Accelerating renewable energy finance in Indonesia

This report by the Climate Policy Initiative analyzes the feasibility of using municipal green bonds to finance renewable energy in Indonesia. While the legal framework exists and several provincial governments possess the fiscal capacity to issue bonds, the market remains conservative. Key barriers include complex bureaucratic procedures, a lack of profitable project pipelines, and investor preference for high credit ratings and short tenors over environmental mandates. The report recommends simplifying issuance requirements, implementing consistent central government policies on renewable energy, and targeting quasi-government institutions as initial investors.

• Local governments in Indonesia face significant bureaucratic and eligibility hurdles to issue municipal bonds, requiring them to meet four Ministry of Finance criteria: a prudent loan amount, no existing arrears, demonstrated ability to repay debts, and a passed financial audit.
• Most provincial governments on Java Island 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 green mandates, prioritizing bond ratings, issuer reputation, short tenors, and coupon rates over renewable energy policies.
• There is a clear preference among investors for bonds rated by Pefindo, with domestic securities companies and investment banks typically requiring a minimum rating of AA- or A-, while international banks may accept BBB.
• Investors express skepticism regarding the supply of municipal green bonds due to a limited pipeline of profitable renewable energy projects, inexperienced bureaucrats, and the potential for high additional costs related to green labeling and feasibility studies.
• Market participants view the Jakarta and West Java governments as the most attractive issuers due to their perceived strong fiscal capacity and professional human resources.
• To increase attractiveness, investors suggest 'sweeteners' such as physical assets with appreciable value as collateral, convertible bonds, or the use of municipal green bonds as underlying repos with the central bank.
• The report suggests that local governments should first target quasi-government institutions, such as local state-owned banks and the national pension/insurance provider BPJS, to establish a base investor pool.

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} }