This chapter examines other key areas that can help improve Indonesia’s clean energy finance and investment framework. It reviews Indonesia’s efforts to accelerate regional grid integration with a view to facilitating the expansion of renewable electricity, as well as to promote innovation, research & development for clean energy, which can help bring down the cost of clean energy technologies and support the domestic clean energy industry’s development. The chapter also examines existing training and education programmes that are essential to create and develop knowledge and skills for clean energy finance and investment as well as looks at efforts to promote gender equality in the clean energy sector.
Clean Energy Finance and Investment Policy Review of Indonesia
Green Finance and Investment
7. Cross-cutting issues
Abstract
Indonesia needs to accompany efforts to create a robust clean energy finance and investment framework with supporting policies targeted at a number of key cross-cutting areas. These cover key policy areas – such as regional grid integration, Research & Development (R&D) and innovation, gender equality as well as skill and capacity development – which are critical to realise the country’s clean energy goals.
Indonesia’s efforts to encourage further regional grid integration within the ASEAN region, for example, can help increase renewable energy deployment if done with careful consideration of both the interplay between national and regional power decarbonisation policies as well as other national grid investment priorities. In the same spirit, increased R&D support can boost clean energy innovation and industrial development while more targeted and integrated skill and development programmes can help ensure Indonesia’s workforce is well equipped to support the growing needs in clean energy finance and investment. Mainstreaming gender issues in the process will not only be key to accelerate the clean energy transition but also to ensure such transition is inclusive and equitable.
Assessment and recommendations
Regional integration can be an enabler for renewable investment, but co-ordination between renewables investment and regional integration is key
Indonesia is part of the ASEAN (Association for Southeast Asian Nations) region, which has a target to promote the ASEAN Power Grid and Multilateral Power Trade in the region as part of the ASEAN Plan of Action on Energy Cooperation. Currently, Indonesia is lacking a physical cross-border transmission infrastructure and thus needs to invest in one to engage in regional power trading; possible options could be to connect Sumatra and Malaysia or different Bruneian, Indonesian and Malaysian parts of Borneo island. Allocating greater share of limited infrastructure budget to cross-border connections, however, might risk diverting public investment away from the national grid where needs are also considerable.
Stronger support is needed for renewable electricity and energy efficiency R&D
The Electricity and New and Renewable Energy R&D Centre (P3TKEBTKE, its Indonesian acronym) of the Ministry of Energy and Mineral Resources (MEMR) is the leading R&D agency for clean energy, although other public institutions such as the Agency for Assessment and Application of Technology (BPPT), the Indonesian Institute of Sciences (LIPI) and various universities have also been active, albeit to a lesser extent. Most notably, P3TKEBTKE has made commendable efforts to support the development of testing equipment and facilities to monitor and evaluate the implementation of minimum energy performance standards and green fuels, as well as to survey renewable energy potentials.
However, although clean energy R&D represented a considerable share of P3TKEBTKE’s budget over 2015-18, it has been declining substantially since 2016 in absolute and relative terms. This reflects both a general decline in P3TKEBTKE’s total budget, as the institution is planned to become an income‑generating institution (also called BLU or Badan Layanan Umum), as well as an overall lower focus on clean energy – particularly energy efficiency that only received a fraction of the institution’s clean energy R&D budget. Instead, much of P3TKEBTKE’s R&D activities remained focused on fossil fuel technologies. This highlights a major challenge in breaking dependence on fossil fuels, which is needed to achieve the country’s ambitious energy and climate targets.
Accelerating the clean energy transition requires stronger support to spur development of domestic supply chains and clean energy entrepreneurs for renewable electricity and energy efficiency innovation. This includes measures such as the recently implemented tax incentive to support private spending on R&D, allowing a 300% reduction in R&D spending to gross revenues. However, this incentive only benefits firms that are already profitable. Other incentives targeting early stage companies and supporting firms to overcome the “valley of death” are also needed. Strong policies and incentives have benefited the biodiesel industry and Indonesia is now one of the leading producers of biodiesel.
