GREENINFRASTRUCTURE
INVESTMENTOPPORTUNITIESINDONESIA

Published by the Climate Bonds Initiative

Developed in partnership with Pembiayaan Investasi Non-Anggaran Pemerintah (PINA),a project of the National Development Planning Agency (BAPPENAS), and PT. EBA Indonesia.

Green Infrastructure Investment
Opportunities, Indonesia
Contents

This report highlights green infrastructure investment
opportunities in Indonesia

3 Executive summary
4 Indonesia’s green infrastructure: anopportunity for changeThis report has been prepared to support
Indonesia’s mission to develop low-carbon
and climate-resilient infrastructure. It
highlights green infrastructure investment
opportunities, with the aim of facilitating
engagement on this topic between project
owners and developers, and investors.

5 Enabling infrastructure
investments will boost growth
7 Opportunities in global green
finance
13 Green infrastructure investment
opportunities

The report is intended for a wide rangeof stakeholders in Indonesia and abroad,including domestic and international
investors, companies and developers,
and relevant Indonesian Government
ministries (Finance, Planning, Energy,
Transport, Environment).

14 Transport
17 Energy
21 Water and waste management
24 Built environment
28 Green investment opportunities
are growing
30 References

The report is part of a research series
which will investigate green infrastructure
investment opportunities in ASEAN(Association of Southeast Asian Nations)member countries.
In developing this report the Climate
Bonds Initiative consulted the Indonesian
Government and key partners, in particular
Pembiayaan Investasi Non-Anggaran
Pemerintah (PINA) and PT. EBA Indonesia.
We would like to thank these partners andthe Asian Development Bank (ADB), theGlobal Green Growth Institute and EDGE
Buildings for their contributions.

Green infrastructure investment
opportunities are explored sector-bysector and sample projects, which arealigned with international definitions of

29 Annexes“green”, are presented in a pipeline ofopportunities for investment in 2018-2019.
Priorities for investment beyond 2019 are
also covered.

Climate Bonds Taxonomy
The Climate Bonds Taxonomy provides
broad guidance for prospective green bondand climate bond issuers and investors.

ENERGY

TRANSPORT

The aim is to encourage common definitions
across global markets, in a way that supports
the growth of a global green bond market.

WATER

INFORMATIONTECHNOLOGY &COMMUNICATIONSLOW CARBONBUILDINGSWASTE &POLLUTIONCONTROL

NATURE BASEDASSETS

INDUSTRY &ENERGYINTENSIVECOMMERCIAL

Solar

Rail

Built (grey)
infrastructure

Residential

Powermanagement

Recycling

Agricultural land

Manufacturing

Wind

VehiclesGreen and hybrid
infrastructure

Commercial

Broadband

Other Recovery

Forests (managed
andunmanaged)

Energy efficiency
processes

Geothermal

Mass transit

Retrofit

Resource
efficiency

Disposal

Wetlands

Energy efficiency
products

MarineBus rapidtransport

Products forbuilding carbon
efficiency

Teleconferencing

Reuse

Degraded Lands

Retail andwholesaleHydropower

Water-bourne
transport

Pollution Control

Other land uses
(managed andunmanaged)

Data centres

Bioenergy

Alternative fuelInfrastructure

Prevention

Fisheries andaquaculture

Process & fugitive
emissions

Coastalinfrastructure

Energy efficient
appliances

Land Remediation

Combined heat &power

Energydistribution &management
Dedicatedtransmission

Certification Criteria approved
Criteria under development
Due to commence

Indonesia GIIO Report Climate Bonds Initiative2

Executive summary
Green infrastructure for growth
Indonesia is the fourth most populous
country in the world and one of thefastest growing emerging markets. It has
experienced rapid growth in recent years.
This has improved living standards but has
also seen environmental degradation andincreased vulnerability to the impacts ofclimate change.
Indonesia now plans to expand its
green infrastructure to achieve positiveenvironmental and economic benefits.
Green infrastructure will create prosperity byincreasing competitiveness, productivity andemployment opportunities; extending thereach, reliability, and efficiency of the national
electricity grid, without creating air pollution;broadening the economic base; creating
new markets; and providing inclusion andconnectivity across the nation’s vast archipelago.
Green infrastructure is low-carbon andless polluting, as well as climate-resilient.
It allows Indonesia to position itself as aleader and a standard-bearer for climate
compatible growth among neighbouring andemerging economies.
This report aims to support Indonesia’s
mission to develop low-carbon andclimate-resilient infrastructure, by
highlighting green infrastructure
investment opportunities for the world’s
growing collection of green investors.

Green finance for sustainable
development
The administration of President Joko Widodo
has positioned infrastructure development as
one of Indonesia’s highest national priorities.
With a focus on inclusive and sustainablegrowth, it aims to deliver USD400bn
worth of new public-works projects in thetransportation, energy, water and waste
sectors over five years. The state budget will
cover 63% of these costs, with investmentsfrom development partners and the capital
markets expected to provide the remainder.1
Indonesia’s strong macroeconomic
outlook has delivered investment-grade
sovereign ratings from major international
credit rating agencies. This more positive
investment environment has been supported
by government reforms that aim toencourage foreign investment as well as theprovision of sovereign guarantees.
Furthermore, the government’s Roadmap
for Sustainable Finance in Indonesia 20152019 provides guidance on green finance,
including the use of green bonds.2

Indonesia GIIO Report Climate Bonds Initiative

International investors are looking for green
Since the signing of the Paris Agreement
there has been an increasing demand frominstitutional investors, particularly from OECDnations and China, for investment opportunities that address environmental challenges
and support sustainable development.
This growing interest has resulted in thedevelopment and growth of dedicatedgreen financial products.
The global green bond market, forexample, has seen exponential growth,reaching USD160.8bn issuance in 2017up 85% from the year before.3 Investor
demand remains strong.
Indonesia’s own experience is proof of thisinvestor demand. The government issued
the world’s first sovereign green sukuk
earlier in 2018. Initial guidance was for an

amount of USD500m-1bn and a couponof 4.05%.4 The deal was hugely oversubscribed. Ultimately, it was upsized to
USD1.25bn and priced very favourably at
3.75%. HSBC acted as green structuringadvisor. Abu Dhabi Islamic Bank, CIMB,
Citigroup, Dubai Islamic Bank and HSBC
were joint bookrunners.
The proceeds raised from the placement
will go to multiple projects from eligible
categories such as renewable energy,
public transport, low-carbon buildings,
water and waste management, and green
tourism. See page 12 for details.
Alignment of Indonesia’s low-carbon
and climate-resilient infrastructure withinternational definitions of “green” canhelp attract private overseas capital.

The green investment pipeline
A selection of Indonesia’s infrastructure
assets and projects that align withinternational definitions of “green” have beencollated in this report. 38 of these projects
are showcased in a green infrastructure
pipeline for 2018-2019. Priority investments
beyond 2019 are also covered.
Green infrastructure investment
opportunities range from a USD15m
distributed solar project to a USD6bn
light rail development, offering investors awide range of options. The largest share ofthese opportunities relates to low-carbon
transport, with a focus on rail and Bus Rapid
Transit, and renewable energy, with a focus
on geothermal and hydropower.
The types of green infrastructure
investment opportunities, by sector,
include:Transport - rail (e.g. urban, inter-city, highspeed rail) and Bus Rapid Transit projects

Energy - geothermal, hydropower, solar,
wind, tidal and bio-energy facilities

Water and waste management - watersupply and treatment facilities; waste
recycling and waste-to-energy facilities

Built environment - certified buildings andlow-carbon street lighting
There is potential for additional opportunities
to become available in the future: for instance,
the development of electric vehicles andmore solar and wind energy generation
facilities. Further investment opportunities
relate to resilient water infrastructure andmore efficient recycling infrastructure. Finally,as the practice of seeking certification forbuildings becomes more mainstream, there
will be more green financing opportunities in
the property sector and the built environment.
Looking ahead, other green investment opportunities should aim to include projects from sectors
such as forestry and agriculture, information andcommunications technology (ICT), industry, adaptation technology and measures. Ideally, theseprojects will have already been tagged as “green”
by the government and made publicly available ina centralised location and in multiple languages– so that overseas investors understand what
investment opportunities are on the horizon.

3

Indonesia’s green infrastructure:
an opportunity for change
Green infrastructure can help
build Indonesia’s sustainable
futureOne of Indonesia’s highest priorities isthe development of modern and efficient
infrastructure that serves the entire
population, promotes prosperity and creates
resilience to the impacts of climate change.
Faced with increasing growth rates andrapid urbanisation, developing the country’s
sustainable future is high on President Joko
Widodo’s agenda.
Indonesia is particularly vulnerable to theimpacts of climate change, due to its locationand exposure to natural disasters, including
earthquakes, volcanic eruptions, tsunamis,
floods and drought. These phenomena areintensifying and increasing in frequency.
Rising temperatures and sea levels, forexample, will put the 42 million people wholive in areas less than 10 meters above sea
level at great risk5, and disrupt the economy
and key sectors such as water, fisheries,
health, agriculture and forestry.
To reduce risk and ensure continued growth,Indonesia needs to act now.

“Infrastructure improvement anddevelopment, both connectivity
and energy availability, play a
key role in the efforts to achieve
an equitable distribution of theeconomy.”8
President Joko Widodo

Figure 1. Indonesia’s projected
population growth2030
295 million

2017
264 million

USD400bn worth ofinfrastructure to be built by 2019

The government is actively seeking an
estimated USD150bn in investments to fundtheir ambitious agenda. Accordingly, it isundertaking reforms to support investments
in infrastructure, including the developmentof green financial tools to attract capital
looking for sustainable investments.
Indonesia’s issuance of the world’s firstsovereign green sukuk earlier this year isa promising step in this direction.

Indonesia GIIO Report Climate Bonds Initiative• 16th largest economy globally• Largest economy in ASEAN• 4th most populous country• 58% of the population
lives in Java• 10.2m live in Jakarta, 30m in
the greater Jakarta area
• 55.2% of people live in cities• Urbanisation is increasing
at a rate of 2.3% p.a.

“If we are to create sustainableeconomic growth in Indonesia
and address the nation’s climatechange goals and objectives, weneed vast green infrastructure
projects. This will require capitalfrom overseas investors as well as
domestic finance. This partnershipis about getting capital moving
into multiple green investments.”
Sean Kidney, CEO, Climate
Bonds Initiative

The government’s ambitions for a moresustainable Indonesia involve significant
infrastructure development: approximately
USD400bn worth between 2015 and 20196.
The government’s budget will cover only
63% of these costs, with development
partners and the capital markets expected toprovide the rest7.

Country facts:

Figure 2. Funding of 2015-2019 development strategy

Investment gapof USD150bn

Government
funding

37%

63%

4

Enabling infrastructure investments will boost growth
The macroeconomic outlook forIndonesia is improving

Source: Trading Economics, 2018

80
60

40

20

2010

2012

2014

2016

2018

Figure 4. Interest rates Indonesia, 2007-2017
10

8

Government interventions, like the peace
and unification accord in 200210, and theincrease of religious plurality, have also
reduced the risk of ethnic and religious
conflicts. Increasing foreign investor
confidence in the Indonesian market canbe seen in the record high capital inflow (in2017 foreign investment accounted for some
32% of the GDP) and the increase in the
total outstanding government bonds held byforeign investors (at the end of January 2018,rose to 41.3%11).
Indonesia’s financial resilience is improving,
it is a G20 member and is moving closer
to becoming an upper middle-income
economy. However, it is still faced with thefundamental development challenges ofpoverty and inequality. The government
plans to overcome these challenges bycontinuing to drive economic growth and byprioritising infrastructure development, bothof which are key to improving productivity
and quality of life in Indonesia.

Indonesia GIIO Report Climate Bonds Initiative

Source: Trading Economics, 2018(b)Foreign investor interest has increased
over the last decade, as political risks havedecreased and Indonesia’s score in the
Corruption Perceptions Index9 has gradually
improved. The Government has worked
to reduce corruption by creating tools andpolicies that increase transparency anddecentralise power. An example is moving
government services online to avoid bribery.

