Financial Support for the Energy Transition in the Residential Sector

Jakarta, June 9, 2022 – The potential for the use of rooftop PV in the residential sector is one of the largest in accelerating the energy transition and achieving Indonesia’s renewable energy mix target. Appropriate policy instruments and attractive financial support are some of the supporting factors in encouraging the massive adoption of rooftop solar PV in Indonesia.

Andriah Feby Misna, Director of New and Renewable Energy, stated that Indonesia has several national targets, i.e achieving a 23% renewable energy mix by 2025, reducing emissions by 29% with own efforts and 41% with foreign assistance by 2030, and achieving net zero emission by 2060.

“For this reason, the Ministry of Energy and Mineral Resources has developed various strategies such as green RUPTL at PLN and encouraging the use of rooftop solar in the household sector and including them in national strategic programs. As support (on rooftop PV), we issued the Minister Regulation No. 26/2021,” she explained. 

Feby added that the current number of rooftop solar customers is 4,377 households, and there has been significant growth since the issuance of a ministerial regulation that regulates PLN customers who install rooftop PV in 2018.

Feby does not deny that currently there are still barriers in the implementation of the MEMR Regulation No. 26/2021, but she said that her party is currently trying to find a win-win solution so that the regulation can take effect immediately.

In addition to regulations that are still not optimal, another obstacle to the use of rooftop solar in the household sector is the initial investment which is still relatively large for the community. However, there is still a large market potential in the household sector.

Fabby Tumiwa, Executive Director of IESR, explained that based on a gradual market survey conducted by IESR since 2019, the market potential for rooftop solar PV in the residential sector in a some big cities in Indonesia such as Greater Jakarta, Surabaya, Central Java and Bali reached 34 – 116 GW.

“The potential of the energy transition market in the household sector is huge. Those who fall into the category of early followers and early adopters need to be caught. Because they are quite familiar with their products (rooftop PV) and have the intention to install them, but are constrained by a large initial investment,” Fabby explained.

Respondents of the survey expect credit products from banks with a tenor range of 24-48 months with low interest.

Veronika Susanti, Digital Lending Division Head of OCBC NISP bank explained that the renewable energy sector is one of the concerns of the banking sector to obtain funding.

“Currently we have a solar panel financing program with two schemes. First, 0% credit card installments and cash loan for a maximum of 36 months,” said Veronika.

She added that her party was collaborating with solar panel service providers to make it easier for customers to access this rooftop PV financing scheme as well as to learn about technology so that they better understand the risks and opportunities of rooftop PV.

Fendi Gunawan Liem, founder and CEO of SEDAYU Solar also emphasized that the potential for the residential sector to grow and develop is enormous.

“The residential sector is the sector that has the latest solar panel installation regulations, but has the largest customer growth compared to other sectors,” said Fendi.

Banks as financial institutions need to see rooftop solar as a low-risk asset, for that it is necessary to study rooftop solar power technology so that they can make accurate risk analysis. Thus, banks can design more friendly credit schemes with more diverse tenors and lower interest rates.

Just Energy Transition Highly Required Attractive Policy, Regulation and Finance Access

Jakarta, 29 March 2022 – Just energy transition becomes one of the priority issues of Indonesia’s G20 Presidency 2022. Zooming in on a just energy transition issue, Yudo Dwinanda Priaadi, chair of the Energy Transition Working Group, explains that there are three issues related to energy transition to be accelerated i.e access, technology, and financing. 

The energy transition is about changing the whole system of energy from fossil fuel-based to renewables-based. It involves multi-sector reform to get there. Ensuring energy access is provided at an affordable cost and way is important as it is mentioned in Sustainable Development Goals (SDGs) 7 i.e affordable and clean energy. Therefore providing infrastructure of clean energy as the first step of the energy transition becomes crucial.

Technology transfer needs to be taken care of, as in Indonesia’s context, all the technology of clean energy right now was developed by other countries. To avoid Indonesia becoming only the market for other countries ‘selling’ their technology, we need the knowledge of technology and even have to be able to produce the technology by ourselves.

Fabby Tumiwa, the Executive Director of IESR, believes that the most important issue of energy transition currently is financing.

“If we have sufficient financing, we can access the technology and build the infrastructure of clean energy. At the same time we will also create a low carbon economy system in the country,” he said.

Luiz de Mello, Director of Economics Department OECD, added that there is an opportunity to make progress in a low carbon economy as the world tries to get out of the pandemic situation. According to him, there are at least three things the government should do, including mobilizing investment for low carbon infrastructure, making regulations and standards, as well as managing labor investment including training and retraining for those previously working in the fossil industry.