An integrated approach is needed to fill the clean energy finance and investment skill gap
Indonesia has been making great strides into developing skill and capacity for clean energy as well as sustainable finance. MEMR’s Training Centre for Electricity, Renewable Energy and Energy Conservation (PPSDM EBTKE) has been designing, developing and implementing a number of technical trainings, certification schemes and guidelines for energy efficiency and renewables; universities have also followed suit in creating clean energy curricula, although these are still limited. OJK (the financial market regulator) has been equally active in its efforts to develop skills and capacity for sustainable finance, including clean energy finance. While these efforts are important, there remains areas where further skill and capacity development are needed. Hitherto, much of the clean energy skill and capacity building efforts have tilted towards the technical and operational aspects, as is the case in many countries. While these are critical for the clean energy transition, stepping up efforts to develop project finance and de-risking skills, targeted at a range of key stakeholders (e.g. project developers, engineering firms, government, and utilities), will be equally important to enable a pipeline of investment-ready projects and ensure financial institutions are well-equipped to fund them. In the same spirit, much of the financial institutions’ trainings for clean energy have been focused on renewable project financing, often overlooking energy efficiency. Balancing focus on energy efficiency while developing the evidence base of the financial viability of energy efficiency and renewable energy projects, paired with targeted awareness-raising campaigns, will thus be important.
Empowering women and supporting female entrepreneurs can accelerate Indonesia’s clean energy transition
Empowering women and in particular women entrepreneurs can help to accelerate the clean energy transition. Indonesia recognises the crucial role women will play in meeting the Sustainable Development Goals although, as with most countries, women remain underrepresented in leadership roles in Indonesian government and industry. While female Ministers head up the key Ministries of Finance, Environment and Forestry, and Foreign Affairs, of the 30 ministers, just six are women. There is also an absence of targeted programmes in the clean energy sector to support women’s empowerment or help women entrepreneurs overcome certain gender biases and financing challenges. The Ministry of Finance has a microfinance programme that has benefited women-led enterprises, but it is not targeted specifically at women nor has it benefited women enterprises in the clean energy sector. Indonesia can draw lessons from the Clean Energy, Education and Empowerment (C3E) Collaboration Programme to work with other countries, industry and organisations to develop concrete solutions promoting women’s participation and leadership in the clean energy sector and Indonesia could draw lessons from this group and even consider joining the programme.
Box 7.1. Main policy recommendations on R&D and innovation, skill and capacity development, and women’s empowerment
Develop national renewable energy development and regional transmission network integration and power trading in tandem, carefully considering the interplay between regional and national power system decarbonisation policies, to lead to significant net carbon reductions.
Substantially increase public funding for energy efficiency and renewable energy R&D and accelerate a shift in R&D spending from fossil fuels towards clean energy technologies in order to accelerate the development of the country’s clean energy industry. Given limited budgets, consider targeting technologies that have a wide uptake potential across the economy and low or medium capital requirements such as energy management systems in industries and commercial buildings and renewable energy applications for Micro, Small & Medium Enterprises (MSMEs).
Establish programmes targeting clean energy incubators to support innovation and assist the next generation of start-ups developing energy efficiency and renewable energy solutions.
Continue building the financial sector’s capacity to unlock clean energy finance through the implementation of training and capacity building programmes and the development of guidelines. As part of the second phase of the Sustainable Finance Roadmap, focus efforts on increasing the availability and disclosure of clean energy projects’ performance and risk-return profiles that will help to increase transparency and build investor confidence. Usefully complement these efforts by awareness-raising campaigns on the opportunities provided by financing clean energy projects.
Consider using a more integrated approach for clean energy training programmes, which goes beyond the technical and operational aspects of energy efficiency and renewable energy project development, targeting key stakeholders e.g. project developers, government institutions and utilities. As part of these capacity-building programmes, consider integrating the financial and business development aspects of project development and include the design of bankable and internationally-recognised PPAs as well as the development and implementation of PPP models.
Consider the implementation of targeted programmes and financial support schemes to encourage and facilitate access to finance for women entrepreneurs in the clean energy sector, particularly as women are important contributors to achieve sustainable development.