100

in trillion rupiah

While interest rates in Indonesia havefluctuated in the past, they have trended
downwards for the last 10 years to a record
low of 4.25% in 2017. The government
expects that inflation will also remain within
the target corridor of 4±1%, as it has done
for the past three years. Indonesia’s healthyfiscal environment, credit rating upgradesand decreased interest rates present theideal conditions for the government andprivate sector to lock in better debt conditions
through refinancing outstanding loans.

120% interest rate

Gross domestic product (GDP) growth isexpected to rise from 5.1% in 2017 to 5.4%
in 2018, and up to 5.5% in 2019. These
projections reflect the robust economic
outcomes of 2017, including elevated foreignexchange reserves (at USD126bn, covering
seven months of current account payments)
and the largest net inflow of foreign direct
investment in over seven years (rising 8.5% to
USD31.6bn from USD29.1bn in 2016). Growthis set to continue, aided by the investmentgrade sovereign rating upgrade from the
major international credit rating agencies.

Figure 3. Foreign direct investment Indonesia, 2010-2017

6

4
2008

2010

2012

Green infrastructure is part ofthe development strategy
The government’s key development strategy,
the National Medium-Term Development
Plan (2015–2019), aims to develop billionsof dollars of new public-works projects intransportation, energy, water, waste andinformation and communications technology
over the five years12. While not all of theseprojects would be considered green, the plan
specifies that infrastructure should aim to beenvironmentally sustainable.
The development of new energy generation
facilities should promote the National
Energy Policy 2014 targets: renewableenergy should comprise at least 23% of theenergy mix in 2025 and 31% in 2050, withcorresponding reductions in the use of oil,coal and natural gas in power generation13.
Infrastructure planning must also consider
Indonesia’s National Action Plan for Climate
Change Adaptation14 and their 2015

2014

2016

2018

Indonesia’s GHG emissions
reduction pledge:
A minimum of 29% emission
reductions by 2030, and up to
41% with international support.
Nationally Determined Contribution (NDC)- detailing their climate pledges to reduce,
unconditionally, 29% of its greenhouse gas(GHG) emissions against the Business as
Usual scenario by the year of 2030 (or a
41% reduction conditional to the availabilityof international assistance with finance,technology transfer, and capacity building15).
Overall, approximately USD400bn worthof infrastructure is needed for the National
Medium-Term Development Plan (2015–2019) to be realised16 – with the 2018 budget
allocating 409tn rupiah (approximately
USD29.7bn) to infrastructure development,

5

Figure 5. Indonesian Government Annual Budget Allocations toInfrastructure Spending
400

Source: Indonesia Investments, 2018(b)

300

200
in trillion rupiah“Indonesia shares the same
infrastructure challenges as manyother nations in ensuring all new
infrastructure is green and matchinginvestors to the many opportunities
that exist.”18
Yudhi Ismail, President Director,
PT.EBA Indonesia

Simplified regulation andfiscal incentives are enabling
investments
To cover outstanding costs, the government
has undertaken significant reforms to makeinvesting in Indonesia more attractive.
Changes include streamlining approval andprocurement procedures for infrastructure
projects; removing the withholding tax
on interest payments in foreign-currency
denominated government bonds; opening up
direct lending from multilateral organizations
to SOEs; as well as the creation of theInvestment Coordinating Board of Indonesia(BKPM), a centralised service, responsible for
issuing more simplified foreign investment
licences, and the government’s non-budget
financing scheme (PINA), a schemethat encourages private involvement ininfrastructure development.
Further, the government has developed apolicy framework that promotes leverage
financing to support more participationfrom the private sector, with an increased
focus on green finance. This has included
improvements to the government’s publicprivate partnership (PPP) regulations forinfrastructure, the provision of subsidies for
PPPs19, and credit enhancement for PPPs and
SOEs in the form of sovereign guarantees, gap
viability funding, and availability payments.
To avoid exposing the national budget toundue fiscal burden, the government also

Indonesia GIIO Report Climate Bonds Initiative

100

0
2009

2010

2011

2012

developed the Indonesian Internal Credit
Rating scorecard system and the Indonesia
Infrastructure Guarantee Fund (IIGF) for
administering sovereign guarantees.

Development FinanceInstitutions can support
infrastructure investment
through blended finance
Where the government is not able to bear
the risks associated with large infrastructure
projects, Development Finance Institutions(DFIs) can support infrastructure investmentby providing blended finance instruments andother credit enhancement mechanisms, like
non-sovereign partial credit guarantees, partial
risk guarantees and viability gap funding, as

2013

2014

2015

2016

2017

well as first-loss provisions, contingent loans,and A/B loans or grants (see Annex 1).
In Indonesia, this type of support can beprovided directly to governments, SOEs
and investors but is also available via funds
like the IIGF, ASEAN Credit Guarantee
Investment Facility, ASEAN Infrastructure
Fund or the Leading Asia’s Private Sector
Infrastructure Fund (see Annex 2). To makethe most of DFI support, the governmentof Indonesia is creating a regulation toaccommodate blended financing. This
regulation will apply to financing for
Sustainable Development Goals (SDGs)20
themed projects, in line with the OJK’s newparadigm of sustainable development foreconomic growth21.

Figure 6. Blended finance and the SDGs

Commercial
Non-concessional
PublicPrivateBlended FinanceTransactions/
Approaches

Mobilising

Development
PublicPrivateFINANCING SOURCES

Concessional /Non-concessional

FINANCING STRUCTURE

The Global Goals For
Sustainable
Development

Source: OECD, 2018

including green infrastructure such as
639km of railway lines (representing almost
one third of the total annual budget andthe highest ever allocation in an Indonesian
government budget)17. State-owned
enterprises (SOEs) in Indonesia also plan tospend additional money on infrastructure to
support the nation’s ambitious infrastructure
goals, with one quarter of SOE spending
coming from the state power company,
Perusahaan Listrik Negara (PLN), someof which will fund new renewable energy
facilities. Despite these significant
commitments, not all infrastructuredevelopment needs will be covered by thebudget, with about one third of the total
infrastructure costs outstanding.

USE OF FINANCE

Blended finance is the strategic use of development finance for the mobilization of additional
finance towards sustainable development in developing countries.17

6

Opportunities in global green finance
Demand for sustainable
investments is increasing
Over the past few years, there has been
an increasing demand from Institutional
investors, particularly from OECD countries
and China, for investment opportunities
that mitigate the risks arising from climatechange, deliver social impact and support
sustainable development.
This extreme level of interest has resulted in
the development and growth of innovative
financial products including green loans;green, social and sustainable bonds; green
infrastructure investment trusts; and, green
index products. Green bonds are currently
the most developed segment of thematicbonds, carrying a great recognition from theinvestor base and are the most advanced
in terms of definitions. The ‘green’ label isa discovery mechanism that enables bondissuers, governments, investors and thefinancial markets to prioritise investments,
which genuinely contribute to addressing
climate change.

The global green bond market
is witnessing exponential
growth, benefitting both issuers
and investors
Green bonds are debt instruments that raise
capital exclusively to finance or re-financeprojects and assets with environmental
benefits22. They fund assets and activities
that deliver climate change mitigation and/or
adaptation impacts, as well as environmental
benefits such as preserving biodiversity;
conservation of natural resources; and, air,water and soil pollution control.
Green bonds and green sukuk23 candeliver several benefits for both issuers
and investors. The main benefits reported
by issuers have been an enlargement of
the investor base and reputational
benefits. There is preliminary evidenceof pricing benefits as well for someissuers, driven by strong investor demandand limited supply24.
The green bond market has seen exponential
growth. It reached USD160.8bn of issuancein 2017, up from USD87bn in 2016 and
USD42bn in 2015. The expanding issuer
base has been accompanied by ever greater
diversification in issuer type, geography
and projects. Bond investments meet theneeds of institutional investors as they offer
relatively stable and predictable returns.
Long-dated bonds are best aligned withinstitutional investors’ liabilities.

Indonesia GIIO Report Climate Bonds Initiative

Benefits for investors

Benefits for issuers• Produce comparable financial returns
with the addition of environmental
benefits.

• Provide an additional source of green
financing.

• Satisfy Environmental, Social andGovernance (ESG) requirements forsustainable investment mandates.
• Enable direct investment in the‘greening’ of brown sectors.
• Increase transparency andaccountability on the use andmanagement of proceeds.

Key global sustainablefinance initiatives:• The Principles for Responsible
Investment: nearly 1600 signatories
from 30 countries, representing over
50%, or over USD68tn, of global
assets under management (AUM).
• The Principles for Sustainable
Insurance: adopted by insurers
representing over 20% of the global
insurance market by premium volume
and USD14tn in AUM.
• The Equator Principles: commitment
from 92 financial institutions in 37
countries, covering the majority
of international project finance indeveloped and emerging markets.
• The UN Environment FinanceInitiative (UNEP FI): 92%of the world’s 25 largest banks
are members.
• The UNEP FI’s Global Investor
Statement on Climate Change: over
250 investors, responsible for the
management of funds the size of
the United States’ GDP, calling forpolicies to unlock low-carbon growth
and avoid economic devastation.

Demand for green bonds comes from:- Mainstream asset managers (e.g. Aviva,
BlackRock, State Street);- Specialist ESG and green bond fundmanagers (e.g. Amundi, Natixis/Mirova);- Sovereign and municipal governments(e.g. Chinese SOEs through their Belt andRoad Initiative);• Can match maturity with project life
and/or investment cycle.
• Improve investor diversification andattract buy-and-hold investors.
• Enhance issuer reputation.
• Attract strong investor demand, which
may lead to high oversubscription andpricing benefits.

“It is the role of banks today to makesure we can enable sustainable andimpactful projects everywhere.
“[Green bond issuance] is proof that
financial institutions can generatesocially beneficial outcomeswhen we really work hard [&] ourinstitutional investor clients havethe appetite to invest in projects andcompanies that combine commercial
and financial performance with clear
environmental and social purpose
and impact.”25
Eric Raynaud, CEO, Asia Pacificand Member of Group Executive
Committee at BNP Paribas.
- DFIs (e.g. World Bank, ADB, AsianInfrastructure Investment Bank); and- Retail investors (e.g. World Bank green
bonds offered to retail investors throughMerrill Lynch Wealth Managers andMorgan Stanley Wealth Managers).
With investors increasingly looking for ways
to address ESG and climate change in theirinvestment processes, green bonds present
a useful opportunity to meet environmental
objectives as well as deliver on their fixedincome mandates.
The popularity of green bonds is set
to continue. A 2017 HSBC global surveyof a thousand companies and institutional
investors, showed that 68% of investors
intend to increase their low-carbon related
investments, with the greatest interest
coming from Europe (97%), the Americas(85%) and Asia (68%)26.

7

Figure 7. Growth of the green bond market (2014 - Q1 2018)
300
Loan
250

Sovereign
Government-backed entity
Local government

2018 Ambition $300bn

200Development Bank
150

Non-financial Corporate
Financial Corporate

USD Billions

100

ABS

50

0
2014

The Belt and Road Initiative
The Belt and Road Initiative (BRI), also
known as One Belt, One Road, is a major
strategy launched by the Chinese
Government, involving infrastructuredevelopment along the Silk Road
Economic Belt and the 21st Century
Maritime Silk Road.
The intention is to promote economic cooperation among more than 60 countries
along these routes. Indonesia is one ofthese countries and has been benefitingfrom this scheme since its inception in2013, with USD5bn-6bn infrastructure
investment in Jakarta and a USD4.5bn
loan from the China Development Bankfor Indonesia’s first high-speed rail
between Jakarta and Bandung.
China’s President Xi Jinping has now
called for the “greening” of the Beltand Road, with the aim of establishingan open and green world economy,
working together with different
countries to achieve ecologicalcivilisation and the SDGs.27
Both the China Development Bankand the world’s largest bank, ICBC,
have now issued Green Belt and Road
Bonds, both certified under the Climate
Bonds Standard.

