CLEAN ENERGY FINANCE AND INVESTMENT POLICY REVIEW OF INDONESIA.

Preface
Foreword
Abbreviations and acronyms
Executive Summary
	Assessment
		Planning and public governance
		Regulatory framework
		Investment and competition policy
		Investment promotion and facilitation
		Financial market policy
		Crosscutting issues
1 Introduction and recent trends in clean energy finance and investment
	Introduction
	Key economic trends
		Indonesia’s economy has grown steadily over the last decades
		Growth has improved livelihoods but its fruits remain unevenly distributed
	Key energy demand and efficiency trends
		Energy efficiency is key to rationalise energy consumption and lower emissions
		The residential and industry sectors are amongst the largest energy consumers
		Despite a good start, progress towards energy efficiency targets has weakened as of late
	Power sector trends
		Fossil fuels continue to play a key role in Indonesia’s power sector
		Renewables deployment continues lagging behind
	Clean energy investment trends
		Coal continues to represent the bulk of power investment
		More renewable energy investment is needed to help meet growing demand and achieve targets
		While the investment gap remains large, renewables are increasingly becoming cost competitive
		The domestic market for energy efficiency has ample room for expansion
	References
	Notes
2  Planning and public governance
	Assessment and recommendations
		Strengthening of the National Energy Council’s co-ordination role is needed
		Strengthening co-ordination between government institutions is crucial to enhance and streamline the regulatory environment
		Economic dynamics impact energy and should be better reflected in energy planning and target setting
		Aligning energy planning with One Map tools could improve clean energy investment
		Data transparency and accessibility is a key for enhancing financial project support
		Energy efficiency and promotion of renewable energy can support green economic recovery
		Clean energy development needs clear, long-term signals from the government that reflect opportunities for investors
	Policy coherence, co-ordination, and monitoring
		Clean energy policy, finance and investment governance is split across multiple institutions
		Lack of an effective co-ordination body is a challenge
	Indonesia has provided long-term goal setting to promote clean energy investment
		Clean energy plays an important role in Indonesia’s climate strategy
		Indonesia’s clean energy goals are laudable but could prove challenging to achieve
		Local governments need to play a greater role in implementing clean energy targets
		Indonesia’s new mid-term plan could help revive support for clean energy
	Institutional framework for electricity market
	Electricity planning
		Differences across energy and power plans affect the clean energy investment climate
		A more transparent and sound RUPTL is needed to boost investment
		One Map Policy and Indonesia One Data could support a more coherent electricity planning
		Clean energy technology development and demand behaviour will reshape Indonesia’s energy landscape
	References
	Notes
3 Regulatory framework
	Assessment and recommendations
		A clear and assertive regulatory framework is central to achieving Indonesia’s clean energy transition
		Expanding policy strength and coverage is vital to energy efficiency development
		Enforcement, monitoring and evaluation of energy efficiency policy needs to improve
		The energy service market remains an untapped resource for efficiency deployment
		Electricity market development requires a clearer regulatory framework
		New and impending measures will strengthen renewable electricity development, so long as policy implementation is carried out consistently and transparently
		Indonesia’s renewable electricity market has major potential, if properly facilitated
	Energy efficiency policies and regulations
		Energy efficiency regulations are improving, but coverage should be expanded
		Better monitoring, verification and enforcement will increase energy efficiency uptake
		Expanding awareness raising efforts will encourage energy efficiency implementation
		Energy services market development can grow with a clearer regulatory framework
	Electricity market design and renewable energy policies and regulations
		Regulatory conditions have improved but still complicate electricity market progress
		Complex regulations and perceived risks have limited renewable electricity deployment
		Rules on renewable electricity tariffs should be aligned with global market practice
		Net-metering regulations should change to mirror solar ambitions
		Aligning renewable and energy efficiency policies will influence future system flexibility
	References
	Notes
4 Investment and competition policy
	Assessment and recommendations
		There is a need to improve the transparency and fairness of PLN’s (the state electricity company) power procurement process