Regional grid integration
Indonesia is part of the ASEAN Plan of Action on Energy Cooperation Phase II (2021-2025), which has been created under the ASEAN framework and sets out two outcome-based strategies:
Accelerating the development and completion of ASEAN Power Grid projects identified by ASEAN Interconnection Masterplan Study III (AIMS III) by 2020.
Expanding regional multilateral electricity trading, strengthening grid resilience and modernisation, and promoting clean and renewable energy integration.
The AIMS III study identified five potential cross-border transmission projects connecting Indonesia with its neighbouring countries. This includes a connection from Sumatra to mainland Malaysia as well as connections between the Malaysian and Indonesian parts of Borneo island. The identified interconnections are:
Malaka (Malaysia) – Sumatera (Indonesia)
Batam (Indonesia) – Singapore
Sarawak (Malaysia) – Kalbar (Indonesia)
East Sabah (Malaysia) – North Kalimantan (Indonesia)
Singapore – Sumatera (Indonesia)
So far, only the Sarawak – Kalbar interconnection has reached commercial operation. Interconnection development is complicated and typically takes years; however, key enabling factors can speed up development such as clear budgets and clear frameworks for utilising interconnections once built.
Indonesia has often paid limited attention to transmission development due to budget constraints. For example, the latest RUTPL (the Electricity Business Plan) 2019-28 budget for national transmission is 10% lower than the previous RUTPLs. Similarly, Indonesia has often prioritised national transmission development over cross-border connection as part of its network development strategy, due to public budget constraints and private investment being virtually not allowed in network infrastructure (although this is expected to change in the upcoming RUTPL; see Chapters 2 and 4). In light of these issues, and as shown in an IEA study on ASEAN cross border power trade, Indonesia should consider allowing more private capital into the transmission and distribution segments of its power market as a way to ease the burden on public budget and accelerate transmission network development (IEA, 2019[1]).
While increased interconnection and multilateral power could help accelerate renewable penetration, it could also result in an actual increase of emissions within ASEAN countries, given current levels of fossil fuel (IEA, 2019[1]). If transmission and multilateral power trade were established with the current levels of renewables, there is a risk that (cheap) coal power from Indonesia could be exported to the rest of ASEAN countries, resulting in increased emissions. On the contrary, increasing transmission and multilateral power trade in tandem with higher shares of renewable energy, would enable the total emissions for ASEAN countries to fall. This shows that holistic energy system planning is crucial in order to achieve the emissions reductions targets of ASEAN countries.
Developing multilateral power trade is also one of the targets of the ASEAN Plan of Action for Energy Cooperation (APAEC). Indonesia is engaged in this work via the Heads of ASEAN Power Utilities/Authorities as well as the ASEAN Energy Regulatory Network. Indonesia should continue engagement at the regional level as developing multilateral power trade can have several benefits for the Indonesian power system. One of which is benefits that help integrate higher shares of renewables in the Indonesian system due to the security benefits of multilateral power trade as well as the opportunity to export power to other ASEAN countries.
R&D and innovation
Most of Indonesia’s clean energy R&D and innovation efforts are led by MEMR’s P3TKEBTKE, which has undertaken a range of clean energy R&D activities on both renewables and energy efficiency. These activities include renewable energy resource mapping, research on supply-side technologies and testing methods to improve the energy performance of various appliances (e.g. washing machines, water pumps and rice cookers) as well as compliance with regulation on Minimum Energy Performance Standards (MEPS). Other public institutions also conduct clean energy R&D, albeit to a far lesser extent (see Table 7.1). For example, the BPPT, a public, independent R&D institution, has played a leading role in the field of energy in Indonesia but has so far undertaken few clean energy R&D activities.
Table 7.1. Examples of clean energy-related R&D activities of different R&D institutions
Note: AC= Alternating Current. DC= Direct Current
Source: BPPT, LIPI and P3TKEBTKE.
