Accelerating renewable energy finance in Indonesia

The report investigates the potential for municipal green bonds to support Indonesia's goal of 23% renewable energy by 2025. While provincial governments in Java and Bali generally meet fiscal eligibility criteria, no municipal bonds have been successfully issued as of 2021. Key barriers include complex bureaucratic procedures, a lack of profitable project pipelines, and a conservative investor market primarily motivated by credit ratings and commercial returns rather than green mandates. The authors recommend simplifying issuance requirements, providing clearer central government policy signals, and targeting quasi-government institutions as initial investors.

• Local governments must meet four Ministry of Finance criteria to issue bonds: a prudent loan amount, no existing arrears, demonstrated ability to repay debts (via a minimum Debt Service Coverage Ratio of 2.5), and a passed financial audit.
• Most provincial governments in Java and Bali are eligible to issue bonds, with the exception of Central Java, which fails to meet the required Debt Service Coverage Ratio (DSCR).
• Market participants are primarily driven by commercial interests rather than environmental goals; the most critical factors for investment are the bond's credit rating, the issuer's reputation, and market liquidity.
• Investors have specific minimum rating requirements: domestic securities companies and investment banks typically require AA- or A-, while international banks may accept BBB.
• Supply-side barriers include a limited pipeline of profitable renewable energy projects and a lack of experience among local bureaucrats in managing bond issuances.
• Demand-side barriers include low green awareness in the industry and concerns over additional costs associated with green labeling, feasibility studies, and capacity building.
• Investors prefer shorter bond tenors (less than 5 years), whereas current regulations categorize municipal bonds as long-term loans with a minimum tenor of 5 years.
• For projects with low bankability, municipal loans from PT SMI are a more viable alternative than green bonds because PT SMI can absorb more risk through a Ministry of Finance guarantee mechanism.

APA

Wijaya, M. E., Siagian, A. P., Mecca, B. M., & Haesra, A. R. (2021). Accelerating renewable energy finance in Indonesia. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/07/The-potential-of-municipal-green-bonds.pdf

Chicago

Wijaya, Muhammad Ery, Albertus Prabu Siagian, Brurce Muhammad Mecca, and Alke Rabinsa Haesra. Accelerating renewable energy finance in Indonesia. Climate Policy Initiative, 2021. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/07/The-potential-of-municipal-green-bonds.pdf.

Wikipedia

{{cite report |last1=Wijaya |first1=Muhammad Ery |last2=Siagian |first2=Albertus Prabu |last3=Mecca |first3=Brurce Muhammad |last4=Haesra |first4=Alke Rabinsa |title=Accelerating renewable energy finance in Indonesia |publisher=Climate Policy Initiative |date=July 2021 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2021/07/The-potential-of-municipal-green-bonds.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{wijaya2021accelerating, author = {Wijaya, Muhammad Ery and Siagian, Albertus Prabu and Mecca, Brurce Muhammad and Haesra, Alke Rabinsa}, title = {{Accelerating renewable energy finance in Indonesia}}, institution = {Climate Policy Initiative}, year = {2021}, month = jul, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2021/07/The-potential-of-municipal-green-bonds.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }