Paris Alignment of Power Sector Finance Flows in Indonesia

This report commends Indonesia’s impressive achievement of almost universal electricity access in urban areas whilst shedding light on the urban-rural divide in energy access and the visible impacts this is having on society. Besides the need for a more equitable distribution of electricity, Indonesia still relies on fossil fuels for a significant proportion of its energy supply. This needs to change if the country is to achieve its Nationally Determined Contributions (NDCs), this equates to reducing greenhouse emissions within its energy sector by 11 per cent by 2030.¹ A transition to clean energy throughout Indonesia is essential to fulfil their climate commitments made under the Paris Agreement.

This report provides insight to the challenges Indonesia faces in meeting its renewable energy targets and documents the progress being made. Research estimates that Indonesia needs approximately USD5 billion in annual investment to meet their renewable energy goals. In 2020, however, Sustainable Energy for All (SEforAll) and the Climate Policy Institute (CPI) found that the total investment for that year stood at around USD2.3 billion, less than half of the annual requirements.² This signals an urgent need to mobilise funding to narrow the investment gap and ensure a timely energy transition.³

This research on Indonesia’s renewable energy transition stresses the essential role of financial institutions in not only making funding available, but also innovating products and strategies that will accelerate the process. Case studies in the report showcase innovative financing solutions being developed by financial institutions to help Indonesia’s energy transition. One initiative which is currently being developed by the Asian Development Bank (ADB), in partnership with HSBC, Prudential, Citi and Blackrock, involves buying out coal power plants across the country and replacing them with clean energy investments.⁴

This report serves as a valuable guide for financial institutions seeking to capture investment opportunities as Indonesia’s renewable energy transition gains momentum. Some of the recommended actions include increasing the availability of green bonds while halting financing to fossil fuel power plants as well as making targeted investments in renewable energy sources such as solar PV.