The scattered nature of R&D activities in Indonesia (even beyond the clean energy sector) recently led the President to announce plans to consolidate economy-wide R&D efforts under the umbrella of the National R&D Agency (BRIN) (The Jakarta Post, 2020[2]). Although the implications this will bear on clean energy R&D are not yet entirely clear, this could possibly entail a rebalancing of clean energy R&D activities from P3TKEBTKE to the BRIN. In this regards, P3TKEBTKE has already started to re-focus its institutional mandate from being a government R&D body to that of an income-generating BLU providing laboratory and testing services to businesses and other stakeholders. This means that, as a BLU, most of P3TKEBTKE’s budget would come from third parties (e.g. from the private sector, research funding and international cooperation) rather than from government budget.
P3TKEBTKE’s R&D activities have traditionally focused on clean fossil fuels, although the institution allocated a bit less than a third of its total budget to clean energy over 2015-20 (see Figure 7.1). Over that period, more than half of the institution’s clean energy R&D spending went to research on renewable energy technologies (particularly in the power sector) with energy efficiency only receiving a small fraction of the total allocation (see Figure 7.2).
Figure 7.1. P3TKEBTKE’s R&D spending and share of clean energy R&D in total spending, 2015-20
Source: P3TKEBTKE statistics.
Figure 7.2. PT3KEBTKE’s clean energy R&D budget per research areas, 2015-20
Note: “Other renewables” covers renewable energy activities not related to the power sector. “Not specific” covers research areas not specific to other categories or that are unspecified.
Source: P3TKEBTKE statistics.
Public clean energy R&D budget has been far too low to achieve Indonesia’s clean energy goals. Total P3TKEBTKE R&D budget allocation for renewables and energy efficiency reached around USD 1.3 million annually on average over 2015-20. This is far below Indonesia’s ambition under Mission Innovation, as part of which it pledged to increase the R&D budget allocated to clean energy to USD 150 million by 2020 or more than 80 times the average annual PT3TKEBTKE budget allocation over 2015-19 (see Figure 7.3). Even though total clean energy R&D budget would also include budgets from other research institutions (for which data is not publicly available), it is unlikely that the total would exceed the Mission Innovation’s targets. Compounding this, P3TKEBTKE’s clean energy R&D budget has been on a downward trend since 2016, with its share in total budget plummeting to 1.5% in 2019. On the one hand, this trend reflects a general decline in P3TKEBTKE’s overall budget since 2015, due to plans to turn the institution into a BLU starting in 2020 (see Figure 7.1). On the other hand, this also reflects an overall lack of attention to clean energy technologies (particularly energy efficiency) compared to “clean” fossil fuel and other technologies, which remain a key focus area of R&D in the country’s energy sector.
Figure 7.3. R&D budget allocation projection under Mission Innovation 2016-20 (Thousand USD)
Source: Mission Innovation, 2016
P3TKEBTKE has received significant international support (IDR 32.18 billion in 2019) and has been involved in several international cooperation initiatives related to clean energy. This includes the following Mission Innovation challenges: smart grid, off-grid access to electricity, carbon capture, and sustainable biofuels. In addition, P3TKEBTKE has collaborated with Japan’s New Energy and Industrial Technology Development Organisation, UNDP as well as the Korea Institute of Energy Technology Evaluation and Planning.
In addition to direct financial support for clean energy R&D, achieving the clean energy transition will also require policy support that can help to develop domestic supply chains and the innovation ecosystem more broadly and facilitate the development of clean energy entrepreneurs. One note-worthy policy implemented in Indonesia is the recently implemented tax incentive to support private spending on R&D, allowing a 300% reduction in R&D spending to gross revenues. While encouraging, this incentive only benefits firms that are already profitable and other incentives targeting early stage companies and supporting firms to overcome the “valley of death” are also needed.