“On an international level we also need policy coordination as we are addressing a global issue, we need a global solution,” Luiz added.

The government also must provide a predictable regulation and framework to attract investors to invest in renewable projects. Frank Jotzo, Head of Energy, Institute for Climate Energy and Disaster Solutions, Australia National University, emphasized the importance of providing a de-risking instrument to accelerate the energy transition. 

“We realize that the investment needed (for energy transition) is enormous, yet there are a couple of things to do to figure out the way to finance the transition. For the note, it is a productive investment where most of the money goes for the upfront cost, and later we can enjoy the clean energy without too many costs needed,” Frank explained.

As the G20 President, Indonesia becomes the spotlight of its energy transition process. Masyita Crystallin, Special Advisor to the Minister of Finance on Macroeconomic and Fiscal Policy Ministry of Finance Indonesia, shares that the Indonesian Government strives for a just energy transition.

“Of course we aim for a just energy transition, meaning that stranded assets must be taken care of and the laborers who used to work in the fossil or mining industry are protected,” she explains.

Masyita also emphasized that the global policy mechanism should be ready as well to support the transition that happened per country.

Financier’s Club: Financing Solar Energy in Indonesia – Discusses Solar Energy Financing Issues in Energy Transition

Jakarta, 18 March 2022– The financing of energy transition in Indonesia, especially in the Solar PV Power Plant, needs to be mobilized immediately. The technical potential of solar energy in Indonesia is enormous. Based on a study from the Institute for Essential Services Reform (IESR), the potential of solar energy in Indonesia is up to 20,000 GWp waiting to be harvested so that it can achieve a carbon-neutral target in 2060 or sooner, according to the government’s commitment. Financial institutions can capture various Solar PV Power Plant financing opportunities by identifying investments and risks. Identification of investments and stakes in Solar PV Power Plant financing, the obstacles financial institutions face in providing Solar PV Power Plant financing schemes, and innovative financing practices are discussed in the Financier’s Club: Financing Solar Energy in Indonesia. This activity was held in collaboration with the Ministry of Energy and Mineral Resources with IESR as a pre-event for the Indonesia Solar Summit (ISS) held in Jakarta.  

Opening the discussion, Sahid Djunaidi, Secretary-General of the Directorate General of Renewable Energy and Energy Conservation (DG EBTKE), emphasized that the emission reduction target can only be achieved if the country makes an energy transition as a fundamental step. The vast potential and short construction period make solar energy a mainstay in providing renewable energy in Indonesia. Several banks have provided financing schemes for rooftop solar power plants, but financing innovation is still needed to encourage more massive rooftop solar power plants. Currently, the Ministry of Energy and Mineral Resources (MEMR), in collaboration with UNDP, is conducting an incentive grant program for rooftop solar PV to support the development of rooftop solar PV in Indonesia.

“The challenge in developing solar power plants is in the financial sector because of the high risk, not many markets, and the lack of financing guarantees,” he said.

Coordination in policymaking and cooperation between parties is essential to achieving sustainable finance and climate targets. This was stated by Agus Edy Siregar, Deputy Commissioner for Financial System Stability of the Financial Services Authority (OJK). 

“The climate change mitigation agenda requires large funds and cannot be met only from the state budget, but also requires financing from the financial sector,” he added.

Edy said that OJK had compiled several documents on investment in several sustainable sectors, including a green taxonomy, carbon market preparation, and banking reporting related to the financed sector. It is hoped that there will be incentives and disincentive mechanisms in the finance and financing sector.

In addition, Enrico Hariantoro, Head of the OJK Integrated Financial Services Sector Policy Group, said that OJK has been supporting banking instrumentation for a long time to support sustainability financing (POJK 51/2017 POJK 60/2017). According to him, there are several risk aspects that banks are very concerned about, including technical understanding, how to guard the ecosystem, and the payback period. Furthermore, he argues that financing schemes for Solar PV Power Plant could be more varied and innovative, for example, combining elements from facilities, philanthropy, technical, and becoming one with KPR so that it is included in customers’ comfort level bankability of financial providers. OJK always encourages the acceleration of Solar PV Power Plant financing through regulation, of course, by considering the feasibility study (FS).

On the other hand, Adi Budiarso, Head of the Financial Sector Policy Center (PKSK) Fiscal Policy Agency (BKF), said that there is an Energy Transition Mechanism (ETM) to answer the challenges of the energy transition with the primary goal of shortening the economic life of the PLTU Clean Energy Facility (CEF), get additional greenhouse gas emission reductions by building a renewable energy Carbon Recycling Fund (CRF) to achieve Nationally Determined Contribution (NDC), and gain access to cheaper funding. 

