$500 Million ADB Loan to Support Indonesia's Energy Sector, Green Recovery

A view of electric power lines in Indonesia.
Indonesia has expanded energy access to over 99% of the population by 2021, from 84% in 2014. Photo credit: ADB

The Asian Development Bank (ADB) has approved a $500 million loan to support Indonesia’s energy sector reforms to boost fiscal sustainability and governance, expand private sector investments in clean and renewable energy, and promote green recovery from the coronavirus disease (COVID-19) pandemic.

ADB will also administer a $15 million loan for the third subprogram of the Sustainable and Inclusive Energy Program funded by the Association of Southeast Asian Nations (ASEAN) Infrastructure Fund through its ASEAN Catalytic Green Finance Facility (ACGF). In addition, the project will include an equivalent of $292 million in cofinancing from the German Development Cooperation, through KfW, and $60 million from the Economic Development Cooperation Fund.

“The program supports the government in implementing a policy framework to achieve financial sustainability for the energy sector and improved energy access, along with a commitment to a clean energy transition,” said ADB Senior Energy Specialist Yuki Inoue. “The reforms will also pave the way for taking forward the broader energy transition agenda announced by Indonesia and its international partners at the recently concluded Group of 20 meetings.”

The subprogram builds on two earlier subprograms supporting Indonesian government reforms in the energy sector from 2014 to 2017, and aligns well with ADB’s operational priorities under Strategy 2030.

The subprogram includes electricity tariff reforms and better targeting of subsidies, with support for the most vulnerable populations, including households headed by women. These actions have led to significantly reduced fuel and electricity subsidies through the program period, helping the government manage the sharp increase in international energy prices in 2022. The subprogram also supports the government’s initiatives for promoting renewable energy production with a new pricing mechanism, regulations to promote floating solar, solar rooftop photovoltaic systems, electric vehicles, and energy efficiency standards and measures. Through these reforms, the government adopted renewable energy incentives and expanded energy access to over 99% of the population by 2021, from 84% in 2014.

Along with the Indonesian government’s joint statement for the Just Energy Transition Partnership and Energy Transition Mechanism announced at the G20 meetings in Bali in November 2022, the program also supports the government’s commitment for developing strategies for the early phase out of coal-fired power plants in the country and clean energy transition, which will be the focus of ADB’s support to the Indonesian energy sector going forward.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

This article was first published by ADB on 24 November 2022.