ADB grants Indonesia $500mn energy transition loan

The Asian Development Bank (ADB) has approved a $500mn loan to support Indonesia's energy transition through the Affordable and Sustainable Energy Transition programme.

The programme aims to establish a policy and regulatory framework for a clean energy transition, strengthen sector governance and financial sustainability, and ensure a just transition towards net zero.

Indonesia has set a target to reach net zero by 2060, but is heavily reliant on fossil fuels, which accounted for 80GW, or 86pc of total power generation capacity in 2023, according to a report by energy think-tank Ember. The country's renewable growth capacity has also been slow, with only 3.3GW of renewables added over 2018-23, bringing the total share of renewables to 13GW as of 2023. On the contrary, the country added 26GW of fossil fuel capacity over the same period, according to Ember.

"This policy-based loan programme supports Indonesia's foundational and co-operative policy development to identify and address the sector's complex challenges to accelerate its shift towards sustainable energy," the ADB's country director for Indonesia, Jiro Tominaga, said.

One of the main measures of the programme is to develop a Comprehensive Investment and Policy Plan (CIPP). A draft CIPP was published in November last year and it serves as a framework for the Just Energy Transition Partnership (JETP).

Indonesia in 2022 entered the JETP, a financing mechanism through which it is supposed to receive $20bn from international partners like the US, EU, Japan and Canada to phase out coal and increase the share of renewables in its energy mix.

But the JETPs have been long on promise and short on implementation, and need to be scaled up to be effective, according to a research report. Indonesia could need up to $12 trillion until 2050 to finance its energy transition away from coal, and the lack of additional financing could slow down the uptake of cleaner energy.

Other measures under the programme include regulatory improvements to scale up renewable energy capacity and initiatives to strengthen the capacity and governance of state-owned energy firms.

The ADB is working with French public financial institution Agence Francaise de Development and the German Development Co-operation through German bank kfW as co-financing partners "to support the government's leadership in energy transition," the ADB said. More details on how the funds will be used were not disclosed.

The Asia-Pacific region holds significant investment opportunities in the energy transition. It needs at least $1.1 trillion/yr in climate financing, but actual investment falls short by at least $815bn/yr. The ADB estimated its investments in the region to have amounted to $10.7bn in 2023.

By Prethika Nair