Indonesia GIIO Report Climate Bonds Initiative

2015

2016

International best practices
and domestic guidelines haveemergedWith the growth of the market, bestpractices have developed at theinternational level to guide issuers anddeliver consistent markets to maintaininvestor confidence and avoid the risk of“greenwashing”. At the international level,
two main voluntary processes for green
bond issuance have emerged:• the Green Bond Principles (GBPs),
coordinated by the International
Climate Markets Association (ICMA),
provide process guidance aroundtransparency on the use of proceeds,
project selection process, management ofproceeds and reporting28 29.
• the Climate Bonds Standard, managed by
the Climate Bonds Initiative and developedby a network of technicians, industry
players and investors, incorporates the
GBPs and adds green definitions, in linewith the Paris Climate Agreement.
External reviews from independent verifiers
to establish alignment with the GBPs and/or
compliance with the Climate Bonds Standard
have become common practice. The mostcommon forms of external review are:
1. External review: an analysis of the green
bond issuance by an independent party.
Assurance reports confirm compliancewith the GBPs. Second party opinions(SPO) provide additional commentary- and in some cases, assessment - ofeligible assets identified in the green bondframework of the issuer.

2017

2018

“To investors green bonds offera stable, rated and liquid investment
with long duration. To issuers,
they could tap the USD100tn
global institutional fixed income
investor base.”
Mark Carney, Governor of the
Bank of England and FSB Chair.
2. Certification: a third-party verification
comprising an expert review of the issuer’s
Green Bond Framework against a publicly
available green standard, such as the
Climate Bonds Standard.
3. Green rating: an evaluation of the green
bond or related framework against athird-party rating methodology, which
considers the environmental aspects of
the investments. These include products
developed by rating agencies.
Governments, regulators and stock
exchanges have started developing
guidelines and regulation. These generally
include guidance for issuance and disclosurein line with the GBPs and are mostly alignedwith the Climate Bonds Standard.
Indonesia’s Financial Services Authority(OJK) has issued green bond regulations
for domestic bond issuance30. The ASEAN
Capital Markets Forum has similarly
provided green bond guidelines for adoption
throughout the region; and financial services
regulators in China and India have theirown green bond regulations. All are broadly
consistent with international standards.

8

ASEAN green bond issuance is
growing rapidly
An analysis of green bond issuance showsa large increase in the Asia-Pacific region,
with exponential growth in 2016 when
China entered the green bond market.
The region reached a record USD36.3bn
volume in 2017.
Within the Asia-Pacific region, deal volume
from issuers domiciled in ASEAN member
countries represents a small fraction of
total issuance: 4% (by comparison, thelargest issuer, China, represents 65%).
But issuance is growing fast, and there havebeen several landmark deals, which haveset a global precedent.

The world’s first green sukuk was issued in
Malaysia in June 2017, by Tadau Energy Sdn
Bhd, a renewable energy and sustainable
technology company. In line with therequirements of a sukuk, the use of proceeds
will comply with Sharia principles and willfund a 50 MW solar project in the coastal
city of Kudat, in the Sabah state.
There have been four further green sukuk
deals in Southeast Asia, including thehistoric sovereign green sukuk by Indonesia.
These contributed to a total of twelve green
bonds from the region, six of which were
issued in 2018 alone. Three of the ASEAN
deals were issued under the ASEAN Green
Bond Standards released in late 2017.

Figure 8. Global green bond issuance by region- Low carbon buildings (28.0%),- Low carbon transport (6.5%),- Water management (2.3%),- Waste management (6.5%),- Sustainable land use (6.8%), and- Climate change adaptation projects(10.7%).

2250
Africa2000

Renewable Energy

Europe1750

Low Carbon Buildings

Supranational Issuers

1500

Low Carbon Transport

1250

Water

1000

Waste

750

Land Use

500

Adaptation

Asia-Pacific50
40

Latin America
North America

30

USD Millions

20
USD Billions- Renewable energy (39.2%),

Figure 10. Use of proceeds per year (ASEAN)
2016 - April 2018

60

10
0
2007

Allocations to low-carbon buildings
and renewable energy dominate. On a
cumulative basis, the proceeds of ASEAN
green bonds have been used for:

2009

2011

2013

2015

0

2017

Figure 9. Cumulative Asia-Pacific issuance2013 - April 2018
Taiwan 1%
South Korea 3%
Honk Kong 2%

250

2016

2017

2018

Table 1. ASEAN issuance2016 - April 2018

Other 5%

India
9%

Japan
8%

Indonesia
2.5%

5%
Malaysia
1%
China
71%

Singapore
1%

Issuer’s
country

AmountIssued(USD)

AmountFirst green
Outstanding bond issue
(USD)
date

Issue
count

Indonesia

1,925m

1,925m23/02/18

3

Malaysia

922m

922m

27/07/17

5Singapore

611m

611m

18/04/17

3

Philippines

226m

226m

29/02/16

1

ASEAN total

3,684m3,684m12

Philippines
0.5%
Indonesia GIIO Report Climate Bonds Initiative9

Major policy changes facilitate green bonds in the region
In November 2017, the ASEAN CapitalMarkets Forum – a forum comprisingmarket regulators from the 10 ASEAN
countries, including OJK - released theASEAN Green Bond Standards, a setof voluntary guidelines based on theinternational GBPs, to create a green
asset class for the ASEAN region.
In December 2017, Permodalan Nasional
Berhad, a Malaysian government-backed
investment company, became the firstissuer to comply with both the GBPs
and the ASEAN Green Bond Standards(AGBS). Its MYR1.87bn (USD461m)
green sukuk financed the Merdeka
PNB118 tower, which benefits from threebuilding certifications.
In January 2018, Segi Astana, another
Malaysian issuer, placed a MYR415m(USD104m) ASEAN Green MTN, which
will finance the development of a LEED
(Silver) certified building. Singaporean
company Sindicatum Renewable Energy
raised INR2.5bn (USD40m) throughan ASEAN green bond, which benefits
from a guarantee by GuarantCo (partof the multilateral Private Infrastructure
Development Group).

The ASEAN+3 Multi-Currency Bond
Issuance Framework was released by
the ten members of the ASEAN together
with the People’s Republic of China,
Japan and Republic of Korea in 2015.
It encourages domestic and regional
issuers to take advantage of streamlined
issuance approval processes across theregion and provides opportunities forbond or note issuance activity
in markets other than the original
adopters (Hong Kong, China; Japan;
Malaysia; the Philippines; Singapore;
and Thailand).
In pursuing more green finance, theregion has the opportunity to surpassthe low-performing, polluting, resourceinefficient technologies and practicesof more developed countries31. This isbecause green finance, including greed
debt products, can encourage thegrowth of high-potential green
industries, support job-creating
technological innovation and open
business opportunities for the financial
industry through the creation of new
instruments and services, while helping
to access new markets.

ASEAN Green Bond
Standards
The ASEAN Green Bond Standards
are based on the GBPs and seeks toenhance transparency, consistency anduniformity to help reduce issuance andinvestment costs.
Key elements of the standards include:• The issuer or issuance of the green
bond must have a geographical or
economic connection to the region;• Fossil fuel power generation projects
are explicitly excluded;• Information on the process for project
selection and on the use of proceeds
allocation, as well as the external
review report must be made publicly
available on a designated website;• Recommendation to obtain an
external review for the green bondframework, and is particularly
recommended for the managementof proceeds and annual reports; and• Recommendation for the external
review providers must disclose theirrelevant credentials and expertise andthe scope of the review conducted.

Green bonds from ASEAN
The following are examples of different types of issuers,
instruments and sectors of green bonds that have been issued in
ASEAN, including all green bonds issued by Indonesian entities.

Indonesia

Indonesia

Instrument: Green bondInstrument: Green bond

Sector: Geothermal Energy

Sector: Land use / agriculture

Issuer: Star Energy Geothermal (Wayang Windu)

Issuer: Tropical Landscapes Finance Facility

Issuer type: Non-Financial Corporate

Issuer type: Non-Financial Corporate

Amount: 580m

Amount: 95m

Currency: USD

Currency: USD

Date issued: 24 April 2018

Date issued: 23 February 2018

Maturity: 24 April 2033

Maturity: 23 April 2033

External review: SPO by Carbon Trust

External review: SPO by Vigeo Eris

Use of proceeds: Geothermal power plant

Use of proceeds: Sustainable natural rubber plantation andsmall-scale farming on degraded land

Indonesia GIIO Report Climate Bonds Initiative10

Indonesia

Malaysia

Instrument: Green sukuk

Instrument: Green sukuk

Sector: Energy, Buildings, Transport, Water and Waste
Management, Land Use, Adaptation

Sector: Energy solar

Issuer: Republic of Indonesia
Issuer type: Sovereign
Amount: 1,250m
Currency: USD
Issue date: 1 March 2018
Maturity: 1 March 2023
External review: SPO by CICERO

Issuer: Tadau Energy Sdn Bhd / Tadau Energy (Edra Power)
Issuer type: non-financial corporate
Amount: 250m
Currency: MYR
Issue date: 27 June 2017
Maturity: 27 July 2033
External review: SPO by CICERO and rating from RAM Rating
Services Bhd

Use of proceeds: Specific projects to be determined from
eligible categories - please see box on page 12 for more details

Use of proceeds: 50 MW solar project

Philippines

Singapore

Instrument: Green bondInstrument: Green bond

Sector: Energy Geothermal

Sector: Buildings

Issuer: AP Renewables

Issuer: CDL Properties (City Developments Limited)

Issuer type: Non-Financial Corporate

Issuer type: Non-Financial Corporate

Amount: 10,700m

Amount: 100m

Currency: PHP

Currency: SGD

Date issued: 29 February 2016

Date issued: 18 April 2017

Maturity: 28 February 2026

Maturity: 18 April 2019

External review: Certified Climate Bond, certified under thecriteria for Geothermal, verification by DNV GL

External review: Certified Climate Bond, certified under thecriteria for Buildings (Upgrades), verification by KPMG

Use of proceeds: Tiwi-Mak Ban geothermal power plant

Use of proceeds: Energy efficiency upgrades

Indonesia GIIO Report Climate Bonds Initiative11

Indonesia’s green finance public
sector leadership
Within ASEAN, Indonesia has been a leader
in green finance.
In 2015, the OJK launched the Roadmap
for Sustainable Finance in Indonesia 20152019, with the aim of achieving sustainable
development through the comprehensive
support of the financial service industry.
This includes the adoption of green finance,
i.e. investments that provide environmental
benefits in the broader context of sustainable
development32, which Indonesia is alreadydoing, through:• Providing strategic policy signals andframeworks – via the regulation on
Sustainable Finance in 2017 for banking,capital markets and nonbank financial
institutions and the voluntary financing
guidelines for renewable energy, energy
efficiency, green buildings, organic farming
and palm oil.
• Expanding learning networks for capacity
building –through the Bali Centre for
Sustainable Finance, launched by OJK and
the Udayana University in July 2017.
• Encouraging and facilitating knowledge
sharing on environmental and financial
risk - by hosting the 2016 International
Sustainable Finance Forum.
• Supporting the development of thelocal green bond market – by requiringdomestic green bonds to comply with
ASEAN Green Bonds Standards and the
OJK developing new regulations for green
bonds in December 2017.
• Establishing a Green Bond and Green
Sukuk Framework for sovereign bonds33
and issuing the first sovereign green
sukuk – the first debt instrument with agreen label in Indonesia and the first green
sovereign sukuk worldwide

Indonesia green bond issuance
emerging
In 2016, the total outstanding balance of
tradable government bonds and corporate
bonds was USD155.2bn34.
In 2017, Indonesia’s global sukuk experienced
an oversubscription of 3.6 times.
The Indonesian Government, the largest
issuer of bonds in the country, predicts
that 2018 bond issuance will be higher
than in previous years, with President Joko
Widodo aiming to raise approximately
USD14.1bn (including green bonds) in thefirst quarter alone.

Indonesia GIIO Report Climate Bonds Initiative

Aside from the issuance of the world’s firstgreen sovereign sukuk, a ‘sustainability’bond35 financing green assets was also
issued by the Tropical Landscapes Finance
Facility, in February 2018. This bond was thefirst of its kind in Asia - providing USD95m
in funding for a sustainable natural rubber
plantation on heavily degraded land in two
provinces in Indonesia.
In April 2018, Star Energy Geothermal(Wayang Windu) issued a labelledgreen bond under a Green Bond
Framework36, having previously issued
vanilla bonds to finance the Wayang
Windu Geothermal Plant. US and British
investors subscribed to over half the amountof the 15-year, USD580m green bond37.
In addition to sovereign and corporate
issuance, the Indonesian green bond market
will likely include municipal green bonds

in 2018, with the government updating
existing regulations to relax administrativerequirements and provide more options
for provincial governments to finance theirinfrastructure projects38.
Even though green bond financing is in
its infancy in Indonesia, these policychanges, the release of the green bondand green sukuk guidelines and theissuance of the above-mentioned bonds
demonstrate an increasing understanding
and commitment to green finance, and green
debt securities in particular.
These tools provide a critical finance channel
for infrastructure development stakeholders,diversify risks and create more options
for investors – ultimately, helping to fundIndonesia’s substantial infrastructure agenda
and help the nation transition to a lowcarbon economy.

