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

This research paper by the Climate Policy Initiative analyzes the feasibility of using municipal green bonds to support Indonesia's goal of achieving a 23% renewable energy contribution in its energy mix by 2025. While identifying a strong case for these instruments based on energy targets and the fiscal capacity of certain local governments, the paper highlights significant bureaucratic, regulatory, and market-driven barriers that have prevented their issuance to date.

• Indonesia's National Energy Policy mandates a 23% renewable energy contribution in the energy mix by 2025, but the 2020 reallocation of the USD 49 billion (IDR 695.2 trillion) fiscal budget toward COVID-19 relief has reduced the capacity of local governments to fund these long-term climate goals.
• The issuance of municipal green bonds in Indonesia is hindered by complex eligibility requirements set by the Ministry of Finance, including the need for a prudent loan amount, no existing arrears, demonstrated repayment ability, and a passed financial audit. Currently, all provincial governments on Java Island are eligible except for Central Java, which fails to meet the required Debt Service Coverage Ratio (DSCR).
• Market appetite for municipal green bonds is driven primarily by commercial interests rather than environmental mandates. Investors prioritize credit ratings, issuer reputation, short tenors, and coupon rates. Domestic securities companies and investment banks typically require a minimum rating of AA- or A- from Pefindo, while international banks may accept a minimum of BBB.
• Several structural and technical barriers discourage investment, including a limited pipeline of profitable renewable energy projects, inexperienced bureaucrats, and poor industry awareness regarding green bonds. Additionally, current regulations categorize municipal bonds as long-term loans with a minimum tenor of 5 years, which conflicts with investor preferences for shorter tenors.
• To accelerate issuance, the paper recommends simplifying requirements (such as lowering DSCR criteria), implementing consistent central government policies on renewable energy tariffs and tax incentives, and targeting quasi-government institutions like state-owned banks and pension funds as initial investors.

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} }