PLN has ‘Green Ambition’ but is Short on Renewable Energy Credibility: IEEFA

IEEFA finds that PLN must be prepared for a much higher level of scrutiny when the company launches its debut green and/or sustainable bonds.

Indonesian state-owned electricity company PT Perusahaan Listrik Negara (PLN) is preparing to issue a “green and/or sustainable financing” instrument as early as January 2021 following the publication of its Statement of Intent on Sustainable Financing Framework in November. And a new briefing note from the Institute for Energy Economics and Financial Analysis (IEEFA) finds that PLN must be prepared for a much higher level of scrutiny around its continuing coal investments and lack of progress in renewable energy investment projects when the company does launch its debut green and/or sustainable bonds.

Author Christina Ng believes that although this is the right direction, PLN now needs to work hard to build investor credibility given its track record.

“PLN’s recent commitment to provide clean and sustainable energy for Indonesia in line with government expectations could be attractive to ESG (environmental, social, and corporate governance) fixed income investors,” she said, adding “The company’s renewable energy performance however will be of concern. PLN’s renewable energy plans lag its regional and global peers. The company has not implemented its project investments as planned and has a limited track record of successful implementation.”

Ng notes PLN may be better known to investors as a major carbon emitter that continues to add coal-fired power capacity. “The company still has at least 20 gigawatts of coal projects in the pipeline.”

The author suggests that PLN management has a number of areas to address in preparation for next month’s issuance to boost PLN’s credibility, including:

1. Building specific credible plans with policy commitments
2. Being prepared for PLN’s performance to be closely examined, including its poor renewable energy performance
3. Building in mechanisms highlighting enhanced transparency, internal capacity, safeguards and use of proceeds
4. Undertaking serious post-issuance reporting.

The firm can show its investors that the company, going forward, is committing to a sustainable, conventional mix of renewable energy projects from solar and wind with relatively low implementation risk and that will commence as soon as PLN secures financing. Further, if follow-through on a project fails, penalty costs or other redresses as part of the terms of the bond could be written in to prove PLN’s commitment to delivering on stated sustainability goals.

“Providing a roadmap for phasing out investment unfriendly fossil fuel energy sources, and abandoning coal projects in the pipeline, would demonstrate PLN’s seriousness in transforming into a sustainable utility business in line with government and investor expectations,” concluded Ng.