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Financing Renewable Energy in Indonesia

RAYMOND BONA – Deputy Chief of Party USAID ICED II

ICC Indonesia: Mekanisme Pendanaan Inovatif Menuju Pembangunan BerkelanjutanUntuk Lembaga Jasa Keuangan

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OJK Work Program Vs USAID Support 2018 - 2020

OJK Regulation & Guidelines in SF (POJK)

Formalized SF in OJK structure

Baseline survey, Monitoring & Reporting

Capacity buildingfor FI and FI supervisors

Bali Center for Sustainable Finance (BCSF) Sustainable Finance

Pilot Projects

Link to Project PipelineTechnical Assistance

to FI

Alternative Finance Mechanism

Participation in International Fora

The core of OJK program is issuing series of policy, including supporting documents such as guidelines and SOP.

Policy Development

Second layer is implementing the policy trough capacity building for awareness, pilot projects and monitor results

Policy Implementation

The last layer is policy support, all activities to support both policy development and implementation, such as R&D, forum coordination and industry engagement

Policy Support

USAID ICED Support

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Example of ICED Technical Assistance for Banks and Financial Institution

§ Basic Project Description§ Check List & Assessment on

Permitting / Licensing§ Review on Hydrology§ Review on Engineering Design§ Review on Technology Selection§ Review on Equipment Specification§ Review on Cost and Investment§ Review on Economic FeasibilityO

utlin

e P

roje

ct M

emo

§ Mini Hydro Power Plant§ Biomass Power Plant§ Biogas Power Plant§ Solar PV Project§ Wind Farm ProjectP

roje

ct

ICED Project Memo! Pembangkit Listrik Tenaga Biogas PLTBG ____________ – Lampung

Project Sponsor : Bank BNI Date Report : February 2012

Disclaimer

Statements made by ICED-Tetra Tech relating to the information, and all surveys, forecasts, recommendations and opinions in

any report, presentation or deliverable are made in good faith on the basis of information available at the time. Forecasts,

recommendations and opinions are not representations, undertakings or a warranty as to outcome or achievable results. The

user therefore releases and discharges Tetra Tech from all liability, direct and indirect, in any way connected to the report,

presentation or deliverable

ICED Project Memo! Pembangkit Listrik Tenaga Mini Hydro PLTMH ____________ – Sumatera Utara

Project Sponsor : Bank BRI Syariah Date Report : August 2012

Disclaimer

Statements made by ICED-Tetra Tech relating to the information, and all surveys, forecasts, recommendations and opinions in

any report, presentation or deliverable are made in good faith on the basis of information available at the time. Forecasts,

recommendations and opinions are not representations, undertakings or a warranty as to outcome or achievable results. The

user therefore releases and discharges Tetra Tech from all liability, direct and indirect, in any way connected to the report,

presentation or deliverable

ICED Project Memo! Pembangkit Listrik Tenaga Mini Hydro PLTMH ____________ – Jawa Barat

Project Sponsor : Bank BRI Syariah Date Report : July 2012

Disclaimer

Statements made by ICED-Tetra Tech relating to the information, and all surveys, forecasts, recommendations and opinions in

any report, presentation or deliverable are made in good faith on the basis of information available at the time. Forecasts,

recommendations and opinions are not representations, undertakings or a warranty as to outcome or achievable results. The

user therefore releases and discharges Tetra Tech from all liability, direct and indirect, in any way connected to the report,

presentation or deliverable

ICED Project Memo! Pembangkit Listrik Tenaga Mini Hydro PLTMH ____________ – Sumatera Utara

Project Sponsor : Danareksa Capital Date Report : March 2012

Disclaimer

Statements made by ICED-Tetra Tech relating to the information, and all surveys, forecasts, recommendations and opinions in

any report, presentation or deliverable are made in good faith on the basis of information available at the time. Forecasts,

recommendations and opinions are not representations, undertakings or a warranty as to outcome or achievable results. The

user therefore releases and discharges Tetra Tech from all liability, direct and indirect, in any way connected to the report,

presentation or deliverable

ICED Project Memo! Pembangkit Listrik Tenaga Biomass PLTBM ____________ – Kalimantan Barat

Project Sponsor : Nusantara Infrastructure Date Report : September 2012

Disclaimer

Statements made by ICED-Tetra Tech relating to the information, and all surveys, forecasts, recommendations and opinions in

any report, presentation or deliverable are made in good faith on the basis of information available at the time. Forecasts,

recommendations and opinions are not representations, undertakings or a warranty as to outcome or achievable results. The

user therefore releases and discharges Tetra Tech from all liability, direct and indirect, in any way connected to the report,

presentation or deliverable

DeliverablesTechnical Assistance ICED Bank / FI Partners

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Example of ICED Capacity Building for Banks and Financial Institutions