The Republic of Indonesia Green Bond and Green Sukuk Framework
Use of proceeds

Management of proceeds

Eligible projects are those which
promote the transition to a lowemission economy and climate-resilient
growth, including climate mitigation,
adaptation, and biodiversity. These
will fall into the following sectors:
renewable energy, energy efficiency,
resilience to climate change/disasterrisk reduction, sustainable transport,
waste-to-energy and waste management,sustainable management of natural
resources, green tourism, green buildings
and sustainable agriculture.

A green bond and green sukuk allocation
register will be established to record theallocation of each green bond or green
sukuk proceeds. The proceeds will be
managed within the government’s generalaccount and unallocated proceeds will beheld in cash.

Eligible green projects exclude fossil fuelbased electric power generation, large
scale (>30MW capacity) hydropower
plants and nuclear assets.

Reporting
The Ministry of Finance will prepare
and publish an annual report containing
a list and brief description of projects
financed with the green bond/green sukuk
proceeds, the amount allocated to eachproject and an estimation of the beneficial
impacts of the projects such as GHG
emissions reductions.

Project evaluation and selection
The Ministry of Finance will selectprojects tagged by individual ministries
as delivering climate change benefits.
These have to be validated by the Ministryof Environment and Forestry to beconsistent with Indonesia’s NDC
and endorsed by the Ministry of
Finance for budget allocation.
The tagged projects will fall under one
or more eligible sectors and theirdevelopment will be consistent with thetenor of the green bond or green sukuk.

Pre-issuance external review
The framework was reviewed by
CICERO and received an overall
shade of Medium Green. CICERO’s
second party opinion includes
an assessment of the proposed
projects under each eligible
category, with supporting
commentary. The broad rangeof categories were assessed fromlight to dark green by CICERO.39

Information source: GOI, 201812

Green infrastructure investment opportunities
Methodology
The following section provides an overview
of green infrastructure investment
opportunities in Indonesia for 2018-2019
and into the future. International sciencebased definitions of “green”, that align with
the Climate Bonds Standard, have beenused to identify eligible green projects.
These projects have been drawn fromgovernment plans, consultation with key
stakeholders in Indonesia as well as throughextensive research of each sector. Only
projects where sufficient information wasavailable are included.

Renewable energy: energy
generation, transmission
or storage technology thathas low- or no-carbon
emissions. This can include
solar energy, wind energy,
bioenergy, hydropower,
geothermal energy, marine
energy or any other renewableenergy source, as well as
energy distribution andenergy systems that support
improved energy management
and storage capacity.

Sustainable waste
management: efficient useof resources to cut down on
waste production, coupledwith collection and disposal
systems that promotereuse and recycle, thereby
minimising residual waste
going into waste-to-energy
facilities. Where waste must
go to land fill, there are gas
capture systems installed tominimise emissions as well as
measures to minimise run-off
and other negative impacts
on surrounding environments.

Indonesia GIIO Report Climate Bonds Initiative

These projects have been classified into five
key sectors in accordance with the Climate
Bonds Taxonomy and represent the sectors
with the most progress and potential for
growth in Indonesia. The projects listed
are not exhaustive and cover all possible
sectors of green growth. Nature based
assets are not included in the scope of thisreport as they do not fall within the report’s
theme of infrastructure.
As the potential for the expansion ofIndonesia’s scope for green infrastructure
is so great, future investment priorities
have also been listed to guide development(based on international best-practiceand local potential for growth). This isaccompanied by example projects thatwould promote these priorities, chosenfrom existing government priorities andreflecting the types of projects available.

Internationally aligned
green definitions
The “green” definitions used for selecting the
projects in this report, and which align with
the Climate Bonds Standard and the Climate
Bonds Taxonomy are as follows.

Green buildings: commercial and residential buildings, developed
or upgraded, with the aim of operating with low-carbon emissions
and reduced the environmental footprint of construction. They areusually deemed green through a certification process, requiring
developers to meet certain standards regarding energy and water
efficiency, indoor air quality and waste management, sustainablebuilding materials and the implementation of construction projects
and operational management. Applying similar principles to thebuilt environment is also important, using design and technology to
reduce emissions and the environment footprint of a city.

Low-carbon transport:
transportation modes andancillary infrastructurethat produce low- or nocarbon emissions, as they
are powered by renewableenergy or fuel sources. Thiscan include national andurban passenger rail andfreight networks (where
freight lines, rolling stock
or related infrastructure is
not fully dedicated to thetransportation of coal, oilor other fossil fuels); Bus
Rapid Transit (BRT) systems;
electric vehicles; and, bicycletransport systems.

Sustainable water management:
assets that do not increase
greenhouse gas emissions or
aim at emission reductions
over the operational lifetime of
the asset; address adaptation;and increase the resilience ofsurrounding environments.
This could include thefollowing assets and projects:
water capture and collection,water storage, water treatment(with methane emissions
treatment), flood defence,drought defence, stormwater
management, and ecologicalrestoration/management aswell as grey, or built water
infrastructure and naturebased water infrastructure.

13

Transport
Overview
Existing green transport in Indonesia
includes public passenger transport in theform of Mass Rapid Transit (MRT), Light RailTransit (LRT), commuter rail, inter-city rail
and regional rail services as well as extensive
freight rail networks.
In addition to rail, the Bus Rapid Transit(BRT) system in Jakarta qualifies as green.
However, all other BRT systems across thecountry do not qualify, as they do
not have fully dedicated lanes for theirbusway corridors. In Indonesia, the asset
owner for this sector is generally thegovernment, although there are some
private companies involved.
In the near future, with so muchdevelopment underway, the share of green
transport in Indonesia is set to increase.
Improving connectivity is a critical priority

for President Widodo, who has set someambitious targets for the future. This
includes building 3,200km of train tracks
throughout the islands of Sumatra, Java,
Kalimantan, and Sulawesi. This would resultin a fully connected national railway line,
improving access for more people in moreplaces, reducing congestion and air pollution,and driving trade and economic growth without contributing to the nation’s total
GHG emissions.
In line with these targets, the future ofgreen transport in Indonesia will include theexpansion of the existing rail network. This
will include the addition of high-speed railroutes and upgrades to the rail rolling stockfrom diesel to electric.
There will also be an expansion andupgrade of the BRT systems, moreinterconnectivity with other modes ofpublic transport, and more hybrid buses in

the fleet. All of this will require additional
investment in the next couple of years.
In Indonesia, several of the SOEs responsible
for rail have already issued bonds fortransport works. Future issuances from theseorganisations could be tagged as “green”
in advance to raise their profile as potential
sustainable investments.

Investment opportunities(2018-19)
Transport investment opportunities
in Indonesia, available in 2018-2019,
include rail and BRT related projects thatare planned for development and would
benefit from project finance, or are underconstruction and would benefit fromrefinancing under Indonesia’s improved
macroeconomic conditions. These projects
are listed below, accompanied by two
detailed reference case studies.

Table 2. Low-carbon transport assets and projects for investment in 2018-2019
Subsector

Name and location

StatusDescription

Rail

Medan urban railway,
North Sumatra

Planned

A 19.2km railway line stretching from southwest to northwest Medan, allowing for
LRT and BRT integration.
Asset owner/Authority: Local Development Planning Authority, City of Medan

Batam Island Railway,
Riau Islands

PlannedA public mass transportation system with a railway segment of 27,55 km to servea demand of 16.986 passenger/hour/route.
Asset owner/Authority: Batam Indonesia Free Zone Authority

Jakarta MRT, Phase II,
Jakarta

PlannedThe next phase of the Jakarta MRT development. The total network is expected
to stretch across over 108km, including 21.7km for the North-South Line (fromLebak Bulus to Kampung Bandan) and 87km for East-West Line (from Balaraja to
Cikarang). Phase I is 15.7km long from Lebak Bulus to Bundaran HI and is underconstruction, opening in 2019.
Asset owner/Authority: Government of Jakarta

Jakarta LRT, Phase II,
Jakarta

PlannedFurther development
Figureof the10LRT
Urban
systemRailway
with 3 to 7City
linesofconnecting
MedanJakarta
Mapcitycentre with suburbs. Phase I cost USD903.6m.
Asset owner/Authority: DKI Provincial Government and Government of Indonesia

Airport rail link, theRailink, Phase II,
Jakarta

PlannedThe next phase of the Railink, with an extension to Halim Perdanakusuma Airport.
The current Railink connects Jakarta city centre to the main international airport,
Soekarno-Hatta, more than 30km to the west, which takes 55 minutes and has acapacity to carry up to 272 passengers, and with 82 trips every day.
Asset owner/Authority: State-owned PT Kereta Api, through subsidiary Raillink

Local commuter
rail services(Commuterline orKRL), Extension,
Jakarta

PlannedThe next phase/s of the commuter rail system in the Jakarta metropolitan area, at
418km, with 6 lines servicing over a million people at its peak.
Asset owner/Authority: PT Kereta Commuter Indonesia (KCI), a subsidiary of PT Kereta
Api Indonesia (KAI)—Indonesian national railway company

Jakarta-Bandung
High-Speed Rail,connecting Jakarta
with Bandung

Under
construction

High speed rail covering a distance of around 142km between Jakarta andBandung, as part of the Chinese BRI project. The price has swelled to almost
USD6bn, from USD5.2bn (partly covered by a USD4.5bn loan from the China
Development Bank at the May BRI summit in Beijing).
Asset owner/Authority: Consortium of Indonesian SOEs

Reference case studies

Indonesia GIIO Report Climate Bonds Initiative14

Subsector

BRT

Name and location

StatusDescription

High-speed rail,
connecting Jakarta
with Surabaya

Planned“Ourcurrently
economyundergoingneeds to grow withHigh speed rail between Jakarta and Surabaya,
feasibility studies.
equality, and we want to avoid
Asset owner/ Authority: Consortium of Indonesian
SOEsacross the country, anddisparity

TransJakarta, BRT
system, Extensions,
Jakarta

Planneda railway
network
would
Further phase/s of the existing 230.9km inbuilding
13 BRT corridorsand
10 cross-corridor
help into2016,
address
thisbuses
issue.”
routes and carrying 430,000 passengers daily
whererun”ondedicated bus lanes. Early estimates of Phase I show operational cost covered byfare revenue after 6 months.
Mr Wismana Adi Suryabrata,
Asset owner/Authority: Consortium of Indonesian
SOEsChiefand private
operation
Deputyfor Infrastructure

Transport Oriented
Developments,
Extensions, Jakarta

Planned

at BAPPENAS,
the ofNational
A total of 16 Transit Oriented Developments,
for the integration
bus and train
stops are planned, with one already complete.
Development and Planning Agency.
Asset owner/Authority: Local government authorities

Reference case studies
Urban railway, City of Medan,
North Sumatra

Urban Railway City of Medan Map

Status: Planned
Description: A 19.2km railway line stretching from southwest tonorthwest Medan, allowing for the integration of LRT and BRT.

Medan

Output: Improved accessibility and connectivity and reduced
congestion and air pollution.
Cost: Est. USD477.4m
Concession period: Est. 35 years
Asset owner/Authority: Mayor of Medan + Local Development
Planning Authority, City of Medan.
Source: BAPPENAS, 2017

Financial structure: PPP, government support and guarantee
Return on investment: An available payment is proposed for
project investment in 10-15 years, with an end-user tariff scheme
afterward. Farebox and non-farebox revenue, such as transit oriented
development in the station, also possible sources of revenue.

