ADB mobilizes public, private financing to boost Indonesia’s energy sector

JENEPONTO, SOUTH SULAWESI — About 90 kilometers (km) south of Makassar and near the Flores Strait, 20 new wind turbines, with 80-ton rotating blades 63 meters long and 5 meters wide, are spinning fiercely on flat green fields in the Jeneponto District of Indonesia’s South Sulawesi province.

The 72-megawatt (MW) Tolo Wind Power Project was funded by a $120 million loan from the Asian Development Bank (ADB) and began operations in December. In addition to the ADB loan, the Tolo Power Project is supported by two trust funds: the Leading Asia’s Private Sector Infrastructure Fund and the Canadian Climate Fund for the Private Sector in Asia II. Enjoying a strong ocean breeze, it is expected to generate clean power to be sold to Perusahaan Listrik Negara, the state-owned power utility known as PLN.

The project, developed by independent power producer Vena Energy, represents a new frontier in Indonesia’s quest to increase renewable energy generation.

“The wind farm, the second-largest in Indonesia, will provide reliable electricity to South Sulawesi and help increase the portion of clean energy in the country’s power supply, for which the Government of Indonesia has set a target of 23% by 2025,” says Indonesia’s Energy and Mineral Resources Minister Mr. Ignasius Jonan.

Expanding access to reliable electricity

Indonesia has abundant sources of renewable energy, including solar, wind, and biomass, but it lags many of its Asian neighbors in converting them into electricity. The wind power project will show a way forward by demonstrating how to successfully integrate variable renewable generation into the country’s main power grid run by PLN.

Electricity access is a challenge in Indonesia. Despite the government’s efforts to increase electricity access to 98.3% in 2018, 4.5 million Indonesians still don’t have electricity, because they are too poor to afford the connection or live in far-flung islands or remote hinterlands. Added to that is the high cost of last-mile electrification.

Eastern Indonesia, where power grids are small, isolated, and less reliable, represents the biggest challenge to Indonesia’s ultimate goal of universal and sustainable access. In 2018, only 88% of residents in Gorontalo, 84% in Central Kalimantan, and 62% in Nusa Tenggara Timur, for example, have access to electricity, compared with more than 90% in Java and Bali.

Powering agriculture, fisheries, tourism

Turning this around could spur economic growth in eastern Indonesia, as reliable energy can help the region develop high-value agriculture, fisheries, tourism, as well as small and medium-sized enterprises. Currently, uneven development across these provinces, aggravated by unstable power supply, has led to widening income disparities, especially when compared with Java and Bali.

“The government has started to implement much-needed reforms to build a sustainable energy sector,” says ADB Southeast Asia Department Energy Director Mr. Andrew Jeffries. “Those reforms have reduced energy subsidies and improved the performance of state-owned enterprises, encouraged private sector participation in the gas and power markets, and expanded the markets for renewable energy and energy efficiency.

“The ongoing national electrification program will increase energy access,” Jeffries adds. “Yet a lot remains to be done, and the policy and regulatory developments to date won’t singlehandedly deliver Indonesia’s renewable energy and energy access targets.”

ADB, working closely with the government, has developed a pipeline of projects to help the government reach its goals. The bank is planning to provide about $3 billion in financing between 2019 and 2021 to help the government develop Indonesia’s power sector, mainly in eastern Indonesia.

Getting on the grid

In recent years, ADB has focused on improving the state-owned electricity grid across Indonesia’s islands, including Sumatra, Java, West Kalimantan, Sulawesi, and Nusa Tenggara, to increase access, as well as the share of grid-connected variable renewables, including wind and solar.

A $600 million results-based loan from ADB to PLN seeks to improve electricity distribution in six provinces in Sulawesi and two provinces in Nusa Tenggara, providing stable services to residential, commercial, and industrial customers. It also aims to foster innovation and technology, especially in areas such as waste management and smart grid development.

For example, in Selayar Islands Regency, the most southern end of South Sulawesi, a smart-grid pilot project—one of four supported by the ADB loan—will be the first such system planned by PLN for a small, isolated island market. The hybrid generation system uses solar panels to generate electricity, smooths out the intermittent solar production with batteries, and then dispatches it to the grid.

The solar power plant will have 1.3 MW of installed capacity, complementing the 10 MW capacity of expensive diesel-powered generators. The peak demand of the regency’s main island is 5 MW. The solar energy can help stabilize electricity supply and help the island meet its energy demand at lower cost and more sustainably.

Piloting smart grids

To better manage the intermittent nature of solar energy production and electricity distribution, PLN will use a mini supervisory control and data acquisition system in Selayar, which will help monitor demand remotely, including from major users such as fisheries, the hospital, the airport, and tourism resorts. It will also help better manage power distribution.

“The pilot will help PLN expand the use of smart grids, which rely on a higher mix of renewable energy to support the country’s transition toward more environmentally sustainable growth,” says ADB’s Indonesia Country Director Mr. Winfried Wicklein.

“The project will enable PLN to integrate more variable renewable energy into its electricity-generation mix, thereby increasing opportunities for private investors to support Indonesia’s goal to build more wind and solar power plants,” he adds. “Ultimately, it will help boost economic and social development in the eastern parts of Indonesia.”

In all, the results-based loan will help provide electricity to 1.3 million people in eastern provinces and reduce electricity outages. Children will be able to study in the evenings and women will spend less time fetching fuels and more time trying to earn extra income.

Replacing fuel lamps will also improve the air quality. Village schools and health centers can benefit from better lighting and vaccines can be refrigerated, while businesses can improve productivity and create more jobs.

Attracting private investment

ADB is also supporting the government’s reform agenda through a policy-based loan to strengthen reforms to improve fiscal sustainability, introduce measures to improve private investment in electricity and gas, and support the expansion of renewable energy and energy efficiency policies.

The program complements ADB’s private-sector lending to Indonesia, which includes clean energy investments in geothermal, wind, and solar. For example, ADB has invested in private-sector solar energy projects in the provinces of West Nusa Tenggara and North Sulawesi, where it also supports the government’s effort to strengthen the electricity grid.

"The synergy between ADB’s public and private sector operations helps us better serve our clients by offering a broad range of investment products,” says Mr. Jackie B. Surtani, Director of Infrastructure Finance for Southeast Asia and East Asia at ADB’s Private Sector Operations Department.

“We look forward to continuing to support private financing in renewable energy to help Indonesia reduce its dependence on carbon-intensive energy and promote the development of solar, wind, and other forms of clean energy.”