§ Introduction to Mini Hydro Power Project

§ Key aspect in assessment Hydro project proposal

§ Due diligence check list for Hydro project

§ PPA and Legal aspect in Hydro

§ Risk assessment for Hydro Project

§ Lesson learn from practitioner

Out

line

Trai

ning

§ One or two days training§ Material are tailored to banks

needs§ Site visit to Mini Hydro

Projects§ Real case study

Con

cept

DeliverablesActivities ICED Bank / FI Partners

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USAID ICED I & II Publication on Sustainable Finance

2013 2014 2015 2016

20172016 2016 2016 2018

2016

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US$ 352 MILLION

Total approximate investment needed Expected Investment ($) Megawatt installed capacity from projects pipelineExpected Installed Capacity (MW)

64 Hydro; 1 Solar PV, 6 Energy Efficiency; and 7 Bio Energy projects pipeline from banks & financial institutions

Clean Energy Projects

14 banks and financial institutions actively received ICED technical assistance

Banks and Financial Institution 14 Institutions80 Projects

633 MWUS$ 1,102 million

US$ million reach financial closed from assisted projectFinancial Closed ($)

ICED Technical Assistance to Banks & Financial Institutions Result as of March 2019

Indonesia Sustainable Finance Regulatory Framework

Indonesia commitment to reduce GHG by 2020 from 2010 BAU baseline is 26% from own effort, 41% with International Support

Indicative cost for the mitigation plan on emission reduction needed is approximately IDR 100 to140 trillion per annum, it is expected 46% from

public and 54% from private

Public SectorMinistry of Finance

Private SectorFinancial Institutions Authority

Regulate Supply of

Fund

• Coordinate and register all donor’s funding• Appoint Center for Climate Change and

Multilateral as National Designated Authority (NDA)

• Green budget tagging• Issuance Green Sukuk, Gov’t Green Bonds

• Issued OJK Regulation on Sustainable Finance in 2017, as umbrella regulation;

• Increase green portfolio in financial institutions• Monitor and supervise green portfolio• Promote development of innovative financing

mechanism

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International fund pledged for Indonesia period 2009 to 2019

• Source: CBD International

Donor FacilityProgram Modality

KFWBMU

World BankGEF

FIP / FCPF

USAIDMCC

DFID

REDD

JICAJIBC

AFD

DFAT

§ All donor registered to ministry of Finance;

§ CCPL (Climate Change Program Loan)

§ ICCTF (Indonesia Climate Change Trust Fund)

§ (IGIF) Indonesia Green Investment Fund

§ Norway Indonesia Letter of Intend

§ Bilateral / multilateral program support

Soft Loan, $2,932

Technical Assistance, …

Grants, $2,296

US$ Million

Multilateral, $911

French, $800

Australia, $128

Japan, $1,017

USA, $836

Norway, $1,000

UK, $100

Germany, $427

EU, $24

US$ Million

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Public Sector Climate Finance

Bank Loan74%

Fin Services8%

Capital Market4%

Bonds10%

FDI4%

• Banking – dominates, providing around 74% of external financing to the private sector.

• Financial inclusion – Large share of firms without access to formal financial services.

• Equity markets growing rapidly, bond markets more slowly.

• Foreign investors hold nearly two thirds of tradable stocks listed in the Indonesian Stock Exchange (IDX)

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Source of Financing in Indonesia

Bank’s lending is dominating Indonesia private sector financing

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In 2012 total green financing from banks represents 1.2% from total bank’s lending

Syariah Bank Lending IDR 56 Trillion

Conventional Bank Lending IDR 665 Trillion

Green FinancingIDR 9.3 trillion

Mini Hydro27%

Other RE2%

Geothermal26%

Sustainable Agriculture

19%

Eco Label5%

Others21%

1.1%

2,85%

In 2012, Bank Indonesia conduct green lending survey to largest 24 commercial banks and 5 syariah banks, where their assets represents approximately 80% total national asset.

