Energizing Renewables in Indonesia: Optimizing Public Finance Levers to Drive Private Investment

This report by the Climate Policy Initiative (CPI) analyzes the role of public finance in mobilizing private investment for renewable energy in Indonesia. It evaluates eight public finance instruments used between 2012 and 2016, identifying significant financing barriers—such as high interest rates and a lack of long-term debt—and recommends strategic shifts toward using local development financial institutions and improved revenue support to meet the country's 2025 renewable energy targets.

• Indonesia faces a significant gap in renewable energy capacity; by 2017, it had reached only 6.3 GW of the 45.2 GW target for 2025. To meet this goal, the state electricity company (PLN) estimates total investment needs of IDR 2,000 trillion (approximately USD 154 billion), with power generation alone requiring IDR 1,400 trillion.
• Between 2012 and 2016, the Indonesian government provided at least IDR 12.4 trillion (averaging IDR 2.5 trillion per year) to support clean energy, contributing to the development of at least 2,140 MW of capacity. This represents less than 10% of the 4.3 GW annual addition required to meet 2025 targets.
• Public finance flows are heavily concentrated in geothermal (77%) and hydropower (21%) technologies, aligning with the General Electricity Provision Plan, while solar and wind remain severely underutilized.
• Four primary financing barriers hinder private investment in Indonesia's clean energy sector: high financing costs driven by high benchmark interest rates, a lack of long-term debt funding (typically over 10 years), inefficient policy frameworks that skew risk-return profiles, and risk aversion within the local financial sector.
• An assessment of eight public finance instruments reveals that guarantees and capital injections into public financing entities like Sarana Multi Infrastruktur (SMI) are the most effective for leveraging private investment. Conversely, budget appropriations to line ministries and regional fiscal transfers have no direct impact on private sector barriers as they only support public projects.
• The current tariff structure is a major barrier because most renewable technologies in Indonesia are more expensive than fossil fuel alternatives. The report recommends that Power Purchase Agreements (PPAs) and tariffs be designed to reflect technology costs independently of local generation costs (BPP).
• Local development financial institutions (DFIs), specifically SMI, are identified as critical intermediaries. SMI can blend government capital with international funds, raise debt at lower rates than private peers, and provide the long-term funding horizons required for renewable projects.
• Public finance is most impactful when directed at early-stage project development risks (such as resource estimation and feasibility studies), as these uncertainties often prevent projects from reaching the construction phase.
• The report suggests expanding the coverage and transparency of guarantee instruments, such as the Business Viability Guarantee Letter (BVGL) and the Indonesia Infrastructure Guarantee Fund (IIGF), and introducing specific mandates for climate-related projects to improve utilization.

APA

Sitorus, S., Rakhmadi, R., Haesra, A., & Wijaya, M. E. (2018). Energizing Renewables in Indonesia: Optimizing Public Finance Levers to Drive Private Investment. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/11/Energizing-Renewables-in-Indonesia-Optimizing-Public-Finance-Levers.pdf

Chicago

Sitorus, Suzanty, Randy Rakhmadi, Alke Haesra, and Muhammad Ery Wijaya. Energizing Renewables in Indonesia: Optimizing Public Finance Levers to Drive Private Investment. Climate Policy Initiative, 2018. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/11/Energizing-Renewables-in-Indonesia-Optimizing-Public-Finance-Levers.pdf.

Wikipedia

{{cite report |last1=Sitorus |first1=Suzanty |last2=Rakhmadi |first2=Randy |last3=Haesra |first3=Alke |last4=Wijaya |first4=Muhammad Ery |title=Energizing Renewables in Indonesia: Optimizing Public Finance Levers to Drive Private Investment |publisher=Climate Policy Initiative |date=November 2018 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2018/11/Energizing-Renewables-in-Indonesia-Optimizing-Public-Finance-Levers.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sitorus2018energizing, author = {Sitorus, Suzanty and Rakhmadi, Randy and Haesra, Alke and Wijaya, Muhammad Ery}, title = {{Energizing Renewables in Indonesia: Optimizing Public Finance Levers to Drive Private Investment}}, institution = {Climate Policy Initiative}, year = {2018}, month = nov, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2018/11/Energizing-Renewables-in-Indonesia-Optimizing-Public-Finance-Levers.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }