Jakarta, 24 November 2021 – The transition to clean energy is a necessity. The development of clean energy technology makes the price of electricity from clean energy become more and more competitive with fossil energy which is still widely found in energy systems. Citing the 2021 Climate Transparency report, Indonesia’s energy system until 2021 is still dominated by fossil energy which accounts for more than 80% of electricity production. This high level of dependence on fossil energy makes the energy transition in Indonesia need to be carried out carefully on planning and execution level.

In order for the energy transition process to run without a significant economic contraction, the government needs to prepare a sustainable financing strategy. This was discussed as the topic in the following discussion “The Role and Implementation of Sustainable Finance Towards Energy Transition and Net Zero Emission in Indonesia” organized by the Clean, Affordable, and Secure Energy Project for Southeast Asia.

Sunandar, Assistant Deputy for Utilities & Manufacturing Industry, Coordinating Ministry for the Economy, believes that careful calculations are needed so that it can mitigate the economic risks of the energy transition. In particular, it requires large funds to stop coal power plants and the development of new and renewable energy.

“With the current condition where our energy is still dominated bycoal and only 11.2% of NRE, it will require huge funds because we have to retire coal power plants and at the same time build New and Renewable Energy plants. Therefore, we need to plan the energy transition mechanism. And more importantly, ensuring the availability of affordable financing for all parties who want to contribute to the energy transition,” explained Sunandar.

This condition makes Indonesia have to look at what financing schemes are suitable to be applied for Indonesia’s energy transition. The IESR’s Deep Decarbonization study shows that the investment requirement for the transition reaches IDR 287-360 trillion/year. Dewa Putu Ekayana, a young expert on PKPPIM from the Ministry of Finance, said that the ability of the state budget (APBN) to finance the energy transition is only around 32.6%.

“To fill in this funding shortfall, the government has created a blended finance scheme by issuing green bonds, green sukuk and inviting investor involvement in climate change related projects or renewable energy,” Dewa explained.

Another type of financing that is also being explored by the government is Government and Business Entity Cooperation (Kerjasama Pemerintah dan Badan Usaha – KPBU) to develop clean energy infrastructure in Indonesia.

“This scheme will reduce the burden of the APBN/D in financing the transition of part or all of the projects that will be carried out because the resources belong to the Business Entity, with the distribution of risk between the parties (Business Entities and Government),” explained Suryo Wijiono Pambudi, Development Funding Planner, Bappenas

Suryo added that the capacity of local governments needs to be improved so that they can prepare for the transition at the grassroots level, as well as figure out what green economic opportunities can be developed in the area.

“In addition, a special set of policies related to NRE development is needed which includes special institutions, division of service areas and a national NRE development roadmap,” said Suryo.

Implementation and Lesson Learned Sustainable Financing

Renewable energy technology that continues to develop is not only making the price of the energy more competitive, it also results in lower emission levels. Therefore, renewable energy is highly considered to replace fossil energy which has high emission levels and its reserves are running low. A number of financing schemes are offered with various risks and consequences.

Evy Susanty, Chief Finance Officer, PT Surya Utama Nuansa explained that solar energy can be a priority choice for using renewable energy on various scales.

“To facilitate consumers in installing solar rooftop, PT SUN Energy provides 3 financing schemes, namely solar purchase, performance based rental, and solar lease. Of these three schemes, performance-based rental is the most favored by consumers because this scheme allows potential customers from the business and industrial sectors to install rooftop solar power plants without initial capital, “said Evy.

Apart from solar, the Government of Indonesia is also developing other renewable energy potentials such as biogas. From the ongoing biogas project, there are several lessons learned, one of the most important is the suitability of the PPA (Power Purchase Agreement) with other project documents such as land use agreements, statements on the availability of feedstock supplies, operational and maintenance contracts, and EPC (Engineering, Procurement, and Construction) contracts.

“In this biogas project several things need policy certainty such as land suitability, land use permits, income according to the PPA agreement, assurance of the availability of supply of palm oil/POME (Palm Oil Mill Effluent) effluent,” Kirana Sastrawijaya, Senior Partner in Project, Energy & Finance, UMBRA Partnership explained several things that need to be considered from the legal aspects of biogas projects.

PT Sarana Multi Infrastruktur (SMI), one of the Ministry of Finance’s special mission vehicles (SMV) for infrastructure financing, noted a number of obstacles in financing green projects in Indonesia. The limited number of green projects and no attractive incentives from the government for green projects makes investors rethink investing in Indonesia.

“In the implementation of green projects, it is common to need additional time and money to conduct studies related to sustainability, and often there are few professionals to work on them, so inevitably investors have to cooperate with other parties,” explained Pradana Murti, Head of Sustainable Financing at PT SMI.

In the energy transition process, it is necessary to have a common perception and capacity building from related parties, both from the energy and non-energy sectors. “Sustainable finance can be a solution to several bottlenecks that exist in the energy transition process,” said Deni Gumilang, Deputy Program Manager of CASE Indonesia.