According to PT SMI president director Edwin Syahruzad, Indonesia’s energy transition is supported by several asset classes that can be advanced with the help of the private sector, whose participation in energy transition SMI aims to increase.

These asset classes include the initiative to phase down coal-fired power plants, an effort PT SMI is working to establish. They also include renewable energy, as the energy transition can be achieved by increasing its usage, an efficiency program aimed at reducing emissions by improving efficiency and the construction of transmission infrastructure.

According to Edwin, Indonesia, being a large country, has renewable energy sources outside Java, while the demand is primarily in Java. Consequently, building transmission lines is essential to connect the sources with the demand, supporting the energy transition. Additionally, another asset class is carbon removal.

As a Special Mission Vehicle (SMV) of the Finance Ministry and the country platform manager of the ETM, PT SMI has been mandated to support the energy transition by providing financial support to projects in the form of loan facilities or other forms of financing, and facilities through public-private partnership (PPP) schemes. PT SMI’s work is supported by its access to government support, enabled through regulations under the Finance Ministry.

“Government support can come in at least three ways: Guarantees from the government, access to low-cost financing and the public-private partnership process or modality," said Edwin at the third China RE Invest Indonesia 2024, hosted by Tenggara Strategics and the Centre for Strategic and International Studies (CSIS) Indonesia.

Though they receive funding support from the government, PT SMI’s financial support for energy-transition projects can also involve funding from other sources, including international partners such as multilateral development banks, private banks, climate funds, sovereign wealth funds, and also philantrophies. In addition to receiving support in the form of funding, PT SMI also receives support in the form of technical assistance from various partners, including UNDP, ADB, and Tony Blair Institute of Global Change. The technical assistance is provided in the scope of strengthening the narrative of energy transition, socio economic framework of ETM, including ETM secretariat support.

Additionally, as the ETM country platform manager, PT SMI's duties in the energy transition include coordinating with stakeholders to develop an energy-transition framework in the electricity sector, conducting comprehensive studies related to its financial support, and formulating the concept to integrate fiscal support from the Finance Ministry with other sources of de-risking facilities, as well as taking initial steps for the implementation of this country platform.

In providing financial support to energy-transition projects, PT SMI will provide a blended financing scheme, incorporating funds from state-owned electricity company PLN, its subsidiaries or independent power producers (IPPs).

Subsequently, during his presentation at the event’s session on the ETM platform and RE projects, Edwin highlighted that PLN had an integral role in the country’s energy transition as it worked as a single buyer and single off-taker. Therefore, to secure new financing, a solution enabling PLN to have better access to funds within its balance capacity is needed.

PT SMI and PLN have already initiated cooperation, recently closing a sustainability-linked financing deal that sees PT SMI provide PLN with a green loan amounting to Rp 2 trillion (US$126 million). The loan is intended to finance green projects aligned with PLN’s Green Financing Framework. Eligible projects include renewable energy sources such as solar photovoltaic (PV), wind, geothermal, hydropower and energy-efficiency projects in both industry and utility scale.

Edwin also touched on power purchase agreements (PPAs) as one of several agreements in which the early retirement of coal-fired power plants will be contractually agreed upon. In this case, it involves a PPA amendment.

According to Edwin, PT SMI is currently in discussions regarding the amended PPA, which will see a reduction in the PPA’s tenor, as it has been leaning more toward coal-fired power plants. In addition to PPAs, other agreements related to the early retirement of coal-fired power plants involve the Asian Development Bank (ADB), which supports PT SMI by providing concessional finance. These agreements include cooperation agreements, ETM alignment agreements and tripartite agreements.

As the third China RE Invest Indonesia 2024 aimed to connect renewable energy stakeholders from China and Indonesia to increase investment in Indonesia’s renewable energy sector, Edwin also paid particular attention to Indonesia’s investment opportunities and financial climate, which involves not only locally produced financing but also cross-border finance and investments. According to him, attracting cross-border or overseas finance to support Indonesia’s energy transition and open investment opportunities requires collaboration as a key element for finance institutions.

In addition to collaboration, Edwin mentioned green taxonomy, market discipline and project availability as important elements for financial institutions to consider. The availability of projects poses the most significant challenge, as finance follows investment opportunities. With Indonesia holding immense potential, there are high hopes from power producers for more progressive availability of projects.

To address this, PTSMI is seeking especially projects with local currency contractual agreements, due to its competitive edge in such projects.

“If it is in a local currency contractual agreement, we have a competitive position, but we don’t want to dominate the finance. We are always seeking collaboration,” Edwin said.

The third China RE Invest Indonesia 2024 is part of the third edition of RE Invest Indonesia, which also brought together industry players from Japan and South Korea to invest in Indonesia’s renewable energy sector. The event received support from SMI, PLN, the Energy and Mineral Resources Ministry, the China Chamber of Commerce in Indonesia, the Chinese Embassy in Jakarta, China Desk, The Jakarta Post and Prasetiya Mulya University.

This article is written in partnership with Tenggara Strategics

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