By Cepi Setiadi
Hilmi Panigoro, President Director of PT Medco Energi Internasional Tbk, has highlighted investor concerns over the relatively low returns in Indonesia’s geothermal sector, noting that current return on investment (ROI) levels often fall short of expectations.
“The most important factor is pricing. Frankly, the return from current geothermal projects is relatively low—approaching or even below 10%,” Hilmi told reporters on the sidelines of the inauguration of the company’s Ijen Geothermal Power Plant Unit 1 in Blawan, Bondowoso, East Java, on Thursday (June 26).
He said many investors consider a minimum ROI of 12% necessary to justify the risks and complexities associated with geothermal development.
Hilmi expressed support for a recent proposal from Minister of Energy and Mineral Resources Bahlil Lahadalia, who suggested a starting tariff of around 9.5 cents per kilowatt-hour (kWh) for geothermal projects in areas with less complex terrain and subsurface conditions.
He said such a pricing structure could offer a balanced solution to attract more investment. “If the field conditions aren’t too complex, that level of return can be achieved. But of course, it must be evaluated on a case-by-case basis,” Hilmi noted.
He also acknowledged positive feedback from Darmawan Prasodjo, President Director of state-owned electricity company PT PLN—the main offtaker for geothermal energy.
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“He fully agreed that all geothermal projects going forward must be win-win. The government should benefit, and so should investors—with a fair and attractive return,” Hilmi said, emphasizing the importance of collaboration among the government, investors, and offtakers to build a more competitive and sustainable geothermal industry in Indonesia.
Flexible financing approach
When asked whether Medco plans to issue bonds specifically to fund geothermal exploration, Hilmi explained that the company maintains a flexible financing strategy.
“There’s no bond issued solely for geothermal. We manage our financing based on whatever option is most cost-effective at the time. If bank loans are cheaper, we go with banks. If bonds offer better terms, we choose bonds,” he said.
“At the moment, we have more bonds in our portfolio because it was the right time to issue them at competitive rates. The key is to seize opportunities when financial instruments offer the most favorable pricing.”
Capacity growth
Eka Satria, President Director of PT Medco Power Indonesia, added that the company is active not only as an independent power producer (IPP) but also as an operations and maintenance (O&M) provider.
“We currently operate and manage around 3,400 MW of power generation capacity. Of that, about 1,000 MW is fully owned and operated by Medco,” Eka said.
Hilmi added that Medco is aiming to significantly grow its generation portfolio, subject to project feasibility.
“My target is to double our generation capacity—but of course, it depends on the economics. If we find projects with strong returns, we’ll pursue them,” he concluded.
Editing by Reiner Simanjuntak