Batam Island Railway,
Riau Islands

Batam Island Railway Map

Status: Planned
Description: A public mass transportation system with a railway
segment of 27.55km to serve a demand of 16,986 passenger/
hour/route.
Output: Improved accessibility and connectivity; reduced
congestion and air pollution; and tourism and port links.
Cost: Est. USD635m

Asset owner/Authority: Batam Indonesia Free Zone Authority(BIFZA)
Financial structure: PPP, government support and guarantee
Return on investment: Build, operate and transfer (BIFZA will
acquire assets at contract completion).

Indonesia GIIO Report Climate Bonds Initiative

Source: BAPPENAS, 2017

Concession period: Est. 49 years

15Future investment opportunities

Future investment priorities:

Beyond 2019, in order for Indonesia to make the transition
to a low-carbon society, investment opportunities should
focus on increased rail and BRT developments as well as electricvehicle generation and sustainable waterborne transport.
Table 3 contains examples of projects that would promote theseinvestment priorities.

• Rail• BRT• Electric vehicle generation• Sustainable waterborne transport

Table 3. Future low-carbon transport investment opportunities
Subsector

Project

Description

Rail

Rolling stock
upgradesThe state-owned train manufacturer, the Indonesian Railway Industry (PT. Industri KeretaApi), produces electric passenger train wagons, freight wagons and related technologies
for use locally and for export. This would make it possible to upgrade key rail routes withelectric rather than diesel wagons (it would also require rail infrastructure upgrades tofacilitate this technology.)

BRT

BRT fleet upgrade

PT. Industri Kereta Api also manufactures Compressed Natural Gas-powered (CNG)
buses, which are in use in Jakarta, known as Inobus (Innovation Bus). This would make itpossible for the BRT fleet of buses to be upgraded across all BRT systems.

BRT upgrades

All BRT systems across Indonesia should be upgraded to include segregated laneway
for all routes, including those systems in Yogyakarta, Palembang, Bandung, Denpasar,
Pekanbaru, Semarang, Makassar, and Padang.

Generation ofelectric vehicles

Generation ofelectric vehicles

In 2007, Indonesia announced a set of tax incentives intended to help develop a“Low Cost Green Car”; in 2013, regulations were issued for a 0% luxury tax for cars
under 1200 cc as long as they could meet the same 20 km/l mileage goal; and, in 2017,
the government issued Presidential Regulation No. 22/2017 on the general plan for
national energy to support the development of electric cars. This strong political impetus,
paired with Indonesia’s successful automotive industry would allow for substantial electricvehicle generation.

Waterborne
transport

Sustainable ports

Indonesia has planned the development and upgrade of several ports and port ‘hubs’
across the country. There is the potential for these to include measures that mitigate
against and adapt to the effects of climate change. For example, on-site electricity
production, energy efficiency measures for indoor and outdoor lighting as well as
integration with public transport and freight rail infrastructure. It is also important for ports
to protect themselves and the cities they support from the impacts of climate change bybuilding adaptive features like reinforced sea-defences and improved drainage systems.
Planned port developments that could be developed in a more sustainable manner include:
Kabil Port; Kuala Tankung International Hub Port; Bitung International Hub Port; Makassar
New Port; and, Patimban Port.

Sustainablemerchant andpassenger marine
vessels

As a vast archipelago, waterborne transport is an important part of inter-islandconnectivity. Boats in common use in Indonesia include large container ships, a varietyof ferries, passenger ships, and smaller motorised vessels. For each of these there
are technologies being developed around the world to decrease their, generally high,emissions. For example, hybrid tug boats are a readily available technology. Also, solar
powered marine vessels already exist, specifically solar-electric jukung (traditional vessels)in Indonesia. The jukung, an 8-person capacity boat, is commonly used for local tourism,fishing and ferrying between islands. This technology could be scaled-up to provide more
vessels or the technology could be adapted to larger vessels.

Indonesia GIIO Report Climate Bonds Initiative16

Energy
Overview
Renewable energy generation in Indonesia
is currently dominated by hydropower andgeothermal energy - with hydroelectric
power contributing 9% to the total energy
mix in 2017 and geothermal and otheralternative energy sources contributing
5%40. The other sources of renewableenergy in Indonesia include solar power,
wind power and bioenergy. The governmentis also pursuing tidal power opportunities.
In Indonesia, renewable energy generationand distribution assets are privately owned
or owned by SOEs, with the state-owned
electricity distribution company PLN
accounting for the majority of the country’s
power output.
Renewable energy is of importance tothe government, as the nation’s energy
consumption is set to grow another 80%
by 2030. In anticipation of this surge, theIndonesian Government aims to increase
the nation’s overall installed capacity as
well as increase the share of renewableenergy to 23% by 2025 (estimated at 45
GW) and 31% by 205041. The governmentis encouraging increased investment byprivate electricity companies (IPPs) for
the development of new renewable energy
generation facilities.
To produce an ideal renewable energy
mix, the government is aiming to continue
to grow hydropower and geothermalenergy, complemented by increased power
generation from solar, wind and tidal
technologies as well as different types ofbioenergy generation. The current installed
and potential capacity as well as thegovernment targets for each of these energy
sources are as follows:

Hydropower: The current
installed capacity for allhydropower plants inIndonesia is about 4,260 MW,
which is 5.8% of the totalhydropower energy potential. Indonesia’s
current installed capacity comes from a mix oflarge-scale, medium and “mini” hydropower
facilities. In the future, the government wants
to focus on the development of mini-hydro(defined as having less than 10 MW ofcapacity per plant) and pumped-storagehydroelectricity, as they wish to increaseelectrification across the archipelago andmeet peak demand42. Of the total renewableenergy targets for 2025, hydropower
represents the largest share, with 21 GW to beinstalled (of which 3 GW is envisioned to bein the form of small-scale hydropower).
Geothermal energy:
Indonesia has one of thelargest installed geothermalenergy generating
capacities in the world,with approximately 40% of the global
potential, estimated at 28 GW. By 2025,
Indonesia aims to produce more than 9
GW of geothermal power, accounting for
5% of Indonesia’s total energy needs. As
geothermal energy generation can resultin emissions, new and existing geothermal
projects are aiming to have direct emissionsof less than 100gCO2/kWh, throughmitigation technologies that will renderany non-condensable gas releases to theatmosphere negligible.
Solar power: In 2017, there
was only 4.80 KWh/m2/dayof solar power in Indonesia;
however, the government
plans to significantly

Figure 11. Indonesia’s energy targets

Coal

24%

Oil

31%

Natural gas

2016

20%

2025

23.8%
31.4%

25%

2050

23%

30%

25%

37.1%

169 MTOE

400 MTOE

Indonesia GIIO Report Climate Bonds Initiative

1,012 MTOE

Source: OJK, 201722%

Wind power: The installedwind power capacity inearly 2016 was estimatedat 9.4 MW; however, thiswould have increased
significantly over the last couple of years,
with the construction of several wind farms
in 2017. The government target for windenergy is 1.8 GW, which is only a fractionof the wind power potential - estimated ataround 9.5 GW.
Bioenergy: The installedcapacity from biomass iscurrently approximately
1.6 GW, while there is thepotential for around 50 GW.
The government is aiming for bioenergy tocontribute at least 5% of the total energy
mix by 2025 (about 5.5 GW), based on
current technologies. However, with new
types of biomass being discovered inIndonesia, the government could increase
its target (as long as new technologies do
not jeopardise food security or risk forest
clearing for production).
Tidal energy: The current
installed capacity for tidalor marine-energy is zero,with a theoretical installed
potential of 18 GW. Having
committed to providing a combined capacityof almost 300 MW through two tidal
projects, due for completion in the next two
years, the government is already on its way
to achieving its target to reach 3.1 GW of
installed tidal energy capacity by 202543.

Investment opportunities(2018-19)

New and Renewable Energy

7.7%

increase this amount, aiming for an annual
solar power capacity of 6.4 GW by 2025.
According to the International Renewable
Energy Agency, Indonesia has the potential
for 47 GW of installed capacity by 2030,
should it develop on-grid and off-gridsources including solar farms and rooftop
solar panels and solar heating.

Renewable energy investment opportunities
in Indonesia, available in 2018-2019, include
geothermal, hydropower, solar, wind, tidal
and bio-energy facilities that are plannedfor development and would benefit fromproject finance. Those that are underconstruction or have already been built
could benefit from refinancing on
favourable terms following Indonesia’s
recent ratings upgrade. These projects
are listed in Table 4, accompanied by two
detailed reference case studies.

17

Table 4. Renewable energy assets and projects for investment in 2018-2019
Subsector

Project

StatusDescription

Geothermal

Kamojang
Geothermal Plant,
Phases VI and VII,West Java

PlannedFive units generating power with an installed capacity of 235 MW and plansfor expansion with units 6 and 7.
Asset owner/Authority: PT. Indonesia Power and Pertamina Geothermal Energy

Geothermal Power
Station, Expansion,South Sumatra

PlannedTo be in operation by 2021 with an installed capacity of 86 MW. This is anextension of current geothermal activities in the area.
Asset owner/Authority: SERD and PLN

Gunung Salak
Geothermal Plant,
Expansion,West Java

PlannedSix units operating with a capacity of 377 MW, with expansions planned.
Asset owner/Authority: Star Energy and PLN

Star Energy
Geothermal Darajat
II, Expansion,West Java

PlannedThree units generating 275 MW, with expansion planned.
Asset owner/Authority: Star Energy and PLN

Wayang Windu
Geothermal Plant,
Phase II, West Java

PlannedOne of the largest geothermal power stations in Indonesia, generating 277
MW. A third unit of 127 MW is planned for construction, and further units arealso being considered.
Asset owner/Authority: Pertamina and Magma Nusantara Limited (subsidiary ofStar Energy)

Sarulla Geothermal
power plant, North
Sumatra province

Built

One of the largest geothermal power plants in the world, with a capacityof 330 MW. Funded by a loan of USD492m from the Japan Bank forInternational Cooperation and other foreign investors.
Asset owner/Authority: Itochu Corp., Kyushu Electric Power Co., PT Medco Power
Indonesia and INPEX Corp.

Poso Energy
HydroelectricPower Plant,
Central Sulawesi

PlannedTo build three hydroelectric power plants with a total capacity of 615 MW by2022. The Poso Energy Hydroelectric Power Plant consists of three projects:
Poso-1 Hydroelectric Power Plant with a potential capacity of 60 MW, Poso-2hydropower with a potential capacity of 180 MW, and PLTA Poso-3 with acapacity of 300 MW. Until now, a 3x65 MW hydro power plant called PLTA
Poso 2 has been in operation. The estimated cost is USD831m.
Asset owner/Authority: PLN and PLTA Poso-2 and PT Poso Energy

Matenggeng
Pumped-Storage
Hydro Power Plant,
Central Java

PlannedTo be in operation by 2024, with an installed capacity of 900 MW. The
project will include the construction of a dam, a powerhouse, a substation,water catchment area, the installation of turbines, generators, and the layingof power transmission lines. The estimated price is USD600m.
Asset owner/Authority: PT PLN Persero

Upper Cisokan
Pumped Storage
Power Plant,West Java

Under
construction

A pumped Storage Hydro-Electrical Power Plant with an installed capacity of
1,040 MW. The cost is USD800m, currently funded by both the World Bank
(USD640m) and PLN (USD160m).
Asset owner/Authority: PLN

Agam hydro power
plant, West Sumatra

Built

A 10 MW mini hydro power plant, small enough to potentially qualify underthe Indonesian sovereign green bond and green sukuk framework.
Asset owner/Authority: PLN

Hydropower

Indonesia GIIO Report Climate Bonds Initiative18

Subsector

Project

StatusDescription

Solar power

Kupang Solar farm,
Nusa Tenggara

Built

The largest existing solar farm in Indonesia, with an on-grid facility producing
5 MW. The cost was USD11.2m.
Asset owner/Authority: PT. LEN Industri and PLN

Floating solar farm,West Java

PlannedThe 200 MW floating solar power station will be the world’s largest floating
solar farm, covering an area of 225 hectares of the Cirata Reservoir in West
Java, which already features a 1 GW hydroelectric power station.
Asset owner/Authority: PT Pembangkitan Jawa-Bali

