Energy Talk Series VII| Overview of Sustainable Energy Financing: Challenges and Opportunities

Uploaded by Prakarsa Jaringan Cerdas Indonesia | 2 Maret 2021 Script Writer : Miftahus Salam

Editor : Nisma Islami Maharani & Cecilia Novia

Indonesia is committed to achieve of 23% Renewable Energy in 2025's National Energy Mix as part of to fulfill the National Energy Policy Target and Paris Agreement. To achieve this target, Renewable development focusing in renewable energy resources which are fast in development and construction also have the competitive prices (low cost production). To get maximum funding to develop renewable energy, we need to know the challenges and opportunities in finance sector of renewable energy.

From 2012 until now, the green and sustainable bond market have a rapid growth and transforming the debt capital markets. The growth is more than 1000% from 31 billion USD to 457 billon USD

This situation shows that renewable energy development get a lot of attention and support from finance sector. This situation happens because global pressure in climate change and the trend of green and sustainable living.

Indonesia should be able to take advantage of this situation. But in reality Indonesia can't take this advantage because of several reasons, i.e :

  • Indonesia's supply situation

  • Unsustainability of energy retail pricing

  • Policy inconsistency

  • Lack of infrastructure

  • Failure of Planning

  • Land acquisition problem

  • Technology-specific

  • PLN cost recovery

In the other side, Indonesia is still able to accelerate the renewable energy financing. This acceleration can happens with few things, i.e :

  • Establish a technically capable regulator

  • Ensure regulatory transparency

  • Provide for public participation

  • Remove BPP price caps & require reverse auctions

  • Require system planning on an economic basis

  • De-Risk projects in advance of tenders, e.g. land acquisition

  • Relax foreign investment & local content restrictions

  • Provide loan, subsidies and/or credit enhancements

  • Separate single buyer/system operator functions from PLN

  • Introduce new system planning tools

  • Introduce balanced PPAs in line with international practice

  • Streamline procurement & negotiations

  • Introduce modern grid management practices.

But we can't just look at the Indonesian side if in finance sector. We also need to look the global or Asia's green and sustainable bond landscape. We need to understand that in green and sustainable bond landscape there was market drivers and strategic challenges.

Market Drivers

  • Growth markets: energy transition, COVID response

  • More sustainable energy solutions advancing in key markets: Vietnam, India

  • Motivated DFIs (development finance institution)

  • Investors hungry for yield

Strategic Challenges

  • Not all early movers are seen as leaders

  • Too much focus on meeting minimum standards; too little attention to investor motivations