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Decoupling of emissions from economic growth in MENA

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BROOKINGS’ FUTURE DEVELOPMENT published this article on how the MENA countries should kick-start the decoupling of emissions from economic growth in their region. Here it is.

How to kick-start the decoupling of emissions from economic growth in MENA

By Martin Philipp Heger, Senior Environmental Economist – World Bank and Lukas Vashold, Ph.D. Student – Vienna University of Economics and Business

The burning of organic materials (such as fossil fuels, wood, and waste) for heating/cooling, electricity, mobility, cooking, disposal, and the production of materials and goods (such as cement, metals, plastics, and food) leads to emissions. This affects local air quality and the climate. In a recent blog, we showed that the Middle East and North Africa region (MENA) lags behind all other regions in decoupling air pollutant emissions from economic growth.

Particulate matter with a diameter of less than 2.5 micrometers (PM2.5) is the air pollutant associated with the largest health effects. MENA’s cities are the second-most air-polluted following South Asia; virtually all of its population is exposed to levels deemed unsafe. In 2019, exposure to excessive PM2.5 levels was associated with almost 300,000 deaths in MENA and it caused the average resident to be sick for more than 70 days in his or her lifetime. It also carries large economic costs for the region, totaling more than $140 billion in 2013, around 2 percent of the region’s GDP.

A good understanding of the emission sources leading to air pollution is necessary to planning for how to best reduce them. Figure 1 shows that waste burning, road vehicles, and industrial processes accounted for around two-thirds of PM2.5 concentrations. Electricity production is also a significant contributor, most of which is used by manufacturing and households.

5 PRIORITY BARRIERS AND OPPORTUNITIES FOR POLICY REFORMS TO KICK-START DECOUPLING

A forthcoming report titled “Blue Skies, Blue Seas” discusses these measures, alongside many others, in more detail.

1. Knowledge about air pollution and its sources is limited, with sparse ground monitoring stationsDetailed source apportionment studies have only been carried out for a few cities within the region, with results often not easily accessible for the public.

Extensive monitoring networks and regular studies on local sources of air and climate pollutants are foundational, as is making results easily accessible to the public (e.g., in form of a traffic light system as is done in Abu Dhabi). This will empower sensitive groups to take avoidance decisions, but also nurture the demand for abatement policies.

2. MENA’s prices for fossil fuels and energy (predominantly from burning fossil fuels), are the lowest in a global comparisonFor example, pump prices in MENA for diesel ($0.69 per liter) and gasoline ($0.74 per liter) were about half the EU prices and less than two-thirds of the global average in 2018.

MENA’s heavy subsidization of fossil fuels, whether that is at the point of consumption or at the point of intermediary inputs in power generation and manufacturing, makes price reforms essential. Aside from incorporating negative externalities better, lifting subsidies also reduces pressure on fiscal budgets, with freed-up fiscal space being available to cushion the impact for low-income households. There have been encouraging steps by some countries such as Egypt, which reduced the fossil fuel subsidies gradually over the last couple of years, leading to significant increases in fuel prices, which in turn had positive effects on air quality.

3. Underdevelopment of public transportlow fuel quality, and low emissions standards drive high levels of emissions from the transport sector. In MENA, the modal share is often heavily skewed toward the use of private cars; when public transportation is available, it has a low utilization rate in international comparison.

To support a shift in the modal share toward cleaner mobility, it is imperative to invest in public transport systems, while making them cleaner and supporting nonmotorized options such as walking and biking. Cairo’s continued expansion of its metro system has been effective in reducing PM pollution and other MENA cities have also invested heavily in their public transport infrastructure, moving the needle on improving air quality. Furthermore, it is also important to raise environmental standards, both for fuel quality and car technology, together with regular mandatory inspections.

4. Lenient industrial emissions rules and their weak enforcement. The industrial sector is characterized by low energy efficiency standards, also due to the low, subsidized prices for energy mentioned above. MENA is currently the only region, where not a single country has introduced or is actively planning to introduce either a carbon tax or an emission trading scheme.

Mandating stricter emissions caps, or technology requirements, together with proper enforcement and monitoring is crucial. Incentivizing firms to adopt more resource-efficient, end-of-pipe cleaning, and fuel-switching technologies are additional crucial means to reduce air pollution stemming from the industrial sector. A trading system for emissions could either target CO2 emissions, or air pollutants, such as the PM cap-and-trade system recently introduced in Gujarat, India. Such a system should target both the manufacturing industry as well as the power sector.

5. Weak solid waste management (SWM) is a major issue in MENA. Although the collection of municipal waste has room for improvement in many countries, it is mainly the disposal stage of SWM where the leakage occurs. Too often waste ends up in open dumps or informal landfills, where it ignites. Furthermore, processing capabilities are often limited, and equipment outdated, at least for the lower- and middle-income countries of the region.

