ADB Grants $600 Mn Loan to Indonesia’s PLN to Promote Renewable Energy

ADB has approved a USD 600 million loan to help PLN, Indonesia’s state-owned power company, expand electricity access and promote renewable energy in eastern Indonesia.

The Asian Development Bank (ADB) has approved a USD 600 million loan to help the State Electricity Corporation (PLN), Indonesia’s state-owned power company, expand electricity access and promote renewable energy in eastern Indonesia. The program also includes two grants, at USD 3 million each, from the Japan Fund for Poverty Reduction and the Asia Clean Energy Fund.

The second phase of the Sustainable Energy Access in Eastern Indonesia–Electricity Grid Development Program supports efforts by PLN to expand electricity access and improve service reliability in nine provinces in the outer regions of Kalimantan, Maluku, and Papua. The first phase of the program began in 2017 and covered eight provinces in Sulawesi and Nusa Tenggara.

“The program will boost sustainable, equitable, and reliable access to electricity among the communities in remote eastern Indonesia, including through the use of solar and other renewable sources,” said ADB Southeast Asia Energy Director Toru Kubo. “Reliable electricity is essential for people to access job opportunities, education, and health services, especially during the coronavirus disease (COVID-19) pandemic. The program will also support eastern Indonesia’s economic recovery from the pandemic and contribute to equitable and resilient growth.”

Indonesia’s economy has doubled in size since 2000 and the national poverty rate declined to 9.7 percent in 2018 from 19.1 percent in 2000. Such gains are now threatened by the COVID-19 pandemic. ADB expects Indonesia’s economy to contract by 1.0% in 2020, compared with a 5.0 percent expansion in 2019. To cushion the economic shock, the government has announced free electricity for 24 million poor households and a 50 percent discount for 7 million more households, which could reduce PLN’s revenue and financing capacity.

The government has been pushing to develop the country’s economic growth centers beyond Java, where more than half of the population lives. Residents in eastern Indonesia currently have limited access to electricity, with up to 56 percent of households having inadequate or no electricity access in Papua and 28 percent in Maluku—much higher than the national average of 4 percent. The government has prioritised 433 villages currently without access to electricity, all of them located in the eastern provinces of Papua, West Papua, East Nusa Tenggara, and Maluku.

Expanded electrification in eastern Indonesia is a key part of the government’s infrastructure investment plan, with the goal of electricity for all by 2024. The government plans to increase the share of renewable energy in the total energy mix to 23 percent by 2025, up from 13 percent in 2016. It also hopes to eliminate diesel use to the extent possible, a task most challenging in the remote eastern regions.

“The program will increase PLN’s delivery of electricity powered by renewable energy to remote communities by six-fold and reduce indoor kerosene and wood consumption, which is expected to generate significant environmental and social benefits,” said ADB Energy Specialist Diana Connett.

The first phase of the program in Sulawesi and Nusa Tenggara was successful. By the end of 2019, the number of new customers increased by 1.53 million, exceeding the program’s target of 1.37 million. The second phase of the program aims to provide electricity to 1.55 million new customers by 2024 across the nine provinces.

The grant from the Asia Clean Energy Fund will help renewable energy plants apply advanced technologies to improve system design and maintenance. The Japan Fund for Poverty Reduction grant will support measures to install power connections for poor households and help PLN conduct a longitudinal social and gender impact assessment.