| Abstract |
The exploratory phases of a geothermal project are marked by not only high capital costs but also a chance of failure, due to the high temperatures found in geothermal reservoirs and uncertainties regarding reservoir geology. The combination of high risk and high capital costs can make financing geothermal projects difficult. In some countries, such as France and Germany the governments are providing the support through some insurance schemes. In France, the program is intended to partially insure geothermal energy project promoters/ investors against (1) the short-term, up-front geological risk of exploration drilling, and/or (2) the long-term geological risk of developing and producing a geothermal reservoir with a lower than estimated temperature, higher than estimated mineralization, or difficulty with injection of geothermal fluids back into the subsurface. In the meantime, Also, the World Bank has established two programs for East African Rift Zone (the ARGeo Program in 2008) and for Europe and Central Asia region (the GeoFund Program in November 2006). This paper discusses the possibility of setting up in Indonesia a similar insurance scheme in conjunction with local insurance market and international reinsurance supports, to cover risks in initial exploratory drilling. The intention is for the insurance coverage to cover multiple parties that have different tasks in the process. The main advantage of the risk mitigation scheme through insurance is that it combines both project financing via a credit and the mitigation of exploration risk in one program. The risk coverage consists of a loan being for-given if the project is unsuccessful up to the available insurance limit provided. As insurance for geothermal development is still unknown in Indonesia’s market, its introduction would require actuarial analysis to determining the appropriate insurance premium. The actuarial analysis has to be based on the prudent assumption and the generally applicable insurance practices, which would require reliable statistical data on the probability of success of a project at a specific site in certain area. Based on the result of the study, it is recommended that INAGA updates a statistical study on the geothermal drilling results to be used in designing the insurance scheme for geothermal exploration and conduct capacity building for the insurance personnel. |