Enabling project finance in Indonesia

Two IKI projects join forces with the financial sector in Indonesia to boost renewable energies.

Indonesia has enormous renewable energy (RE) potentials and could particularly benefit from solar and bioenergy, yet these energy sources are largely untapped. At the same time, the country intends to increase the provision of RE from 6% to 23% by 2025, which requires a substantial shift-of financial flows and investments.

The Indonesian government has laid out initial policies and frameworks such as feed-in tariffs (FiT) for RE deployment. On top of these regulatory incentives the financial sector intends to scale up its financing for RE projects that have been developed properly. Two Projects, now jointly support this through capacity building measures and knowledge exchange in close collaboration with the Indonesian Directorate General for New,Renewable Energy and Energy Conservation (DG-NREEC). The project „Promotion of Least Cost Renewables in Indonesia“ (LCORE-INDO) is implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and „Green Banking“ is implemented by Renewables Academy (RENAC) AG. The Federal Ministry for the Environment (BMUB) funds these projects through its International Climate Initiative (IKI) with nearly € 7.5 million.
The accessibility of financing is crucial for project developers due to high up-front costs in building RE plants. As such, financing for RE projects by commercial banks is mostly being offered on the basis of conventional lending practices, such as corporate guarantee or traditional collateral, instruments which are not suitable for small-sized project developers. An “off-balance sheet” project financing approach, where the bank only considers the project‘s assets and expected future cashflow as repayment guarantee for the loan, does not belong to common practice in Indonesia. In addition, most Indonesian banks still perceive RE projects as being highly risky due to a lack of experience and evidence.

Against this background, the implementing organisations GIZ and RENAC arranged a series of workshops and a panel discussion during the World Renewable Energy Congress 2016 in Jakarta. The event on 19 September 2016 entitled “Financing Renewable Energy Projects: Know the Risks, Seize the Opportunities”, was opened by Edi Setijawan, the Director of Sustainable Finance of the Indonesian Financial Services Authority (OJK) and attended by representatives from national, provincial and international banks as well as non-bank financial institutions and selected insurance companies.

The seminars successfully enhanced the technical expertise of credit risk analysts and energy sector specialists in risk identification and mitigation as well as possible revenue streams corresponding with RE projects.

A special focus was placed on business opportunities for the financial sector by introducing several case studies.

More than 100 participants discussed the challenges and solutions Indonesian banks face when applying project financing concepts for RE projects. RENAC and GIZ will further transfer their know-how on RE technologies from Germany and Indonesia and facilitate cooperation between actors from the investment and project development side. This should allow constantly improving business plans for innovative RE solutions, including their financial part, as well as their fiduciary risk assessment so that these can finally reach financial close and start implementation.

More information: http://there4i.org/