Distributed solar
power project,
East Nusa Tenggara

PlannedTen small scale solar power facilities with a total generation capacity of up to
10 MW at peak. The cost is estimated at USD15m.
Asset owner/Authority: French energy group ENGIE and PT Arya Watala Capital

Sidrap I wind farm,Phase II,South Sulawesi

PlannedThe first commercial wind farm in Indonesia, with an installed capacity of 75
MW. Sidrap I is the first phase of a larger project with further wind and solar
energy generation facilities, with battery support, planned for Sidrap. It thatused 40% local materials during construction and will employ 500 people
and serve up to 70,000 households. Phase one was funded by U.S. andJapanese investors.
Asset owner/Authority: Ayala Corporation

Tolo 1 Wind Farm,South Sulawesi

Under
construction

21 wind turbines producing 72 MW and due for completion in 2018.
Asset owner/Authority: Equis

Solo Wind farm,
Central Java

PlannedWind farms with expected capacity of 75 MW.
Asset owner/Authority: Ministry of Energy and Mineral Resources and PLN

Palm Oil Mill
Effluent (POME)
Power Generator
Program, Kalimantan
and Sumatra

Planned

Program for development of 15 POME-to-electricity biogas power plants,
with GmbH 480,000 tCO2-eq per year. This will reduce POME and increase
distributed access. The cost is estimated at USD40.5m.
Asset owner/Authority: PLN, Indonesia Climate Change Trust Fund and Deutsche
Gesellschaft für lnternationale Zusammenarbeit (GIZ)

Biogas plant,
South Kalimantan

Under
construction

POME-to-electricity biogas power plant with a capacity of 16 MW.
Asset owner/Authority: PLN

Biogas power plant,
North Sumatra

Under
construction

POME-to-electricity biogas power plant, also using waste materials like
empty fruit bunches to generate 4 MW.
Asset owner/Authority: PT Herfinta Farm and Plantation, traded under the name
PT Power Energi Nusantara Indonesia

Palmerah Tidal
Bridge, Phases 1
and 2,
East Nusa Tenggara

PlannedA bridge and integrated power plant with 18 to 23 MW capacity. Plans
include constructing the 800-meter long (floating) Palmerah Bridge at
Larantuka Strait and a tidal energy power plant completed by the end of2019 and is scheduled to be world’s largest tidal power plant. Phase II – isa powerhouse extension of 90 MW to 115 MW could be realized in 2020.
Phase 1- contract value was up to USD200m
Asset owner/Authority: Tidal Bridge BV

Lombok Fund tidal
power, Phases 2
and 3,
East Nusa Tenggara

PlannedA150 MW tidal-stream array. Phase 1 will be the construction of 12 MW,
expected to be completed by the first quarter of 2020. This will befollowed progressively by site expansions to 70 MW (Phase II), through 150
MW (Phase III). Overall, it involves the installation of eight 1.5 MW tidal
energy turbines. The project sites in Indonesia will be located in the straits
around islands of Bali and Lombok. The first phase is funded by private
equity investors.
Asset owner/Authority: Atlantis Resources Ltd and DCNS Energies

Wind power

Bioenergy

Tidal power

Indonesia GIIO Report Climate Bonds Initiative19

Reference case studies

Status: Built, with extensions planned

Cost: Est. USD450m

Description: One of the largest geothermal
power stations in Indonesia, generating 277
MW. A third unit of 127 MW is planned forconstruction, and further units are also being
considered. It is one of the first geothermal
power plant operators in Indonesia to havean integrated control system with zeroventing, to reduce emissions.

Concession period: N/A

Output: Increase energy supply to Java,
Madura and Bali, and more environmentallyfriendly energy production.

Wayang Windu geothermal
field map
Wayang Windu JOC
West Java

Asset owner/Authority: Owned by
Pertamina and Magma Nusantara Limited(subsidiary of Star Energy), with a Joint
Operating Contract with Pertamina
Geothermal Energy

test core hole
producing well
non-producing wellinjector well

Financial structure: PPP possible, withfinancial support from the government.

proven field outline

Return on investment: Build-own-operate/
take-or-pay features, PPA with PLN.

surface volcano

possible field extension

02km

Sidrap Wind Farm, South Sulawesi

Future investment opportunities

Status: Built, with extensions planned.

Beyond 2019, investment opportunities
should focus on solar power, wind power,
bioenergy and geothermal power generation.

Description: The first commercial windfarm in Indonesia, Sidrap wind farmconsists of 30 2.5 MW turbines, with an
installed capacity of 75 MW. It is part ofa larger project of wind and solar energy
with battery support, aiming to provide
300 MW installed capacity in Sidrap, withextensions planned to achieve this.
Phase one was funded by the U.S. Overseas
Private Investment Corporation and theSumitomo Mitsui Banking Corporation,
estimated to have cost USD150m.

Output: Used 40% local materials andaims to employ 500 people and serve up
to 70,000 households.
Cost: Est. Est. USD400m

Table 5 contains examples of projects thatwould promote these investment priorities.

Concession period: Not applicable
Asset owner/Authority: Owner-operator,
PT UPC Sidrap Bayu Energi, is a joint venture
formed by UPC Renewables, PT Binatek
Energi Terbarukan and AC Energy Holdings
Financial structure: PPP possible, withfinancial support from the government.
Return on investment: Build-own-operate,
PPA with PLN.

Future investment priorities• Solar energy• Wind power• Bioenergy• Geothermal

Table 5. Future renewable energy investment opportunities
Subsector

Project

Description

Solar

Small,
distributed
solar
facilities

As a topographically diverse archipelago, one of Indonesia’s greatest challenges is electrifying isolated
communities. In response, the government has begun developing several small-scale solar facilities
that supply communities not connected to the grid. This approach should be expanded, and projects
could be aggregated to attract commercial finance.

Wind

Large scalewind farms

The Ministry of Energy and Mineral Resources is planning to develop the potential of wind power in
16 locations in Indonesia. The government partnered with UNDP as well as wind energy experts in
Denmark to map the wind potential for Indonesia and plan the scale and technology. The developmentof large-scale wind power facilities in these areas will occur within the next five to ten years.

Bioenergy

POME-toelectricity

Indonesia is the largest palm oil producer in the world. There are more than 680 palm oil mills in Kalimantan
and Sumatera alone that would benefit from having their own POME to electricity biogas power
facilities installed. The production of palm oil generates abundant waste water, which can be converted
into biogas through a gasification process. To ensure that this source of energy remains sustainable, thePOME must come from existing palm oil mills that are Certified Sustainable Palm Oil (CSPO).

Indonesia GIIO Report Climate Bonds Initiative

20

Source: BAPPENAS, 2017

Wayang Windu Geothermal Plant, West Java

Water and waste management
Overview
Two of the greatest challenges for theIndonesian Government and municipal
authorities are the provision of clean drinking
water and the safe collection of waste. A
challenge for water supply is the uneven
distribution of water resources, due to a lackof infrastructure provision in both remotecommunities and in rapidly expanding urban
areas (Java has almost 60% of the population
with less than 10% of the water supply).
In response, the government has madeplans to build 65 new reservoirs with acapacity of 8.2bn m3 by 2019 (with a total
capacity of 12.56bn m3), to raise water
availability per capita from 52.55 m3 to 76.4
m3 44. The government also has a policy
detailing how water resources should bemanaged to provide adequate and modern
infrastructures, which will require significant
upgrades in the future.

With regard to waste, currently 69% of the
64 million tonnes of solid waste produced
by Indonesians per year is sent to open
dumpsites, which has a negative effecton the health of the environment andlocal communities45. The government’s
response to the waste challenge focuses onsustainable methods of waste disposal.

long as these facilities undertake adequate
sorting and removal of plastics and metals,
they will make a significant contribution to
the achievement of national waste reduction
and low-emission energy targets.

In their NDC, the government committed
to developing a comprehensive strategy to
improve policy and institutional capacity
for waste management at the local level;
enhancing the management capacityof urban waste water; reducing landfill
waste by promoting the “Reduce, Reuse,
Recycle” approach; and turning waste andgarbage into energy production46. The
latter has become central to the national
government’s waste management strategy,
with seven waste-to-energy plants plannedfor development in the next few years. As

Sustainable water and waste investment
opportunities in Indonesia, available in2018-2019, include water supply andwater treatment facilities as well as waste
recycling and waste-to-energy facilities thatare either planned (and would benefit fromproject finance) or are under construction(and would benefit from refinancing). These
projects are listed in Table 6, accompaniedby two detailed reference case studies.

Investment opportunities(2018-19)

Table 6. Sustainable water and waste assets and projects for investment in 2018-2019
Subsector

Name and Location

StatusDescription

Water supply

Umbulan Water
Supply, East Java

Under
construction

A water supply system due for completion in 2019, with 93kms of drinking
water pipelines network across five cities and regencies in East Java. The costis estimated at USD150m.
Asset owner/Authority: PT SMI

Pekanbaru Water
Supply, Riau

PlannedInfrastructure for water intake and transmission, a water treatment plant of
500lps, distribution pipelines 133.61km, 4 service reservoirs. It will increasein the level of service from 8% in 2014 to 27% in 2019 – serving 40,000
households. The cost is estimated at USD35.5m, with a concession period of
25 years with the opportunity for a PPP, government support and guarantee,
via a Build-Operate-Transfer arrangement.
Asset owner/Authority: PDAM Kota Pekanbaru

Pondok Gede Water
Supply, West Java

PlannedInfrastructure for water intake, transmission and a treatment plant of 300lps,
with two service reservoirs, 98km of pipelines and 31,700 connections.
Coverage target is to provide service for 29,660 domestic and 2,040 nondomestic customers, resulting in increased and sustainable access to safe
drinking water. The cost is estimated at USD25m with a concession period of
25 years, via PPP, government support and guarantee and full concession.
Asset owner/Authority: PDAM Tirta Patriot

Bandar Lampung
Water Supply,
Lampung

PlannedThe distribution and service component of a larger water supply project,with the level of services expected to increase from 20% in 2015 to 46%
in 2024. It should cost USD81.48m, with a concession period of 25 years, via
PPP, government support and guarantee and with Build-OperateTransfer arrangement.
Asset owner/Authority: PDAM Way Rilau, Bandar Lampung City

Indonesia GIIO Report Climate Bonds Initiative21

Subsector

Name and Location

StatusDescription

Water
treatment

Sindang Heula
Water Treatment
Plant, Banten

PlannedA water treatment plant, including processing and distribution systems anda service reservoir, which will improve quality of service of drinking water in
Banten Province. The cost is estimated at USD17m, with a concession periodof 15-20 years, via PPP, government support and guarantee andfull concession.
Asset owner/Authority: Governor of Banten and Water Resources and Settlement
Agency, Banten Province

Waste

Plastic pouch
Recycling facilities,
Jakarta

PlannedA series of facilities with a new technology called CreaSolv process forrecycling sachets or plastic pouches used to hold shampoos and otherproducts. It will allow plastic to be recovered to create new sachets for
Unilever products, creating a circular economy approach. The first project has
been built, with several others planned.
Asset owner/Authority: Unilever

Final Waste
Disposal Site
(TPPAS), West Java

PlannedWaste disposal facility with a waste plan of 2,180 tonnes per day maximum
input, and the output is electricity production of 342,000 kWh per day and
90 tonnes per day of compost, using full gasification.
Asset owner/Authority: Government of West Java Province and Department of
Housing and Settlement, West Java Province

Reference case studies
Bandar Lampung Water Supply, Lampung

Bandar Lampung water supply map

Status: Planned

SUMARTRA

Description: The distribution and service component of a larger
water supply project, with the level of services expected toincrease from 20% in 2015 to 46% in 2024.
Output: Sustainable access to safe drinking water.
Cost: USD81.48m
Concession period: Est. 25 years
Asset owner/Authority: PDAM Way Rilau, Bandar Lampung City

Teluk
Lampung

Financial structure: PPP, government support and guarantee

Greenfield area
Brownfield area to be developed

Return on investment: Build-Operate-Transfer (BOT) scheme

Final Waste Disposal Site (TPPAS), West Java

Brownfield area

Source: BAPPENAS, 2017

Lampung

Final Waste Disposal Site map

Status: PlannedWest Java

Description: Waste disposal facility with 2,180t per day
maximum input, and the output is electricity production of
342,000 kWh per day and 90 tonnes per day of compost, using
full gasification.

