The deal, announced Wednesday, represents Mitsubishi's first operation of a geothermal power plant as well as its first entry into the Indonesian power sector.
While no financial terms of the agreement were disclosed, Mitsubishi said it aims to develop and operate multiple geothermal power plants in Indonesia
The deal follows a speech Monday by Indonesian Energy and Mineral Resources Minister Jero Wacik at an Asian power supply industry conference in Bali in which he promoted investment in Indonesia's geothermal sector.
To attract investment in Indonesian geothermal development, Jakarta in July raised the feed-in-tariff for geothermal plants to between 10 and 17 cents per kilowatt-hour from the previous level of .097 cents per kilowatt hour.
At that time, Wacik said the change meant the price of geothermal is only one-fifth the price of electricity from fuel-fired energy.
Indonesia is believed have 40 percent of the world's geothermal energy resources.
While Indonesia has 29,000 megawatts of geothermal potential, it currently only operates 1,200 megawatts.
The Indonesian government maintains its ambitious goal of adding 4,000 to 5,000 megawatts of geothermal power generation capacity between 2014 and 2015, which German Chancellor Angela Merkel referred to as a "demanding" target during her visit to the country in July.
By 2025, the government hopes to have as much as 10,000 megawatts of new capacity, employing as many as 800,000 people in the sector.
Wacik told The Jakarta Post Tuesday, that based on reports his office has received, energy giant BP has sent teams to Indonesia two times in recent months to explore the possibility of entering the country's geothermal energy sector.
In the meantime, Wacik said, the ministry would allow BP to conduct geothermal exploration surveys in 28 locations across Indonesia.
"The Energy and Mineral Resources Ministry and the Forestry Ministry have signed an agreement allowing geothermal exploration in these 28 locations," he said.
Chevron Corp's Indonesian unit, which is the biggest geothermal power producer in Indonesia, said it welcomed the prospect of a potential competitor – BP – in the exploration of Indonesia's geothermal reserves, noting that it could create "healthy competition among geothermal energy developers."
"It will be very positive for the development of the geothermal energy industry as well as supporting the government's programs on renewable energy resources," Chevron Geothermal's spokeswoman Ida Bagus Wibatsya, told the Post.