Following the recent release of a comprehensive investment and policy plan, Indonesia now has a roadmap for the Just Energy Transition Partnership (JETP). And the main figure is always $20 billion in financial commitments from foreign partners in the United States, England, Europe and Japan. While this number is certainly significant, it depends on how the investment is structured and implemented.
JETP has pledged to raise $20 billion in funding to support private developers looking to enter the Indonesian market and support clean energy projects such as solar, geothermal and wind power. This number is divided into two parts: $10 billion from governments and other creditors and $10 billion from the private sector at market value.
We now need the first $10 billion from the governments and development banks of Japan, the United States and Europe. Some, but not all, of these financings mean that the borrower (Indonesia) is offered a lower interest rate or more attractive terms than would be possible in competitive capital markets.
The proposal is the first to usher in a $10 billion investment and shows that Indonesia is an attractive market for clean energy development. Once this proof of concept is demonstrated, the private sector will seek an additional $10 billion or more in market financing and investments. So what do we know so far about the $10 billion startup?
The European Investment Bank has committed more than $1 billion in financing. France has promised low-interest loans of up to 500 million euros (US$540 million) through its development agency AFD, and Germany has promised around US$1.5 billion. Japan has taken out $1.7 billion in soft and non-soft loans. While many details still need to be ironed out, Japan and Europe appear to have made relatively straightforward commitments to provide more than $4.5 billion in financing, much of it better than what could be offered on the open market.
However, things become clearer when we get to the UK and US. Both countries are providing government guarantees to help Indonesia increase its World Bank borrowing limit. The US will also provide $1 billion in concessional financing through the Development Finance Corporation (DFC). However, there is a small caveat. “The ability to ultimately deliver DFC investments depends on the number of private sector-led projects that meet the DFC’s financial, environmental and social criteria and require financing. from DFC; Project developers can only move forward if host governments create a regulatory and enabling environment that supports private sector investment.
This means that the UK and US will not directly pledge concessional financing or equity investment like other JTP partner countries, but rather the UK and US's main commitment will be a credit guarantee allowing Indonesia to receive an additional US$2 billion from the World Bank and to lend to others. Just do. Credit limit. In my opinion it doesn't send very strong signals.
Meanwhile, the DFC will provide $1 billion in concessional financing, but Indonesia is expected to first implement market reforms that will enable and support more private sector investment. These reforms include reforming the business model and procurement processes of the state-owned electricity company PLN, increasing retail electricity prices and shifting significant market risks from private developers to the state.
JTP's long-term goal is clearly for Indonesia to see significant growth in private-sector solar investment, and this initial $10 billion should pave the way. But if the U.S. wants to take the lead in Indonesia's clean energy transition, Indonesia can easily mobilize finance and investment without waiting to implement comprehensive market-oriented reforms.
It is worth remembering that the US and its allies are not the only source of financing for Indonesia's clean energy transition. State-owned geothermal oil and gas company Pertamina recently raised more than $500 million on a domestic exchange, representing just over a quarter. Indonesia's state-owned banks are well capitalized and can raise large sums of money to finance clean energy projects.
If China is serious about entering the Indonesian clean energy market, major market reforms will certainly not be required in return for investment. The cash-strapped UAE is also in the market to build utility-scale solar power through energy company Masdar in collaboration with PLN.
JETP has a good basic idea: The USA, Japan and European partners should take a pioneering role in Indonesia's transition to clean energy. But if we look at the actual amounts committed and the terms under which they were issued, several billion dollars of concessional and non-concessional financial and credit guarantees represent debt with market value, and private investment is not much. The only way here. Indonesia has made it clear that the country is open to investment from all sources, but it must be attractive and attractive to domestic stakeholders, not just foreign developers, lenders, financial companies and DFCs.
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