesia’s geothermal potential and attracting greater foreign investment.***

Also read: The Benefits of Green Energy in Indonesia’s Industrial Sector: Legal Framework, Incentives, and Compliance

Regulations:

Undang-Undang Nomor 21 Tahun 2014 tentang Panas Bumi (“UU Panas Bumi”).

Undang-Undang Nomor 6 Tahun 2023 tentang Penetapan Peraturan Pemerintah Pengganti Undang-Undang Cipta Kerja menjadi Undang-Undang (“UU Cipta Kerja”).

Undang-Undang Nomor 25 Tahun 2007 tentang Penanaman Modal (“UU PM”).

References:

Sejauh Mana Pemanfaatan Geothermal di Indonesia?. Good News From Indonesia (GNFI). (Diakses pada 12 Februari 2026 pukul 15.04 WIB).

RI Punya Cadangan Energi Panas Bumi Terbesar di Dunia, Segini Besaranya. detikfinance. (Diakses pada 12 Februari 2026 pukul 15.24 WIB).

IIGCE 2024 bawa potensi kolaborasi bernilai 3,7 miliar dolar AS. Antara News. (Diakses pada 12 Februari 2026 pukul 15.53 WIB).

Panas Bumi Jadi Andalan Energi Terbarukan, Investor Asing Melirik. Metro TV News. (Diakses pada 12 Februari 2026 pukul 15.17 WIB).

Aspek Hukum Pemanfaatan Investasi Asing Pada Pengusahaan Energi Panas Bumi Di Indonesia. Jurnal Ilmu Sosial dan Pendidikan (JISIP), Vol. 6(4), November 2022. (Diakses pada 12 Februari 2026 pukul 16.20 WIB).

Policy Status Update Menuju Penanaman Modal Asing Berkelanjutan di Sektor Energi Indonesia: Prospek dan Tantangan. Traction Energy Asia. (Diakses pada 12 Februari 2026 pukul 16.33 WIB).

Tinjauan Kebijakan Pembiayaan dan Investasi Energi Bersih Indonesia. OECD. (Diakses pada 12 Februari 2026 pukul 16.40 WIB).

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Assessing Indonesia’s Geothermal Potential: Regulatory Certainty and Investment Prospects