Investment and Finance
for Indonesia’s
Coal-to-Green Transition

- Market Background in Indonesia:

• Growth of electricity demand at pace of 4.5%-5.5%

• Reduced reliance on fossil fuels, while pushing renewable energy as priority

• National renewable energy capacity to reach 23% of overall energy mix by 2025, with solar and wind representing 6.5GW and1.8GW respectively

- PLN’ attitude towards renewable energy

• Renewable energy as first priority under MEMER’s request. There will be no big coal fired plants under pipeline nor equity injection plan

• Re-introducing the Feed-in-Tariff program for projects below 10MW. For projects larger than 10MW, it will be conducted in direct selection. Also the PLN is considering tender in large bulk to boost investment interests

• Projects lining in Sumatra, also the eastern part of Indonesia. Economic growth in the two parts is high compared with Java, while the energy demands are often underserved. Solar storage or hybrid projects are considered with huge potential

• Highlighting local partnership at the center of project development. In consideration of land, law and permitting shall be prioritized in every project development

• Continue supports for local manufacturing growth whereas providing duty cuts to reduce LCOE. Preferential duty cut policies to reduce LCOE cost caused by local content requirements

- General Opportunities on Renewable energy development

• Encourage the utilization of the development of PV Rooftop. Especially for the middle-income people

• The increasing price of small-scale solar panel power plant and batteries which are suitable for remote area.

• Potential development of smart grids and distributed generation in remote area and prioritizing the development of hybrid systems. Thousands of islands in Indonesia are not being served by the national power grid, so these islands are better to use distributed generation

• Create potential customers especially the tourism industry with special tariffs in using NRE, Nike and some companies have intended to purchase the electricity with green certificate energy

- Challenges in Eyes of Developers and Financiers:

• Unreputable and inexperienced sponsors. The construction rate is very low, only less 20% are under construction

• Some of the potential of NRE is in the conservation area

• Exploration costs and Funding Source Issue. It is very expensive cost, with about 6-7 million Rupiah. and no one can ensure that extra capacity equal to potential capacity.

- Key investment considerations:

• Regulatory framework: Seeking a regulatory environment and clear energy policy; revenue certainty and quality of the revenue agreement.

• Rigorous risk allocation and de-risking of projects: Early stage risks; Successful partnerships to optimize risk mitigation; Adequate construction risk mitigation. (Construction risk, and operating risk are more concerned by investors/banks)

• Efficient financing: Optimized cost of capital, Stable capital structures, Current disruptions in the financing markets to abate

- Sources of funding:

Five different sources: Tied ECAs, United ECAs, MLAs, Project Bonds, Commercial Banks.

1. The size of the project is bigger, developers/ owners should choose latter approaches.

2. International banks play more important role in Indonesia than national banks.

3. Best type of financing for green power plants: Few hundred million dollars fund (30-50MW solar plants, 70MW wind farms), banks of high level of appetite.

4. Minimum solar project finance: Financing 10MW to 75MW solar plant could be find a way to amortize transaction cost from legal standpoint, technical due diligence standpoint (25MW is the minimum capacity. If a solar project lower than 25MW, the cost of the plant will be higher.).