		Indonesia’s FDI regime for clean energy remains restrictive although reforms are under way
		Local content requirements (LCRs) remain high and weigh on project investment cost
		Indonesia is making efforts to improve land access
		More can be done to harness public-private partnerships (PPPs) for clean energy
	Creating a level playing field between public and private investors in clean energy infrastructure
		More efforts are needed to level the playing field between IPPs and PLN
		There is a need to create a more transparent, clear and predictable procurement process
	Promoting equal treatment of foreign and domestic investors in clean energy
		Indonesia is making considerable efforts to liberalise its FDI regime for clean energy
		LCRs drive up projects’ investment costs
	Facilitating land access for renewable energy projects
	Harnessing public-private partnerships (PPPs) for clean energy
		Indonesia has so far made very limited use of PPPs in the clean energy sector
	Other investment-related issues
	References
	Notes
5 Investment promotion and facilitation
	Assessment and recommendations
		Indonesia should continue to see through its fossil fuel subsidy reform
		Time to 2025 ambitions is short, but near-term measures can get projects off the ground
		Lack of incentives give limited reason to adopt current voluntary standards
		Channelling finance and investment to energy efficiency requires more targeted support
		Demonstrating support of clean energy projects is critical to create market confidence
		Support should aim to diminish obstacles to renewable energy finance and investment
		Indonesia has shown it can be innovative in enabling renewable energy investment
		Long-term effort should focus on creating conditions for a flexible and dynamic market
	Energy subsidy reform and carbon pricing
	Targeted incentives and funds for energy efficiency investment
		Lack of incentives compounds other challenges affecting energy efficiency investment
		Public procurement for energy efficiency investments can propel market demand
		Market-based instruments can help to promote energy efficiency investment
		Promotion of an energy services market can unlock energy efficiency development
	Targeted incentives and enabling environment for renewable electricity
		Renewable electricity procurement practices need to sufficiently encourage investment
		Licensing of renewable electricity projects can be improved to facilitate development
		Corporate sourcing of renewable electricity remains an untapped opportunity
		Incentives for investments in renewable integration and grid infrastructure can improve
	References
	Notes
6 Financial market policy
	Assessment and recommendations
		A sustainable finance framework is in place and continues to evolve.
		Prudential regulation may create barriers to renewable energy financing.
		Alignment with the Ministry of Energy and Mineral Resources (MEMR) is needed on sustainable finance categories to address inconsistencies that create confidence issues.
		Indonesia is a leader in sovereign green bonds and is a fintech innovator.
		Capital markets hold significant potential to finance clean energy projects
		The finance sector is lagging on clean energy, despite strong government action.
		High collateral requirements makes access to finance challenging, particularly for smaller project developers.
		Further capacity building and support is required to build investor confidence.
		Lack of domestic project finance for clean energy drives up financing costs.
	Strengthening and deepening local financial markets
		Shallow capital markets in Indonesia limit financing options for corporates
	Access and status of finance for clean energy
		Regulatory barriers and lack of adequate data and information pose challenges for banks to finance clean energy projects
	Sustainable finance regulation, taxonomy development and green bonds
		Mapping a path towards sustainable finance
		Considerations for the development of Indonesia’s Sustainable Finance Taxonomy
		A market leader and innovator in sovereign green bonds (sukuk)
	Role of development finance
		Blended finance and the SDG One Indonesia Fund
	Dedicated finance facilities and institutional innovation to promote clean energy
	References
	Notes
7  Cross-cutting issues
	Assessment and recommendations
		Regional integration can be an enabler for renewable investment, but co-ordination between renewables investment and regional integration is key
		Stronger support is needed for renewable electricity and energy efficiency R&D
		An integrated approach is needed to fill the clean energy finance and investment skill gap
		Empowering women and supporting female entrepreneurs can accelerate Indonesia’s clean energy transition
	Regional grid integration
	R&D and innovation
	Education, training and capacity building
	Gender diversity and supporting women entrepreneurs
	References
	Notes