Indonesia has approximately 23.2 GW of geothermal potential, with only around 11.6% currently developed into installed capacity. Based on ESDM data as of June 2026, the potential is distributed across 369 locations, including 62 Geothermal Working Areas (WKP) and 22 Preliminary Survey and Exploration Assignments (PSPE). The Government continues to promote geothermal development, making the sector increasingly relevant for investors.
The principal legal framework is Law No. 21 of 2014 on Geothermal Energy, as amended by the Job Creation legislation. The law distinguishes between Direct Utilization, which uses geothermal heat without converting it into electricity, and Indirect Utilization, which involves converting geothermal energy into electricity. The regulatory framework for business licensing is supplemented by Government Regulation No. 25 of 2021 on the Implementation of the Energy and Mineral Resources Sector and Government Regulation No. 28 of 2025 on Risk-Based Business Licensing. Government Regulation No. 25 of 2021 remains in force and specifically regulates geothermal activities, including obligations of geothermal business license holders.
For Direct Utilization, businesses must obtain the relevant Business Licensing and fulfill applicable supporting requirements based on the nature and risk level of the activity. The exact requirements depend on the business activity and should be checked against the applicable business classification and current sectoral standards. The current ESDM framework is also reflected in Minister of Energy and Mineral Resources Regulation No. 7 of 2026 concerning business activity standards under the risk-based licensing regime.
Indirect Utilization, particularly geothermal power generation, involves a more extensive licensing and development process. A geothermal business license permits the holder to conduct geothermal activities within a designated Working Area, with exploration and feasibility-study obligations applying in circumstances prescribed by the regulations. Government Regulation No. 25 of 2021 specifically requires geothermal business license holders to conduct exploration within the prescribed period where the relevant Working Area has not previously been explored.
Geothermal projects also require compliance beyond the core geothermal license. Depending on the project location and structure, businesses may need to address land rights and land use, forestry requirements, environmental approvals, electricity-sector licensing, and obligations relating to local communities and production bonuses. These requirements should be assessed at the project-planning stage because delays in securing land, environmental, or supporting approvals may affect the development schedule even where the principal geothermal authorization has already been obtained.
Compliance should also be considered from an investment and corporate perspective. Geothermal projects are typically capital-intensive and long-term, and investors may participate through joint ventures or consortium structures. The legal review should therefore cover not only the geothermal licensing framework but also foreign investment requirements, corporate arrangements, land rights, financing, contractual allocation of project risks, and the rights and obligations of consortium or joint-venture participants.
The consequences of non-compliance can also be significant. Government Regulation No. 25 of 2021 provides administrative sanctions for certain violations, including suspension of activities and substantial monetary fines for conducting activities without the required authorization or misusing an existing authorization. The risk exists both for operating without a license and for misusing one, and for investors with substantial capital already committed to exploration and construction, any suspension can result in significant financial loss and delay the project’s progress.
For businesses entering Indonesia’s geothermal sector, licensing should therefore be treated as part of a broader regulatory and project-risk assessment rather than as a standalone permit. Early review of the applicable Working Area, business classification, licensing pathway, land and environmental requirements, investment structure, and contractual arrangements can help reduce regulatory uncertainty and avoid delays during development.
Schinder Law Firm advises Indonesian and international businesses on energy and natural resources projects, foreign investment, licensing, corporate structuring, land matters, and commercial arrangements. For further information, please contact info@schinderlawfirm.com.
Author:
Dewi Susanti