Cost: Est. USD43.73m
Concession period: Est. 20 years
Asset owner/Authority: Government of West Java Province
Financial structure: PPP, government support and guarantee(TPPAS)
Legok Nangka

Nagreg3

Tasikmalaya
3

New Facility
Road

Source: BAPPENAS, 2017

Output: Reduce total waste in West Java

Bandung

Rail

Return on investment: BOT scheme, Power Purchase
Agreement (PPA) with PLN

Indonesia GIIO Report Climate Bonds Initiative22

Future investment opportunities

Future investment priorities

Beyond 2019, investment opportunities should focus on water
infrastructure upgrades that promote resilience and the developmentof low-emission wastewater treatment, recycling and low-emission
waste-to-energy facilities. Table 7 contains examples of projects thatwould promote these investment priorities.

• Resilient water infrastructure• Low-emission wastewater treatment facilities• Recycling facilities• Low-emission waste-to-energy facilities

Table 7. Future sustainable water and waste investment opportunities
Subsector

Project

Description

Water

Distribution network
upgradesIn Indonesia, flooding can overwhelm urban infrastructure and the water supply is prone
to leaks. In response, the government recently invited private operators to reduce theiramount of unaccounted water, which will result in upgrades to water infrastructure to
optimise the network, increase water supply, and build resilience. These types of works
could be covered by a green debt security.

Waste

Rainwater harvesting
project

With plentiful rain during the monsoons, Indonesia is an ideal place to practicerainwater harvesting. This technology would be particularly helpful as it could
allow for more isolated rural communities to have a stable and clean water supply.
The widespread installation of rainwater tanks and water capture infrastructure, in
combination with the roll-out of other sustainable built water infrastructure would
present a good opportunity to increase water supply, which could potentially befinanced by green debt securities.

Solid waste infrastructure

The World Bank will work with ten cities that have sufficient capacity and commitment
in solid waste management to develop solid waste management infrastructure
not currently in place, including collection, transfer, treatment, disposal, andwaste recycling/composting as well as advanced treatment technologies, such asanaerobic digesters and refuse-derived fuel production. These will require investment
and partnership. The aim of their program is to develop benchmark solid waste
management cities.

Low-emissions waste-toenergy technology

With landfill space fast disappearing, Indonesia needs to find a method for disposing ofwaste (unable to be reused or recycled) that is healthy and does not have a significant
impact on the environment. Waste-to-energy technology is an ideal solution. However,
it is only considered low-emissions technology when the waste used has been sorted
and does not include plastics or metals. There have been seven waste-to-energy
plants planned for development in the next few years (in Jakarta, Tangerang, Bandung,
Surabaya, Surakarta, Makassar and Semarang, each of which should be planned to havea low-emissions output.

Indonesia GIIO Report Climate Bonds Initiative

23

Built environment
Overview
In 2012, the first Indonesian green buildings
regulation was released, requiring theconstruction of environmentally friendly
buildings across the country. This policy
was largely unenforced and did not resultin many green buildings. The Jakarta
administrative office responded to thischallenge by signed the 30:30 Commitment
policy, which aims to reduce energy
and water consumption and carbon
emissions up to 30% by 2030. It alsoestablished the Jakarta Green Building
Implementation Grand Design to ensure
more efficient compliance.
In addition to government policy, efforts togreen the urban landscape have been led
by the Green Building Council Indonesia,
a non-government organization, thatadministers an Indonesian-based green
buildings rating system called Greenship. It
is also responsible for EDGE certification
services in Indonesia. There are already ten
EDGE certified facilities, with more underconsideration. EDGE certified buildings are
suited to green bond issuance.

Looking forward, under the ’30:30
Commitment’, around 260 building
managers in Jakarta, with a total land areaof almost 15 million square metres, haveconfirmed their willingness to comply withgreen building regulations and undertake
development to do so. The Indonesian
Government is also committed to using
the latest technologies and techniques
for upgrading its buildings as well as to‘greening’ tourism facilities. With rapid
population growth and record urbanisation
rates, these commitments enable Indonesia
to meet the increasing demand for
housing and commercial space in a moreenvironmentally sustainable manner.

Investment opportunities(2018-19)
Green building and green built environment
investment opportunities in Indonesia, available
in 2018-2019, include the development or
refinancing of EDGE and Greenship certified
buildings47 as well as the development of
low-carbon street lighting. These projects
are listed in Table 8, accompanied by two
detailed reference case studies.

EDGE Certification for green
buildings
Created by the International FinanceCorporation (IFC), EDGE is a green
building certification program for nearly
140 countries. The EDGE standard
defines green buildings as having aminimum of 20% less energy use, 20%
less water use, and 20% less energy
contained in materials.

Greening Tourism
Existing Indonesian policies consider
green tourism as the development
and operation of tourism buildings
and facilities with low-emissions
and minimal environmental impacts.
Already in Indonesia, there are many
eco-resorts with sustainable design,
built with natural and locally sourced
materials, have onsite renewableelectricity generation, and green watersupply and waste processing.

Table 8. Green buildings and green built environment assets and projects for investment in 2018-2019
Subsector

Name and Location

StatusDescription

EDGE
buildings

Daan Mogot Towers
3-7 – “Rusunawa”,
JakartaUnder
construction

Simple, low-cost apartment buildings, with green energy, water and materials
solutions, earning a preliminary EDGE Certificate.
Asset owner/Authority: Provincial Government of DKI Jakarta

Ecoloft, Jababeka,West Java

Built

Resource-efficient and environmentally friendly serviced apartments withfinal EDGE certification. There are 82% energy savings primarily due to theinstallation of rooftop solar technology.
Asset owner/Authority: Jl. Taman Golf Utama I No 5 Jababeka

Ciputra World 1,
JakartaUnder
construction

An environmentally-friendly office building awarded Greenship Gold rating.
Asset owner/Authority: Ciputra GroupBCA Tower PT
Grand Indonesia,
Jakarta

Built

An office building with energy consumption savings by 35%, which received
a Greenship Platinum certification.
Asset owner/Authority: PT. Djarum

Bandung Street
Lighting,
West Java

PlannedAt least 9600 new street lights, pillars and installation cables to be built,
with the installation of LED light bulbs. This is part of an efficient andeffective street lighting system called Caana. This will reduce costs ofoperation and maintenance.
Asset owner/Authority: Mayor of Bandung and Regional Roads Offices

Greenshipbuildings

Built
environment

Indonesia GIIO Report Climate Bonds Initiative24

Reference case studies
Daan Mogot Towers 3-7 – “Rusunawa”
Status: Under construction

Cost: N/A

Description: 1,887 green, affordable
rental flats in simple, low-cost apartmentbuildings, with green energy, water andmaterials solutions, earning a preliminary
EDGE Certificate. Specifically, low-flowplumbing fixtures and dual-flush toilets;
reduced window-to-wall ratio andnatural ventilation design; energy-saving
lighting systems; and autoclaved aerated
concrete blocks.

Concession period:
N/A
Asset owner/
Authority: Provincial
Government of DKI
Jakarta

Source: Edge Buildings, 2018

Output: Reduce significant cost of operationand maintenance, for owner and occupiers.

Daan Mogot Towers 3-7
architectural rendering

Financial structure:
N/A
Return on investment:
Lease from occupants.

Bandung Street Lighting, West Java
Status: Planned
Description: Build at least 9600 new street lights, pillars andinstallation cables, with the installation of LED light bulbs. This is partof an efficient and effective street lighting system called Caana.
Output: Reduce significant cost of operation and maintenance.
Cost: Est. USD157m

Future investment opportunities
Beyond 2019, investment opportunities should focus on developing net
zero carbon buildings, undertaking deep retrofitting of existing buildings,
using low emissions technologies in, and making improvements
to, the built environment to minimise emissions. Table 9 contains
examples of projects that would promote these investment priorities.

Future investment priorities• Net zero carbon buildings

Concession period: Est. 49 years
Asset owner/Authority: Mayor of Bandung, Regional Roads Offices
Financial structure: PPP, government support and guarantee
Return on investment: Availability Payment (AP) scheme• Deep retrofitting of existing buildings• Low emissions technologies in the built environment• Improvements to the built environment
to minimise emissions

Table 9. Future green building and green built environment investment opportunities
Subsector

Project

Description

Buildings

Solar PVdevelopment in
Tourism

Mandalika in Lombok island is a tourism Special Economic Zone (SEZ) operated by Indonesia
Tourism Development Corporation (ITDC). Global Green Growth Institute (GGGI) and PT Sarana
Multi Infrastruktur (PT SMI) support the ITDC’s vision to provide clean power for their tenants
and want to ensure availability of power supply to the area. GGGI and PT SMI jointly conductedfeasibility study to support the development of solar PV project in this zone, starting at 10 MW.
The project has potential to scale up within the zone and across other tourism SEZs. Considering
the significant size of the Indonesian tourism sector and the governments bold plans for
expansion (creating ten new Balis), a program like this would be an effective means of generating
environmental benefits and energy savings. Adding the cache of “green” to these facilities could
also result in higher revenues and return on investment.

Retrofitting
governmentbuildings

The Indonesian Government has already built several new government buildings compliant
with Greenship certification standards. The next step is for the government to retrofit all existing
government buildings using the Greenship Existing Buildings Guideline, which would allow themto ultimately reduce operation costs as well as set a precedent for private developers.

Greenneighbourhoods

The Greenship Neighbourhood Guide was developed to improve public spaces, concerning accessibility,
green space, public water management, green building materials and energy efficiency. The Green
Building Council Indonesia are providing training to local authorities on how to green their cities, which
will see the implementation of these standards in new and existing public spaces across Indonesia.

Built
environment

Indonesia GIIO Report Climate Bonds Initiative25

Green assets and projects
pipeline (2018-2019)
To enable a comprehensive view of the green
infrastructure investment opportunities

available in Indonesia, each of the transport,
energy, water, waste and built environment
assets and projects for investment in 20182019 (excluding projects already built) havebeen collated in a single pipeline and map.

Table 10. Pipeline of green assets and projects for investment in 2018-2019
SectorSubsector

Project nameLocation

Cost (USD)

StatusTransport

Rail

Medan urban railway

North Sumatra

477.4mPlannedBatam Island Railway

Riau Islands Province

635m

PlannedJakarta MRT, Phase II

Jakarta-

PlannedJakarta LRT, Phase II

Jakarta-

PlannedAirport rail link, the Railink, Phase II

Jakarta-

PlannedCommuterline, Extension

Jakarta-

PlannedJakarta-Bandung High-Speed Rail

West/ Central Java
Province

6bn

Under
construction

High-speed rail connecting Jakarta andSurabayaWest/ Central/ EastJava Province-

PlannedTransJakarta, BRT, Extensions

Jakarta-

PlannedTransport Oriented Developments,
Extensions

Jakarta-

PlannedKamojang geothermal plant, Phases VI and VII

West Java Province-

PlannedGeothermal Power Station, Expansion

South Sumatra Province -PlannedGunung Salak Geothermal Plant, Expansion

West Java Province-

PlannedStar Energy Geothermal Darajat II, Expansion

West Java Province-

PlannedWayang Windu Geothermal Plant, Phase II

West Java Province-

PlannedPoso HydropowerCentral Sulawesi
Province

831m

PlannedMatenggeng Pumped-Storage Hydro Power
Plant

Central Java Province

600m

PlannedUpper Cisokan Pumped Storage Power
Plant

West Java Province

800m

Under
construction

Floating solar farmWest Java Province-

PlannedDistributed solar power project

East Nusa Tenggara

15m

PlannedSidrap I wind farm, Phase II

South Sulawesi Province 400m

PlannedTolo 1 Wind FarmSouth Sulawesi Province -Underconstruction

Solo Wind farm

East Java Province-

Planned

Biogas plant

South Kalimantan
Province-

Under
construction

Biogas power plant

North Sumatra Province -Underconstruction

Palm Oil Mill Effluent (POME) Power
Generator Program

Kalimantan/ Sumatra
Provinces

40.5m

Planned

Palmerah Tidal Bridge, Phase I and II

East Nusa Tenggara

300m

PlannedLombok Fund tidal power, Phases 2 and 3

West Nusa Tenggara-

Planned

BRT

EnergyGeothermal

Hydropower

Solar power

Wind power

Bioenergy

Tidal power

Indonesia GIIO Report Climate Bonds Initiative

26

SectorSubsector

Project nameLocation

Cost (USD)

