The Asian Development Bank (ADB) has approved a $600 million loan to help the State Electricity Corporation (PLN), expand electricity access and promote renewable energy in eastern Indonesia. PLN is Indonesia’s state-owned power company. The program includes two grants worth USD 3 million from Japan Fund for Poverty Reduction and Asia Clean Energy Fund. The program is called the Sustainable Energy Access In Eastern Indonesia – Electricity Grid Development Program (SEAEI-EGDP).
The second phase of the (SEAEI-EGDP) supports efforts by PLN to expand electricity access and improve service reliability in nine provinces. These provinces are located in the outer regions of Kalimantan, Maluku, and Papua. The first phase of the program began in 2017 and covered eight areas in Sulawesi and Nusa Tenggara.
“The program will boost sustainable, equitable, and reliable access to electricity among the communities in remote eastern Indonesia. This electricity will be provided through the use of solar and other renewable sources,” said ADB Southeast Asia Energy Director Toru Kubo. “Reliable electricity is essential for people. Firstly, to access job opportunities. Secondly, to expand education. Lastly, to provide health services, especially during the coronavirus disease (COVID-19) pandemic. The program will also support eastern Indonesia’s economic recovery from the pandemic and contribute to equitable and resilient growth.”
Indonesia’s economy has doubled in size since 2000. The national poverty rate declined to 9.7% in 2018, from 19.1% in 2000. The COVID-19 pandemic now threatens such gains. ADB expects Indonesia’s economy to contract by 1.0% in 2020, compared with a 5.0% expansion in 2019. To cushion the economic shock, the government has announced free electricity for 24 million low-income households. It also announced a 50% discount for 7 million more households. Above all, this action could reduce the PLN’s revenue and financing capacity.
Push to develop electricity beyond Java
The government has been pushing to develop the country’s economic growth centres beyond Java. More than half of the population live outside of Java. Residents in eastern Indonesia currently have limited access to electricity. Up to 56% of households having inadequate or no electricity access in Papua and 28% in Maluku. These figures are much higher than the national average of 4%. The government has prioritised 433 villages currently without access to electricity. All of them located in the eastern provinces of Papua, West Papua, East Nusa Tenggara, and Maluku.
Expanded electrification in eastern Indonesia is a key part of the government’s infrastructure investment plan, with the goal of electricity for all by 2024. The government plans to increase the share of renewable energy in the total energy mix to 23% by 2025, up from 13% in 2016. It also hopes to eliminate diesel use to the extent possible, a task most challenging in the remote eastern regions.
ADB to help PLN reach its goals
“The program will increase PLN’s delivery of electricity powered by renewable energy to remote communities by six-fold. The program will also reduce indoor kerosene and wood consumption. This reduction will generate significant environmental and social benefits,” said ADB Energy Specialist Diana Connett.
The first phase of the program in Sulawesi and Nusa Tenggara has proved successful. By the end of 2019, the number of new customers increased by 1.53 million. This number exceeded the program’s target of 1.37 million. The second phase of the program aims to provide electricity to 1.55 million new customers by 2024 across the nine provinces.
The results-based loan to PLN, with a sovereign guarantee from the Government of Indonesia, will support the utility’s efforts to install medium- and low-voltage power distribution infrastructure. It will also help PLN staff better manage assets and safely dispose of waste equipment, as well as improving procurement and payment systems.
The grant from the Asia Clean Energy Fund will help renewable energy plants apply advanced technologies to improve system design and maintenance. The Japan Fund for Poverty Reduction grant will firstly, support measures to install power connections for low-income households. Secondly, it will help PLN conduct a longitudinal social and gender impact assessment.
Other ADB energy initiatives include two ongoing private sector loans supporting wind and solar power generation in eastern Indonesia. They also include policy-based loans that, along with technical assistance, help strengthen sector governance and fiscal sustainability, boost private sector investment, and promote clean and efficient energy options.
More information on the ADB loan to Indonesia can be found here.