Hence, enhancing the efficiency of disposal sites is critical to reducing leakage and the risk of self-ignition. To start, replacing or upgrading open dumps and uncontrolled landfills with engineered or sanitary landfills is a viable option. Going forward, recycling capabilities should be improved and the circularity of resources enhanced. For agricultural waste, the establishment of markets for crop residues and comprehensive information campaigns in Egypt showed that such measures can supplement the introduction of stricter waste-burning bans.

Kick-starting decoupling and banking on green investments hold the promise for MENA not only to improve environmental quality and health locally, and to mitigate climate change globally, but also to reap higher economic returns (including jobs). Moreover, decoupling now will prepare MENA economies better for a future in which much of the world will have decarbonized its economies, including its trade networks.

APICORP to allocate $1bn towards green energy

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By virtue, or by follow-up, the Oil Producing Countries of the Golf are trying to rush into the transition to green development. Here is a good example. Apicorp to allocate $1bn towards green energy as described here extends to also ‘introduce green and sustainability bonds in the coming period with the aim of accelerating the adoption of sustainable business models within the energy sector whilst providing incentives to pursue energy diversification and sustainability practices.’


The above image is for illustration and is of The National.

APICORP to allocate $1bn towards green energy

DAMMAM, The Arab Petroleum Investments Corporation (Apicorp), an energy-focused multilateral development bank, plans to allocate $1 billion towards green energy projects and sustainable energy companies over the next two years, particularly in the MENA region. 

This is with a view to concomitantly measure the ESG footprint of all its assets by end of 2023 through active engagement with its stakeholders. 

Unveiling its new ESG policy framework, Apicorp aims to support Energy Transition in its member countries and beyond.

Currently, green assets comprise more than 13% of the multilateral development bank’s overall portfolio – equal to around $550 million in loans and direct investments, a figure which has more than quadrupled over the past five years. 

The new framework also includes a robust due diligence toolkit to measure the ESG impact when making financing and investment decisions, with a focus on supporting the proliferation of renewable energy sources and low-carbon technologies as well as forging more strategic partnerships to promote the sustainability agenda.

Dr Aabed bin Abdulla Al-Saadoun

Additionally, Apicorp will look to introduce green and sustainability bonds in the coming period with the aim of accelerating the adoption of sustainable business models within the energy sector and providing industry players with incentives to pursue energy diversification and sustainability practices.

Commenting on the ESG policy framework, Dr Aabed bin Abdulla Al-Saadoun, Chairman of the Board of Directors of Apicorp, said: “As the world continues to experience unprecedented change, Apicorp recognises the importance of our role, our impact and our responsibility to tackle environmental and climate change challenges within our member countries, partners and wider stakeholders. We want to support a transition to a low-carbon, climate-resilient economy by mitigating risks across our operations, supply chain and client transactions by embedding sustainable principles in our business practices. We embark on this journey with the reassurance that all of our member countries are signatories to the 2015 Paris Agreement and participants at COP26 to be held in Glasgow later this year.”

Dr Ahmed Ali Attiga, Chief Executive Officer of Apicorp, said: “At Apicorp, we want to lead by example when it comes to transitioning to more sustainable energy sources. Encouraging other partners in our ecosystem to be more mindful of their environmental, governance and societal footprint is therefore integral to our strategy moving forward. As a multilateral development bank with exposure to myriad industries within the energy space, we have the added advantage of being able to measure the overall impact more accurately across the regions in which we operate. Equally important, we will continue to drive the ESG agenda in our member countries through our research and knowledge sharing activities, as well as our unique position in advising key policymakers within government and regulatory circles.” 

Underpinned by three core pillars – Responsible Banking and Investing, Social Inclusion and Partnerships, and Financial Resilience and Governance – the comprehensive framework is a key element of Apicorp’s strategy to formalise and institutionalise its commitment to environmental protection, social responsibility, and robust governance. It also guides how 

Apicorp will go about identifying, measuring, managing, monitoring, and reporting ESG risks and opportunities, as well as outlining criteria related to its own infrastructure, ethics and values, diversity and inclusion, and employee empowerment.

Additionally, the institution will also undertake voluntary public reporting on an annual basis drawn from the leading international standards, including the Task Force on Climate-related Financial Disclosures, The Principles for Responsible Investment, The Principles for Responsible Banking, and The Equator Principles.

TradeArabia News Service

Green Neighbourhoods as a Service

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Green Neighbourhoods as a Service

A Bankers without Boundaries made a proposed mechanism to address the challenge of scaling energy efficiency measures in the urban built environment. It is suggested in this article as a Green Neighbourhoods as a Service for all concerned a welcome step in the right direction.

