ADB lends Indonesia's PLN $600 million for renewable power

Out-Law News | 02 Dec 2020 | 6:43 am | 1 min. read

The Asian Development Bank (ADB) has approved a $600 million loan for Indonesian state electricity company Perusahaan Listrikk Negara (PLN) to expand electricity access in eastern Indonesia.

The loan is part of the second phase of a grid upgrade, which began in 2017.

The overall investment needs for the government's generation, transmission, and distribution program are $83.5 billion. Of this amount, $43.5 billion will come from independent power producers and the rest from PLN. The government and PLN will not be able to meet the total investment needs with PLN having an estimated funding shortfall of $30.3 billion that will have to be borne by other financing sources including from development partners.

The $600m results-based loan to PLN, with a sovereign guarantee from Indonesia's government, will complement a proposed sector loan for natural gas-fired power stations in small and middle size to deliver more sustainable energy services to communities across Eastern Indonesia.

For 2025, the government is targeting a 23% new and renewable energy mix, which will require an additional 10 gigawatt (GW) renewable energy, with that target increased to 31% by 2050, according to a government report.

To facilitate greater investment in the sector, the Government has recently proposed simplifying the pricing for electricity from renewables by establishing a fixed feed-in-tariff (FiT) for renewable projects so that developers do not need to negotiate pricing with Perusahaan Listrik Negara (PLN).

Priya Dalal of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law, said, "Streamlining the regulatory landscape and project structuring options for renewable energy projects, along with government support and stakeholder management are some of the key challenges facing IPPs interested in investing and operating in the region."