Education, training and capacity building
MEMR’s PPSDM EBTKE is responsible for developing and implementing training and capacity building activities for clean energy. In the energy efficiency sector, MEMR’s PPDSM has notably put in place a number of trainings for green building and industry as well as a certification scheme for energy audit and energy management for energy auditors in both building and industry. In 2019 alone, PPSDM certified 79 energy managers and 175 energy auditors in the industry sector while the Ministry of Labour certified 775 energy auditors in total. These have been complemented by training and capacity building measures, such as Ministerial Regulation No. 41/2015, which established a national SKKNI (Standar Kompetensi Kerja Nasional Indonesia or Indonesia’s national work competency standard) for building and industry energy managers designed to be the reference point for certified training agencies1. Ministerial Regulation No. 53/2018 also established a national working standard for energy audits, designed to be a reference for education and training, competency assessment and certification of energy auditors2.
As for renewables, PPSDM developed a variety of trainings and competency certifications related to the feasibility study, construction, installation and maintenance of multiple renewable power technologies targeted at developers, installers and government staff. Furthermore, universities and vocational schools have also been following suit by developing renewable energy and energy efficiency curriculum, although these are still limited.
In the financial sector, OJK has made skill and capacity development one of the key pillars of its Sustainable Finance Roadmap. Hence, with support from international development cooperation, OJK has been putting considerable efforts into designing a number of guidelines for energy efficiency project financing as well as training modules on renewable energy and energy efficiency for banks, and conducting multi-level trainings (including a level for “training of trainers”). As of 2020, OJK implemented 53 training sessions, which supported capacity building on energy efficiency and renewable energy to around 1050 participants (including OJK staff).
Notwithstanding Indonesia’s efforts, there remains a clean energy finance and investment skill gap. At present, the bulk of training programmes for clean energy has leaned towards the technical and operational aspects of clean energy projects, with a very limited integration of the business and financial aspects of project development. Yet, these skills are key to help project developers to develop bankable projects, whether through financially-robust business plans or solid loan applications, and bring projects towards financial closure. In energy efficiency, for instance, there is not yet an internationally-recognised certification for investment grade audit – although there have been attempts to develop such a certification with the TUV Rheinland University – which has affected the bankability of numerous energy efficiency projects. Similar efforts are also needed to ensure national and local governments and the utilities are well equipped to support and fund clean energy projects. For example, such efforts could focus on designing public-private partnerships (PPPs) and bankable Power Purchase Agreements (PPAs) for clean energy as well as on enhancing the flexibility of the network (looking at processes and forecasting) to allow for increased integration of renewables.
Additionally, training for financial institutions has so far primarily focused on renewable energy, often overlooking aspects of energy efficiency project financing. As a result, commercial banks continue to be relatively unfamiliar with and reluctant to fund energy efficiency projects, in large part due to their small size and the intangibility of their energy-savings-based cash flows. Developing the evidence base of the financial viability of energy efficiency and renewable energy projects (e.g., increasing the availability of projects’ historical data), paired with targeted awareness-raising campaigns, will thus be important.
Gender diversity and supporting women entrepreneurs
There is global recognition that closing the gender gap in the energy sector can help to drive the clean energy transition as women play a vital role in innovation and the development of inclusive solutions. Supporting female entrepreneurship in the clean energy sector not only promotes social inclusion and empowerment, but can also be a driver of economic growth and a success factor for projects. Women can play a significant role in the successful deployment of clean energy to displace fossil fuel supply, but equally, as they are often the most affected, they have the biggest stake in expanding access to energy.
The sector depends on a range of activities along the supply chain, from research and development, manufacturing, installation, operation and maintenance, to finance, business development and many others. Eliminating barriers to entry for women creates more resources for a growing industry. Gender diversity at every level of the organisation from workforce to leadership has co-benefits in terms of growth, culture and sustainability. Studies show that increasing the diversity of leadership teams improved the quality of innovation and financial performance of businesses3. Removing barriers for women to take on leadership roles in the clean energy sector creates a virtuous cycle for more women to enter the sector.
In Indonesia, women are often less financially independent than men. On the demand side, female entrepreneurs generally have less knowledge of the available business opportunities, credit facilities and bank services. Most importantly, women are often at a disadvantage by having less capital to invest or collateral against which to borrow. On the supply side, an Asia Foundation study found that bank managers often lack confidence in business plans put forward by women, which they deem riskier by default4. Hence, the need for targeted support for women entrepreneurs to help overcome this bias and build a stronger track record of developing successful businesses.
