Accelerating Renewable Energy Finance in Indonesia: The Potential of Municipal Green Bonds

The document examines the potential for Indonesian subnational governments to issue green bonds to meet the national target of 23% renewable energy by 2025. While some provincial governments in Java are eligible based on Ministry of Finance criteria, issuance is hindered by complex bureaucratic procedures, a lack of profitable project pipelines, and investor preference for high credit ratings over 'green' labels. The authors recommend simplifying issuance requirements, implementing clearer central government policies on renewable energy tariffs and tax incentives, and targeting quasi-government institutions as initial investors.

• Indonesia's goal to reach a 23% renewable energy contribution in the energy mix by 2025 is threatened by reduced fiscal capacity in local governments following the reallocation of the 2020 budget to address the COVID-19 pandemic.
• Municipal green bond issuance in Indonesia is obstructed by several barriers, most notably bureaucratic procedures, complex eligibility requirements, limited market appetite, and a lack of profitable projects. Specifically, the Ministry of Finance requires four criteria for issuance: a prudent loan amount, no existing arrears, demonstrated ability to repay debts, and a passed financial audit.
• Research indicates that while most provincial governments on Java Island are eligible to issue bonds, Central Java is ineligible due to a Debt Service Coverage Ratio (DSCR) that is lower than the Ministry of Finance's requirement. Eligibility is expected to be significantly lower for provincial governments outside Java.
• Market surveys reveal that investors are primarily driven by commercial interests rather than green mandates. Key decision factors include bond ratings (with preferences for Pefindo and Fixed Ratings), issuer reputation, coupon rates, and shorter tenors. Domestic investment banks typically require a minimum rating of AA- or A-, while international banks may accept BBB.
• The Omnibus Law on Job Creation, passed in October 2020, has improved the efficiency of the issuance process by removing the requirement for municipal governments to seek approval from the local House of Representatives (DPRD).

APA

Climate Policy Initiative (2021). Accelerating Renewable Energy Finance in Indonesia: The Potential of Municipal Green Bonds. https://www.climatepolicyinitiative.org/publication/accelerating-renewable-energy-finance-in-indonesia-the-potential-of-municipal-green-bonds/

Chicago

Climate Policy Initiative. Accelerating Renewable Energy Finance in Indonesia: The Potential of Municipal Green Bonds. 2021. https://www.climatepolicyinitiative.org/publication/accelerating-renewable-energy-finance-in-indonesia-the-potential-of-municipal-green-bonds/.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=Accelerating Renewable Energy Finance in Indonesia: The Potential of Municipal Green Bonds |date=7 July 2021 |url=https://www.climatepolicyinitiative.org/publication/accelerating-renewable-energy-finance-in-indonesia-the-potential-of-municipal-green-bonds/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiative2021accelerating, author = {{Climate Policy Initiative}}, title = {{Accelerating Renewable Energy Finance in Indonesia: The Potential of Municipal Green Bonds}}, institution = {Climate Policy Initiative}, year = {2021}, month = jul, url = {https://www.climatepolicyinitiative.org/publication/accelerating-renewable-energy-finance-in-indonesia-the-potential-of-municipal-green-bonds/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }