Using public funding to attract private investment in renewable energy in Indonesia.

Hendriwardani, Murtiani; Geddes, Anna; Sumarno, Theresia Betty; Hohenberger, Laura

Abstract

Indonesia faces a very important year ahead in terms of economic recovery and energy transition. In economic terms, despite regaining a positive GDP growth in 2021, Indonesia's budget deficit is still very high compared to pre-COVID-19. In terms of the energy transition, the time left to prepare to meet the country's new and renewable energy target of 23% by 2025 is shortening. In addition, in 2022 Indonesia will hold the presidency of the G20, which emphasized in its latest communiqué the importance of supporting sustainable recovery and energy transition strategies to align with the Paris Agreement, as well as the importance of mobilizing international public and private finance to support green, inclusive and sustainable energy development (G20, 2021). As the next G20 president, Indonesia has an important role to play in ensuring that the objectives of sustainable recovery and clean energy transition are achieved. Sustainable energy transition is a priority issue for the Indonesia G20 presidency (Bloomberg, 2021; Ministry of Communication and Informatics, 2021), and Indonesia recognizes the need for public and private financing to accelerate the development of renewable energy and the transition away from fossil fuels (26th Conference of the Parties [COP 26] to the United Nations Framework Convention on Climate Change [UNFCCC], 2021; Global Energy Alliance for People and Planet [GEAPP], 2021a). This transition is also key to Indonesia's ability to meet its renewable energy and net-zero emissions targets. By leveraging public funding in the form of fiscal incentives, budget transfers, and capital injections to attract private investment in new and renewable energy, Indonesia can also send positive signals. This brief explores several measures that have been put in place, such as the creation and promotion of public financial institutions (PFIs) dealing with specialized infrastructure, the issuance of Green Sukuk and green bonds as innovative financing mechanisms to stimulate investment in renewables, and the expanded role of state-owned enterprises (SOEs, particularly the national electricity company and the national oil and gas company) in promoting renewable energy. The brief also discusses other feasible measures, particularly international and multilateral financing, and offers some recommendations for the Government of Indonesia (GoI) to consider in further leveraging public finance to promote private investment in renewable energy.

Citation

HENDRIWARDANI, M., GEDDES, A., SUMARNO, T.B. and HOHENBERGER, L. 2022. Using public funding to attract private investment in renewable energy in Indonesia. Achieving a fossil-free recovery in Indonesia, Brief 3. Winnipeg: International Institute for Sustainable Development (IISD) [online]. Available from: https://www.iisd.org/publications/brief/using-public-funding-attract-private-investment-renewable-energy-indonesia

• Working Paper Type: Discussion Paper
• Online Publication Date: Feb 23, 2022
• Publication Date: Feb 28, 2022
• Deposit Date: Jan 29, 2023
• Publicly Available Date: Jan 29, 2023
• Publisher: International Institute for Sustainable Development
• Series Title: Achieving a fossil-free recovery in Indonesia
• Series Number: Brief 3
• Keywords: Energy policy; Environmental policy; Renewable energy industry; Public investment; Private investment; Indonesia
• Public URL: https://rgu-repository.worktribe.com/output/1763897
• Publisher URL: https://www.iisd.org/publications/brief/using-public-funding-attract-private-investment-renewable-energy-indonesia