South East Asia New Investment Clean Energy, by country (USD Billion)

0.37 0.26

1.08

0.23 0.12

1.77

0.05

0.56

1.03 0.21

1.12

1.22

1.35 1.33

0.54

1.26

1.25 0.71

0.13

0.02

0.33

0.18 0.73

0.95

2.26

0.20 0.31

0.40

0.11

0.03

0.14

0.11

0.03

-

-

0.70

0.40

0.43

0.21

0.31

0.21

0.11

0.13

1.17

1.93

2.87

2.20

2.51

3.40

3.70

2.02

2.75

2009 2010 2011 2012 2013 2014 2015 2016 2017

Indonesia

Thailand

Phillipine

Malaysia

Vietnam

Lahendong & Ulubelu 40MW Geothermal $0.6B

Muaralaboh 80MW Geothermal $0.9B

Sarula 330 MW Geothermal $1.7B

Sep 18

Sidrap 75MWWInd $0.7B

1.01

Clean Energy Investment Opportunity in Indonesia

21.7 GW0.9 GW

2.8 GW 6.4 GW ProposalPPAConstructionOperation

Large Hydro$36.7B

Geotherm

al$4.9B

Mini Hydro$2.6B

Wind $1.9B

PV $1.6 B

Bioenergy$0.3B

$0.9B

$0.5B

$0.5B

$50 billion $2 billion

On Grid Clean Energy Project Status as of April 2018, (in GW)

Size of investment by type of technology

Investment Opportunity

• Data derived from PLN (national electric utility)

• Hydro projects dominate market

• Despite declining costs, Solar PV development is low

Lack of project implementation results in negative perception from investors *)

Dec 2016

Dec 2017

Dec 2018

Oct 2019

70 PPA signed

15 PPA reached financial close

7 PPA reached financial close

48 PPA have not reached financial close

4 Project terminated19 Projects unclear

4 projects reach COD

• 96% of respondents believe that the PLN’s Electricity Supply Business Plan (RUPTL) was not designed to adequately anticipate and respond to the current and future challenges in the power sector

• 94% of respondents believe that regulatory uncertainty is a major barrier to investing in new large-scale power generation

• 71% of respondents believe that the lack of standard bankable PPAs with appropriate risk allocation is also a major barrier to investing in new large-scale power generation

• 75% of respondents believe that there is a lack of transparency and 89% said there is insufficient predictability in the procurement of new power capacity in Indonesia

New MEMR Regulation 50/2017

*) PWC Indonesia Power Survey 2018

Jakarta, CNN Indonesia -- Kementerian Energi dan Sumber DayaMineral (ESDM) menyatakan masih ada 19 proyek pembangkit listrik Energi Baru Terbarukan (EBT) yang masih belummendapatkan sumber pendanaan untuk pembiayaan proyek.

Sebanyak 19 proyek ini merupakan bagian dari 70 lainnya yang sebelumnya terancam mangkrak. Diketahui, sepanjang tahun laluterdapat 70 penandatanganan perjanjian jual-beli listrik (power purchase agreement/PPA) EBT antara PT PLN (Persero) dengankontraktor swasta (independent power producer/IPP).

Direktur Aneka EBTKE Kementerian ESDM Harris mengatakanpihaknya sedang mengusahakan agar 19 proyek ini segeramendapatkan pendanaan, khususnya melalui skema PembiayaanInfrastruktur Non-anggaran Pemerintah (PINA) di Badan Perencanaan Pembangunan Nasional (Bappenas).

Harris mengakui ada sejumlah risiko yang akan dihadapi investor dalam membiayai proyek EBT. Salah satunya terkait pengembalianpinjaman dana dari pemilik proyek.

"(Risiko) pengembalian nanti lancar apa tidak ya, kemudianmenarik tidak ya. Melihat dari aspek bank kan punya aturansendiri apa yang diminati," kata Harris.

Sementara, ia mengungkapkan delapan proyek yang sebelumnyaterancam mangkrak akhirnya mendapatkan pendanaan. Namun, belum ada pembangunan konstruksi terhadap delapan proyektersebut.

Kemudian, empat proyek lainnya sudah terminasi atau takdilanjutkan. Hanya saja, ia tak memastikan proyek mana saja yang akhirnya berhenti tersebut.

"Saya tidak hafal, banyak di Sumatra yang terminasi," katanya.

Supply of Fund Intermediary (Market) Project Pipeline(Demand for funding)

• High cost of fund

• Short tenor à mismatch short source of fund to long term infra funding

• Limited source of funds• No alternative risk sharing

financial products

• Limited standardize & consistent policy framework à high uncertainty

• Limited availability and transparency of technical references and data,

• Lack of information in RE procurement process;

• Limited number of good quality projects (feasible & bankable)

• Limitation technical capacity / availability in sector i.e. consultants, project appraisal.

• Limitation of project sponsors both in technicality & equity

• Blending sources of finance to reduce cost

• Develop alternative cost sharing mechanism

• Develop financing hub to match short term funding for long term projects

• Promote standard and solid policy implementation via Energy Planning

• Develop data hub

• Support GOI procurement process

• Promote and develop market via standardization and best practice

• Develop a robust project’s pipeline

• Capacity building• Financial incentives / grants to

facilitate good projects

Summary Challenges in RE InvestmentC

hallengesInterventions

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Thank You

raymond.bona@iced.or.id