Supporting Indonesia’s Renewable Energy Development in Remote and Rural Areas through Innovative Funding

17 Jul 2018

The facts showed that rural electrification is important for reducing regional disparity, that renewable energy is locally available to generate electricity but costly to build for rural areas and that government funding is limited. Therefore, providing 100% electrification in rural Indonesia remains big challenge, particularly due to limited participation from private sector in electricity business. Political, institutional and financial barriers have hindered wider investors' involvement in developing renewable energy for rural electrification. 

With this situation, how can we finance rural electrification innovatively? By diversifying investors, find common interest and put in place appropriate financing facility. One of good example of this innovative approach is demonstrated in microhydro development in Sarolangun Disrict in Jambi Province. Having common interest to reduce poverty, a blended financing facility has been provided by diverse investors, namely: Badan Amil Zakat Nasional (Baznas) through procurement of equipment, Bank Jambi through its CSR, UNDP/GEF project through project preparation grant and compliance facilitation with government and local stakeholders. The generated electricity will give access to 800 households and public facilities. 

For replication, it is recommended to the Government of Indonesia to 1) establish Rural Electrification Fund Facility as institution to fast track the effort for rural electrification, 2) issue specific policies for rural electrification, such as simpler business permit and tariff approval for small-scale renewable energy and adjusted PPP scheme, and 3) issuance of local regulation to call for CSR for rural electrification programme.

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