While the Ministry of Finance has a microfinance programme that has benefited women-led enterprises, the programme is not targeted at women nor has it benefited women enterprises in the clean energy sector. Women-owned businesses need inclusive financing channels, but also training and mentoring programmes in technical, financial and leadership skills. Multilateral development banks (MDBs) have recognised the credit deficit for women entrepreneurs and have launched initiatives to scale up access to finance, markets, networks, mentors and information. A strong example of a collaboration to help women access financial and nonfinancial services is the Women Entrepreneurs Finance Initiative (We-Fi) launched by 14 governments and six MDBs5.
An additional solution, which is fast developing across emerging economies, including in Indonesia, is fintech. Given the extremely high penetration of mobile phones, mobile solutions provide a unique opportunity to reach even the most vulnerable segments of the population. Mobile platforms can give women greater control over payments and savings, and for entrepreneurs it can provide information and access to financial services. The Women’s MSME Fintech Innovation Fund, supports pilot solutions in Southeast Asia that improve access and usage of financial services for women-owned MSMEs, such as blockchain platforms to link entrepreneurs with investors, digital payments, automated bookkeeping and data-driven credit assessments (UNESCAP, 2021[3]). These solutions can provide a platform for businesses to raise seed capital, in the form of investment, credit, or even donations.
Gender responsive green financing for energy projects can have measurable impacts across sustainable development goals, empowering women, alleviating poverty, supporting economic growth and improving human health through reducing air pollution, whilst also supporting the expansion of clean energy to fight climate change. Gender-lens investors who want to improve the lives of women have a growing number of options across asset classes. Investors can benefit from a choice of fixed income and equity strategies in private and public markets to support women and clean energy in small-scale but also in utility-scale projects. In 2019, BBVA provided a 44 million USD loan for a 48 MW wind farm in Turkey, as a gender loan (BBVA, 2019[4]).
The Clean Energy, Education and Empowerment Collaboration Programme (C3E), an initiative of the Clean Energy Ministerial, provides a vehicle for countries, industry and organisations to work together to develop concrete solutions that promote women’s participation and leadership in the clean energy sector6. Countries part of this initiative, such as Canada, Chile, Italy and Sweden among others, are making the promotion of women’s leadership and participation in the energy transition a key priority. The C3E initiative launched in 2018 the Equal by 30 Campaign, which is a public commitment by governments and corporations to take action on reaching equal pay, equal leadership and equal opportunity for women in the clean energy sector by 2030. The campaign facilitates sharing of best practices and success stories in supporting women’s empowerment in the clean energy sector and provides a platform to facilitate data collection and reporting on progress towards achieving the campaign’s commitments. The Indonesian government could consider participating in the initiative and energy or energy-related companies in Indonesia could consider signing up to the campaign.
References
[4] BBVA (2019), Garanti BBVA finances wind farm in Turkey with gender loan to Polat Energy | BBVA, https://www.bbva.com/en/garanti-bbva-finances-wind-farm-in-turkey-with-gender-loan-to-polat-energy/ (accessed on 11 February 2021).
[1] IEA (2019), ASEAN Renewable Energy Integration Analysis, https://www.iea.org/reports/asean-renewable-energy-integration-analysis (accessed on 9 December 2020).
[5] IEA (2015), Energy Policies Beyond IEA Countries: Indonesia 2015, Energy Policies Beyond IEA Countries, International Energy Agency, Paris, https://dx.doi.org/10.1787/9789264065277-en.
[2] The Jakarta Post (2020), Jokowi wants BRIN to take center stage in research efforts, https://www.thejakartapost.com/news/2020/01/31/jokowi-wants-brin-to-take-center-stage-in-research-efforts.html (accessed on 8 February 2021).
[3] UNESCAP (2021), Catalyzing Women’s Entrepreneurship | ESCAP, https://www.unescap.org/projects/cwe (accessed on 11 February 2021).