Status

Water

Water
supplyUmbulan Water Supply

East Java Province

150m

Under
construction

Pekanbaru Water Supply

Riau Province

35.5m

PlannedPondok Gede Water Supply

West Java Province

25m

PlannedBandar Lampung Water Supply

Lampung Province

81.48mPlannedWater
treatment

Sindang Heula Water Treatment Plant

Banten Province

17m

Planned

Waste

Plastic pouch recycling facility

Jakarta-

PlannedFinal Waste Disposal Site (TPPAS)

West Java Province

43.73mPlannedEDGE
building

Daan Mogot Towers 3-7 – “Rusunawa”

Jakarta-Under
construction

Greenshipbuilding

Ciputra World 1

Jakarta-Under
construction

Built
environment

Bandung Street LightingWest Java Province

157m

Planned

Waste

Built
environment

Figure 12. 2018-2019 Green pipeline projects are spread across the country

LegendTransport

PHILIPPINES

EnergyWater
Waste
Built environment

BRUNEI

MALAYSIA
Riau

MALAYSIASINGAPORE
Kalimantan

SumatraSulawesi

Papua

INDONESIA
Java

PAPUA
NEW
GUINEA

EAST TIMOR

AUSTRALIA

Indonesia GIIO Report Climate Bonds Initiative27

Green investment opportunities are growing
Indonesia is making progress on transitioning
to a low-carbon, sustainable and inclusive
society.
With strong political support, afacilitative policy framework, andimproving macroeconomic conditions,the opportunities for green infrastructure
investments are increasing.
In summary:• The government aims to develop billionsof dollars of new public-works projects
over five years.

Xi Jinping’s exhortations to “green”
their BRI investments. Both the China
Development Bank and the world’s
largest bank, ICBC, issued “green belt androad bonds” in 2017, both certified under
the Climate Bonds Standard.
In early 2018 a USD1.25bn green sovereign
sukuk was successfully issued by theGovernment of Indonesia to financelow-carbon and climate-resilient projects
across ministries.

This will include a significant scaling up of
green infrastructure.

• An analysis of a selection of Indonesia’s
green infrastructure pipeline reveals
a wide variety of green investment
opportunities.

Infrastructure investment at scale iscrucial for Indonesia to successfully
maintain economic growth and deal
with domestic challenges, such as rapid
urbanization and climate change.

These range from a USD15m distributed
solar generation plant to the USD6bn
Jakarta-Bandung High-Speed Rail, frominvestments in bonds issued by transport
SOEs to equity as IPPs or a stake in a PPP.

Ensuring this infrastructure expansion is
low-carbon and climate resilient allows
them to pursue sustainable economic
growth while meeting their climate targets.

Planning green infrastructure that is inline with international definitions for“green” can help meet global institutional
investor demand for green assets;
accessing private sector capital isessential for Indonesia to finance theirinfrastructure plans.

• There is an increasing demand forinvestment opportunities that addressenvironmental issues and support
sustainable development.
The rapid growth of the global green bondmarket is evidence of this strong demand,reaching USD160.8bn issuance in 2017from USD87bn in 2016.
Demand is especially strong from
OECD countries and from Chinese
investors responding to President

The Climate Bonds Initiative is aninternational investor-focused not-forprofit working to mobilize the USD100tn
bond market for climate change solutions.
It promotes investment in projects andassets needed for a rapid transition to a
low-carbon and climate resilient economy.
The mission focus is to help drive down
the cost of capital for large scale climate
and infrastructure projects and to support
governments seeking increased capital
markets investment to meet climate goals.

Indonesia GIIO Report Climate Bonds Initiative

Key green sectors for current and future
opportunities include:• Transport - increased rail and BRT
development as well as electric vehicle
generation and sustainable waterborne
transport in the future;• Energy – while the current focus is on
expanding hydro and geothermal power

The Climate Bonds Initiative carries
out market analysis, policy research,market development; advises
governments and regulators; andadministers a global green bondstandards and certification scheme.

generation, solar and wind energy remain
largely untapped and therefore holdfuture potential;• Water and waste – the provision ofclean drinking water is the current
priority; resilient water infrastructure,
low-emission wastewater treatment
facilities, recycling facilities and lowemission waste-to-energy facilities are
expected to be the next phase of green
projects in this sector;• Built environment – although theenforcement of green buildings regulation
has been difficult, commitments by thegovernment and in the private sector
in Jakarta seem promising for thedevelopment of net zero carbon buildings,
deep retrofitting of public buildings, anddeployment of rooftop solar and energy
efficient street lighting; and,• Other – emerging projects regarding
forestry and agriculture, ICT and industry
as well as adaptation technologies andmeasures will take focus in the future.
Improving project visibility
Researching green investment opportunities
in Indonesia takes time.
Improving visibility for such projects will
make it easier to attract investors interested
in looking for green.
An opportunity exists to develop an online
database of green infrastructure projects,
listed by sector and tagged as planned, underpreparation or ready to offer.

The Climate Bonds Initiative is also thelead partner in the Green Infrastructure
Investment Coalition.

Climate Bond Partners range frominvestors representing USD14tn of
AUM and the world’s leading investmentbanks to governments like Switzerland andFrance and government agencies like PINA
in Indonesia.

28Annexes

Information source: IISD, 2015

Annex 1 - Credit-enhancement mechanisms
Mechanism

Description

Partial Credit Guarantee(PCG)

A PCG is created to absorb part or all the debt service default risk of an infrastructure project,irrespective of the cause of default. PCGs can be used for any commercial debt instrument (loans,bonds) from a private lender. The existence or proposed implementation of a PCG is indicative ofconfidence in the product being floated by the government and can even assist in bringing new lenders
to the table.

Partial Risk Guarantee(PRG)

PRGs cover private lenders and investors for certain risks of lending to sovereign or sub-sovereign
borrowers. A PRG needs to include private participation in the project. A PRG can cover a number ofsovereign or sub-sovereign risks such as currency inconvertibility, political force majeure such as war,
regulatory risk and government payment obligations (such as tariffs). PRGs are used quite often andfavourably in green energy/energy efficiency projects.

First-loss provisions

First-loss provisions refer to any device designed to protect investors from the loss of capital thatis exposed first if there is a financial loss of security. These could be debt, equity or derivatives
instruments such as cash facilities or guarantees. They could also take the form of insurance that
insures debt security providers who are liable to pay compensation to the investors, irrespective of thecause of the loss.

Contingent loans

Contingent loans are often used in project finance to backstop the main debt by providing a payment
option for specific case scenarios. For instance, if the government fails to obtain quality cash flows, thecontingent loan is triggered, and investors are paid.

Viability gap funding (VGF)

VGF is used specifically and heavily in infrastructure to cover for the heavy upfront funding that isrequired to kick start projects. An analysis of the viability of a proposed project points out the weak
areas that prevent large-scale funding from being obtained. A VGF scheme can be implemented
through capital grants, subordinated loans or even interest subsidies to target specific issues that are
affecting the viability of the project.

A/B loans or grants

A/B loans or grants are where a Multilateral Development Bank (MDB) offers the “A” portion of theloan while attracting other lenders to join in a second (or “B”) tranche. The MDB will be the lenderof-record, lead lender and administrative agent in the transaction. This reduces part of the risks ofthe operations, by also being covered by the “umbrella” of the MDBs that include a preferred creditor
status and de jure immunity from taxation.

Annex 2 - Key funds and facilities that support infrastructure investment in Indonesia
Fund/Facility

Description

Indonesia Infrastructure
Guarantee Fund (IIGF)

A guarantee fund financed by authorized capital of approximately USD1bn from the Government ofIndonesia’s budget, with financial assistance provided by the World Bank.48

Credit Guarantee
Investment Facility

A multilateral credit guarantee facility established by ASEAN+3 and the ADB to provide credit
guarantees for local currency denominated bonds issued by investment grade companies in ASEAN+3
countries and supported by the Asian Bond Markets Initiative (ABMI) of the ASEAN+3 cooperation.49

ASEAN Infrastructure Fund

A multilateral fund established by ADB and ASEAN members to help mobilise regional savings,
including foreign exchange reserves, to fund infrastructure projects – with co-financing by ADB funds.
ADB also acts as a co-financier and the lender of record for AIF loans.50

Leading Asia’s Private
Sector Infrastructure Fund

An infrastructure co-financing fund, established by ADB, that supports PPPs, joint ventures, private
finance initiative projects, and privatizations, as well as conventional project finance by providing
financing to companies, projects, and financial intermediaries (e.g., holding companies and local
currency vehicles) linked to Infrastructure.51

GuarantCo

GuarantCo encourages infrastructure development in low income countries through the provision of
credit guarantees that enable infrastructure projects to raise debt finance. GuarantCo is part of thePrivate Infrastructure Development Group and sponsored by five G12 governments.52

TCX currency hedging

The Currency Exchange Fund (‘TCX’) was founded in 2007 by a group of development financeinstitutions and donors to offer solutions to manage currency risk in developing and frontier markets.53

Indonesia GIIO Report Climate Bonds Initiative29

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Green_Finance_Progress_Report_2017.pdf

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This report was sponsored by the Climate Works Foundation.

ClimateWorks Foundation
ClimateWorks Foundation is a team of researchers, strategists,collaborators, and grant-makers who are committed to climate
action and believe in the power of collective philanthropy.
They are a non-governmental organization that works globally,collaborating with funders, regional and research partners, andother climate leaders to strengthen philanthropy’s response to
climate change.

The ClimateWorks team is united in their commitment toclimate action, bringing combined expertise in climate science,
public policy, economic and social development, and strategic
philanthropy. ClimateWorks collaborates with a wide range offunders, NGOs, and climate leaders from around the world toaccelerate climate action.

This report was developed in partnership with PINA and PT. EBA Indonesia.

PINA

PT. EBAPINA is a non-government investment fund that raises
financing from alternative funding sources to make financial
contributions to national strategic infrastructure projects thathave a posititive commercial value and are expected to have apositive impact on the Indonesian economy. Under the PINA
scheme, infrastructure and non-infrastructure developments
can be implemented without using the government budget.

A consulting firm based in Indonesia, providing advice on
Green Bonds & Asset-Backed Securities for the Indonesianmarket. PT. EBA partner with their clients to help them achieve
their transaction objectives or investment plans by providingthem with insightful market information, bespoke products andworld-class service. Their team comprises staff from local andinternational financial firms whose knowledge and passion for
excellence are backed by cutting edge technology, qualitative
and timely market research materials and a pedigree of
integrity, innovation and excellence of ethics.

PINA is part of the Partnership Cooperation with Business Entity(KPBU) scheme led by the Ministry of National Development
Planning (KPPN) / National Development Planning Agency(BAPPENAS) together with the Ministry for Economic Affairs,
Ministry of Finance, Investment Coordinating Board of Indonesia(BKPM), the Intstitute for Procurement of Government Services(LKPP) and PT Penjaminan Infrastruktur Indonesia.

Contributors to this report included the ADB, GGGI and EDGE.

Lead author:
Kristiane Davidson

Co-authors:
Diletta Giuliani, Beate Sonerud

Design:Godfrey Design© Climate Bonds Initiative, May 2018
Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financialorganisation or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility forcontent on external websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within
this communication should be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects
the climate attributes of the use of proceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A
decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties onbehalf of an individual or organisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication.

Indonesia GIIO Report Climate Bonds Initiative

31

“The priority is to accelerate green
finance and climate investment
between now and 2020 at a scale
never seen before. Funding clean
energy and green infrastructure tomeet NDC goals is the objective.
$1tn in green finance by 2020 is
the performance measure.”
Christiana Figueres,
Former UN Climate Chief© Published by the Climate Bonds Initiative, Jakarta May 2018. Sponsored by the ClimateWorks Foundation. Developed in partnership with theIndonesian Government’s Pembiayaan Investasi Non-Anggaran Pemerintah (PINA) and with PT. EBA Indonesia.
Indonesia GIIO Report Climate Bonds Initiative32