On Wednesday, Andrew moderated the panel for the final of seven webinars in Enlit’s series on Indonesia’s New Energy Paradigm, i.e. the power sector and PLN. Fittingly, the series concluded with how to finance upcoming investment and how to turn potential opportunities into actual ones. He was joined by Pak Hot Bakara, EVP Corporate Planning at PLN; David Dovan from the ADB; Ibu Nadia Soraya from lawyers HHP associated with Baker & McKenzie; David Cao from Solmax Bioenergy; and Daniel Mallo of SocGen.
In 2012, Andrew had contributed the chapter on Indonesia to the Principles of Project Finance textbook edited by Rod Morrison. PLN, in particular, has made progress since then, for example on the electrification ratio which now stands at 98%. But it still faces a number of challenges – think 75 million customers spread over 6,000 inhabited islands – and is now embracing considerable change as set out by Pak Darmawan Prasodo, Vice President Director of PLN, in his keynote interview with Enlit’s Simon Hoare.
Pak Bakara reinforced this message at PLN strategy 3.0 Oct 20 before joining our panel.
Amidst Covid 19 and a renewed emphasis on ESG matters, worldwide investor appetite is focused on renewables. PLN has a target for renewables to comprise 23% of the energy mix by 2025, i.e. 16.3 GW which will require $36 billion of investment. At present, though, that mix is only 12% and renewables capacity only 7.8 GW. Yet in 2019, Indonesia raised only $359 million of funding for renewables which was less than even Cambodia.
The regulatory regime needs to be more coherent, land acquisition needs to be easier – blockages to deal flow which are all too familiar – but there are signs of an increasing willingness to grasp such nettles in that this week the House of Representatives (DPR) passed the Omnibus Law to sweep away a raft of old tax and labour laws (and which is therefore not universally popular). (We didn’t get onto the elephantine Renewable Energy Hub in Western Australia, a $22 billion wind / solar project for export to Indonesia which received EPA approval in May or what Indonesia needed to do at its end to make it happen. That’s for next time.)
Of the current energy mix, 62% still comes from domestic coal. According to Pak Darmawan, PLN will stop developing new capacity beyond what is currently underway / in planning but even this amounts to 27 GW. Investor appetite for coal has almost vanished, however, so PLN will have to finance these on – balance sheet (it has issued bonds out to 30 years as investors are attracted to the uptick in yield above the sovereign) or look to the Chinese and Belt & Road.
There is plenty of dry powder, domestic and foreign, ready and waiting to invest in Indonesian power. In his interview, Pak Darmawan promised fair ROIs (for fair assumption of risk). It just needs those blockages to deal flow to be addressed. So there is plenty to be done!
Listen to the recording here.
