Banda Baru Geothermal Survey Tender Fails to Attract Bidders
By: Robert Buluma
Indonesia's push toward renewable energy suffered a notable setback in late 2025 when the tender for the Preliminary Survey and Exploration Assignment (WPSPE) of the Banda Baru Sepa geothermal block closed without a single bidder. Located on the remote Seram Island in Maluku Province, this 1,989-hectare site was seen as a promising addition to the nation's geothermal portfolio, with estimated potential of around 25-30 MW. The tender, open from October 31 to December 1, 2025, aimed to assign a developer for initial surveys and exploration, but the lack of interest underscores deep-rooted challenges in attracting investment to Indonesia's geothermal sector.
Seram Island, a rugged and largely undeveloped landmass north of Ambon, is characterized by dense rainforests, towering mountains, and limited infrastructure. The Banda Baru block's location amplifies logistical difficulties, making it a tough sell for investors already wary of geothermal projects.
Why Investors Steered Clear: A Deep Dive into the Barriers
The failure of the Banda Baru tender is not an isolated incident but a symptom of systemic issues that have long plagued Indonesia's geothermal development. Despite possessing the world's largest geothermal reserves,estimated at over 23 GW,Indonesia has only harnessed about 2.3-2.5 GW, far short of ambitious targets like 7 GW by 2025 or earlier goals.
The primary deterrent for investors is the extraordinarily high risk and cost associated with the exploration phase. Geothermal projects require massive upfront investment in drilling exploratory wells, often costing tens of millions of dollars per well, with no guarantee of success. Success rates for exploratory drilling globally hover around 50-60%, but in Indonesia, the uncertainty is compounded by complex geology and insufficient preliminary data. For a remote site like Banda Baru, where access roads, equipment transport, and basic infrastructure are minimal, these costs skyrocket. Investors face the prospect of sinking huge sums into a project that might yield nothing commercially viable, a risk few are willing to bear alone.
Financial viability is another major hurdle. Even if resources are confirmed, developers must negotiate power purchase agreements (PPAs) with state utility PLN, where tariffs have historically been unattractive compared to subsidized coal-fired power. Geothermal electricity is more expensive upfront than fossil fuels, and without clear, bankable revenue streams, securing financing becomes nearly impossible. Regulatory uncertainty adds to this: frequent policy changes, overlapping permits across ministries, and bureaucratic delays can stretch timelines for years, eroding projected returns.
Location-specific challenges exacerbate these issues for Banda Baru. Seram Island's isolation means poor road networks, unreliable supply chains, and high mobilization costs for heavy drilling rigs. Electricity demand in Maluku is relatively low, raising questions about off-take guarantees and transmission infrastructure to evacuate power. Potential environmental and social risks also loom large. Many geothermal sites overlap with protected forests or indigenous lands, triggering concerns over deforestation, water usage, and cultural impacts. In other regions, projects have faced fierce community opposition due to fears of pollution, induced seismicity, or displacement—issues that could easily arise in Seram, where local communities rely on natural resources.
Broader market dynamics play a role too. With global energy transitions accelerating, investors have alternatives like solar and wind, which have lower upfront risks and faster deployment times. In Indonesia, coal remains dominant due to abundance and low costs, making renewables less competitive without stronger mandates.
These combined factors create a perfect storm: high risk with uncertain rewards, deterring even experienced players from bidding on prospects like Banda Baru.
Pathways Forward: Remedies to Unlock Geothermal Potential
To reverse this trend and attract bidders to sites like Banda Baru, Indonesia must implement targeted remedies that de-risk projects and improve attractiveness. Fortunately, several proven strategies exist, drawing from global best practices and Indonesia's own initiatives.
First and foremost is enhanced risk mitigation for exploration. The government has already established the Geothermal Fund Facility (now evolved into programs like PISP) and partnered with institutions like the World Bank and Green Climate Fund for resource risk mitigation. Expanding these to cover a larger share of drilling costs—perhaps through grants, insurance, or contingent loans—could shift the burden from private investors. Government-led exploratory drilling in priority areas, including remote ones like Banda Baru, would provide high-quality data, reducing uncertainty and making tenders more appealing.
Incentives need bolstering. Tax holidays, import duty exemptions on equipment, and accelerated depreciation have been introduced, but they should be streamlined and extended specifically to high-risk zones. Higher, predictable ceiling tariffs for geothermal power, tied to inflation or costs, would ensure bankability. Mandating PLN to prioritize renewable off-take in regional plans, especially for isolated grids like Maluku's, would guarantee demand.
Infrastructure support is critical for remote sites. Public investment in access roads, ports, and transmission lines could be bundled with tenders, or offered as viability gap funding. Blended finance models, combining concessional loans from multilateral banks with private capital, have succeeded in projects like Muara Laboh and could be replicated.
Community engagement must be proactive and genuine. Early consultation, benefit-sharing mechanisms (e.g., royalties, jobs, or community funds), and transparent environmental impact assessments can build trust and prevent opposition. Integrating direct-use applications, like agriculture or tourism heating, could provide local economic boosts.
Regulatory streamlining is essential: a one-stop permitting process, clearer land-use rules for forest areas, and centralized tendering via platforms like GENESIS reduce delays.
Finally, international collaboration,through technology transfer, joint ventures, or climate finance,can bring expertise and capital. Programs like the Asian Development Bank's support for expansions show the way.
By aggressively pursuing these remedies, Indonesia can transform failures like Banda Baru into successes, tapping its vast geothermal wealth to fuel a sustainable energy future. The potential is immense; it's time to make it investable.
What are your thoughts on Indonesia's geothermal challenges? Could stronger de-risking turn things around? Share below!
Source: Petromindo
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