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

The report analyzes Indonesia's public finance levers for clean energy, finding that while IDR 12.4 trillion was provided between 2012 and 2016, this is insufficient to meet the 2025 target of 23% renewable energy in the primary energy mix. It identifies key barriers to private investment, including high financing costs and a lack of long-term debt, and argues that capital injections into local development financial institutions (DFIs) like SMI and the use of guarantees are more effective at leveraging private capital than direct budget appropriations. The report recommends adjusting tariff structures to ensure project viability and expanding the role of DFIs to bridge financing gaps.

• Indonesia aims for a 23% renewable share in its primary energy mix by 2025, but as of 2017, renewable energy capacity was only 6.3 GW out of a target of 45.2 GW.
• The total investment required to reach renewable energy targets is estimated at IDR 2,000 trillion (USD 154 billion), with power generation alone requiring IDR 1,400 trillion, averaging IDR 140 trillion per year.
• Between 2012 and 2016, the Indonesian government provided at least IDR 12.4 trillion in public finance for clean energy, averaging IDR 2.5 trillion annually, which supported the deployment of 2,140 MW of renewable energy.
• Public finance instruments vary in effectiveness; guarantees and capital injections to state-owned enterprises (SOEs) have the highest impact on leveraging private investment, while budget appropriations to line ministries and regional transfers have no direct impact on private sector barriers.
• Four primary financial barriers hinder private investment in Indonesia's clean energy sector: high financing costs due to high interest rates, a lack of long-term debt funding, inefficient policy frameworks that skew risk-return profiles, and risk aversion within the local financial sector.
• The current tariff regime, which limits renewable energy tariffs based on local generation costs (BPP), often makes projects unviable because renewable technologies remain more expensive than fossil fuel alternatives in Indonesia.
• Local development financial institutions (DFIs) like Sarana Multi Infrastruktur (SMI) are highly effective intermediaries because they can blend government capital with international funds and provide long-term funding that commercial banks cannot.
• De-risking commercial risks, particularly in the early development phase, has a greater impact on reducing project costs than de-risking political risks, as investors have become more comfortable with the state-owned off-taker (PLN).

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} }