Money is available to support green energy in Indonesia but the challenge is to direct it to key projects, a webinar has heard.

The climate finance and Indonesia energy transition webinar was organised by the Australia-Indonesia Centre and the Cross Sector Partnerships Initiative (XSPI) with a keynote presentation by Dr Mari Elka Pangestu, a leading economist and Indonesia’s Special Envoy for Climate Finance.

Dr Pangestu said that globally the “crowding in” of public funds had been slow and that the amount being crowded in was small for the private sector.

She said developing countries face systemic barriers in supporting climate finance, notably due to risk perceptions, low investment rating contributing to high capital costs and the lack of climate finance standards.

She said there was also “limited fiscal space” or flexibility in terms of governments being able to accommodate climate finance investment for developing countries.

Dr Pangestu said there were “many challenges” towards financing green energy but progress could occur if governments put the right parameters in place.

“For me it always starts at the national level. Investors clearly want to see long term commitment from the government.

“It is one thing to announce your NDCs (Nationally Determined Contributions) and your target for Net Zero, but investors would really like to see the ‘how to’,” Dr Pangestu said.

HSBC Indonesia president director Francois de Maricourt said how to invest remained a challenge and that blended finance (a combination of public and private funds) would be crucial in de-risking projects.

“If you look at the banks, the banks have actually set aside capital and financing for blended finance and supporting the transition to net zero,” Mr de Maricourt said.

“In the case of HSBC, we have committed one thousand billion dollars for green projects. So the money is there.

“The question is, how bankable are the projects and what can we do to de-risk them?

“Because of course the vast majority of these projects are in developing markets but at times the risk level is too high for private finance to finance them.”

Mr de Maricourt said there were examples of blended finance in action in Indonesia, notably the “retiring” of a carbon coal-fired power plant (CFPP) with money from the Asian Development Bank (ADB) and a private bank.

He said the private sector was sometimes “crowded out” or excluded from some of the easiest clean energy projects which were

“I am quite optimistic that in the years to come we will see an increase [in funding clean energy],” Mr de Maricourt said.

“Indonesia will need $300 billion of investments and clearly that cannot be public money alone.”

Co-founder of Eximbank and AIC board member Felia Salim said there was reason for optimism with state-owned banks and others under pressure from investors and others to support green projects.

Ms Salim said investors were beginning to understand not only climate change risks but also other strategic risks such as regulatory initiatives backed by the Global Energy Alliance, a non-government organisation established to support the transition to renewable energy.

“From the bottom up, there are a lot of initiatives such as diesel conversion and making it hybrid with solar, looking at batteries and storage,” she said.

“This is now coming together and I sense there is more dialogue with the financial sector as well as the insurance sector.”

View full climate finance webinar here

Climateworks Centre sustainable finance lead Cassandra Williams spoke about the challenges for the superannuation industry of investing in clean energy projects in countries like Indonesia, with super funds hamstrung by requirements to deliver returns for members through the ‘your future, your super’ laws of 2021.

“We have close to four trillion [Australian] dollars today in the superannuation system,” Ms Williams said.

“Super funds have a duty to their members, the people who actually own the money.

“That is to deliver appropriate risk-adjusted returns. When we are looking at the energy transition, when we are looking at Indonesia as a country specifically, you have to weigh up that country’s risk. That is a really big barrier.”

Ms Williams said the 2021 laws had contributed to “investment hugging” and only investing in benchmark projects.

“We talk about investment ready and bankable projects, we have to look at risk-adjusted returns for members’ money,” she said.

“Having blended finance and concessional capital is absolutely critical to move investments along that investment spectrum.”

Managing director of Nickel Industries Indonesia, Justin Werner, said change was already occurring in the minerals sector, for example using hydrometallurgical plants instead of pyrometallurgical plants as a step towards net zero emissions by 2050.

Mr Werner described the use of sulphuric acid rather than furnaces to melt nickel ore with that heat converted into power.

“Actually sixty percent of the power for our high pressure acid leach plants come from the sulphuric acid plant and we’re then supplementing that with energy from Indonesia’s largest solar project,” he said.

The webinar was moderated by AIC communications lead Helen Brown with closing comments from XSPI chief executive Zoey Diaz.

Feature image by Unsplash and Andreas Gucklhorn.