BKF has implemented tax incentives for investments such as tax holidays, tax allowances, PPh DTP, VAT exemptions, import duty exemptions, tax and customs facilities, and exemptions from collecting PPh 22. According to Adi, the Indonesian financial system is ready to implement sustainable finance, supported by green taxonomy. In addition, BKF has conducted mapping with nine universities, associations, and stakeholders. Adi said that Regional Banks had the opportunity to help accelerate the Solar PV Power Plant development. Renewable energy has the potential to create electricity supply independently. The existence of BPR, the regional company, can be one of the doors for the entry of Solar PV Power Plant financing.

Edwin Syahruzad, President Director of PT Sarana Multi Infrastruktur (SMI), who was present on the same occasion, informed the participants that PT SMI has taken strategic steps in financing Solar PV Power Plant. In addition, PT SMI has provided financing for all types of renewable energy, such as hydroelectric power, geothermal power plants, wind power plants, solar PV power plant, and biomass. However, he said that PT SMI’s commitment to the Solar PV Power Plant project depends on the pipeline project. 

“The Solar PV Power Plant pipeline is more derived from rooftop Solar PV, and I think this is a potential that must be worked on. However, the approach is slightly different from on-grid  Solar PV Power Plants because rooftop  Solar PV comes from contracts with building owners where Solar PV Power Plants are installed. The building owners can come from outside of the electricity sector. The revenue model is also quite different. It is the domain of banks with building owner customers who can expand their business opportunities using rooftop solar PV,” said Edwin.

Indonesia Energy Transition Outlook (IETO) 2022

IETO 2022 will be launched in a webinar that is also intended to obtain views/perceptions from policymakers and actors on the trends that will occur in the coming year in the energy transition. Discussions at this meeting will focus on the energy transition readiness framework in Indonesia’s electricity sector as well as various lessons learned in 2021 to overcome the challenges of encouraging the energy transition in 2022.

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Indonesia Needs to Catch the Opportunity to Finance Transition

Jakarta, 22 Nov 2021 – As the COP-26 wrapped up a few weeks ago, more discussions about “what’s the next follow-up action?” are being conducted to keep reminding both the Government and the public that the pledge or commitment made during the conference should be implemented. 

Acting as the pre-opening of Indo EBTKEConnex 2021, FIRE (Friends of Indonesia’s Renewable Energy) hosted a dialogue to figure out how Indonesia is setting up its strategy to achieve the new target and commitment announced during the COP-26 in Glasgow.

Sripeni Inten Cahyani, the Special Staff of the Ministry of Energy and Mineral Resources explained the Indonesia standpoint during the conference. Earlier this year, Indonesia submitted its updated NDC to the UNFCCC Secretariat and committed to achieving net-zero emissions by 2060 or earlier. This is quite a progressive step since at the beginning of the year there is not even a word about it. 

“Indonesia signed The Global Coal to Clean Power Declaration, and one of its commitments is to retire coal power plants in the 2040s, in our initial plan of coal phase-out around the 2050s. The acceleration means we need more financial support to retire the currently operating power plant and replace it with renewables,” Inten Said.

Indonesia has been consistently urging the developed countries to distribute funds to the fewer capital countries to address climate change and energy transition. 

David Lutman of the British Embassy emphasized that the urge to take action can be translated into deploying renewable energy on a large scale and that means the phase-out of coal. “The faster Indonesia delivers the transition, there will be bigger economic growth to reap,” he said. 

The importance of materialised commitment is needed to showcase promising progress in the next 2-3 years as explained by Fabby Tumiwa, the Executive Director of IESR. “Transition is not only about Indonesia, but the international community is observing so we need to display our progress to keep our accountability, and later to attract more international assistance,” Fabby explained.

Fabby later said that  three key things that can be done by the Indonesian government to accelerate the energy transition in Indonesia i.e conducting coal early retirement, increasing RE project pipeline, and assisting PLN in terms of auction and procurement of renewable energy.

Sufficient financing is needed in transforming the energy system. During COP-26, the Government of Indonesia signed the Energy Transition Mechanism (ETM) Memorandum of Understanding (MoU) with Asia Development Bank to finance the early retirement of coal power plants. Another financing scenario is by reforming the subsidy scheme in Indonesia and diverting it for the deployment of renewable energy.