The above image is for illustration and is of Climate-KIC.

Reducing net energy consumption in the built environment is one of the most significant and hardest problems for cities to solve to meet net zero carbon timelines. In our experience, typically, these emissions contribute 30-40% to a city’s total CO2 emissions. In this article we look at why it is so challenging and propose a mechanism to kickstart retrofit at scale.

A Challenging Problem

Reducing emissions in the built environment is an extremely complex problem with multiple components. Many of these complexities arise from an underlying assumption, in nearly all jurisdictions, that solving the problem is the responsibility of individual property owners. Multiple individual actors must make independent decisions leading to a fragmented response to the challenge.

Even ignoring this fragmentation, targeting individual property owners with economic incentives alone is failing anyway due to two interlinked problems

  1. The value of returns (energy savings) is not connected to the capital spend. Returns occur over many decades and a building owner must be confident that they will enjoy those benefits for at least 30 years to have a hope of creating a positive economic case. Most building owners cannot commit to owning the property over that period; therefore, the net present value of energy savings is undervalued by the capital spender relative to its true worth.
  2. Even assuming the building owner can commit to 30 years of ownership, the economics of delivering deep decarbonisation in a way that is attractive to citizens (Deep, Community Retrofit) has poor economic returns (negative IRR) even assuming a 30-year investment period.

Figure 1: Not all retrofit is created equal

If economic rationale alone is not enough, decision making and financing must balance competing goals – economics, decarbonisation, community benefits and social & health impact, which requires a broader viewpoint than an individual building owner.

As a result, current solutions, which are frequently designed to be adopted by property owners, are failing. This has led to the paralysis we see in the market with negligible levels of building level improvements which improve energy efficiency (“retrofit”) occurring, despite various subsidy schemes being offered and financing costs being at historically low levels for some time.

Most existing solutions start with a premise that since it is down to individual property owners to commission work on their own properties, it is also therefore assumed that the energy and maintenance savings benefit accrues to them too and that this should form the economic rationale to carry out the project.

Even after discounting other barriers to entry (complexity of deciding what work to commission, project managing multiple trades, applying for subsidies, the misalignment of landlord and tenant incentives in the rental sector) the economic returns are not high for ambitious retrofit and require the property owner to remain in the property for decades to realise them. Therefore, the net present value of these savings is not being leveraged to solve the problem in the most effective way.

The sheer scale of retrofit that is required to improve inefficient buildings is also often touted as a problem. The costs of an ambitious retrofit programme are huge and go well beyond the public purse. To compound the problem the energy savings that can be achieved are not high enough for traditional financing on its own. To achieve this scale public finance will need to be blended with private capital in some way to provide the level of finance needed to achieve the scale required. In addition, retail investment and citizen engagement need to play their part in the equation to increase visibility and feasibility.

An interlinking issue for many countries is that of regional inequalities. Governments, such as the UK, have made levelling up regional differences a key policy initiative. Existing retrofit plans stand to exacerbate this issue. In the UK for example average house prices in London are £661k, but only £200k in the North East and North West. Average loan to value ratio is 82%. Retrofit costs are broadly uniform across the country, so a deep retrofit at £40k would equate to 6% of property value or one third of average equity in London, but 20% of property value or 110% of equity in the North. Clearly a policy led strategy that forces retrofit debt onto house owners would be deeply regressive for the North.

Any scalable solution must address the fragmentation of the problem which arises from individual decision making, allowing more systemic decision making to happen, economies of scale to materialise and progress to finally be made. This requires a fundamentally different approach.

Significant Opportunity

There is also real opportunity in this space.

Figure 2: Opportunities

Green Neighbourhoods as a Service – A Proposed Solution

To address the mismatch between ownership of the capital spend and of the value of benefits, tackle the fragmentation issue, overcome barriers to entry, allow aggregation of projects and matching of different types of finance that will be needed, we propose a new more centralised model which we call Green Neighbourhoods as a Service (GNaaS).

GNaaS envisages the establishment of a central entity in a city or region which designs, commissions, manages and funds deep energy retrofit on a street-by-street scale with incremental community investments at no cost to the property owners, regardless of ownership and usage typology.

  • By centralising the design process, more systemic energy decisions are made, for example around local energy systems and integration with district heating.
  • By centralising procurement, greater economies of scale are realised, improving economics and providing a lead market to the supply chain creating an environment for investment.
  • By operating at a community scale, additional projects such as resilience building, co-working spaces and green infrastructure in the shared spaces can be implemented at lower marginal cost. This drives greater impact and citizen engagement, changing the process from a “retrofit programme” to a “neighbourhood greening and investment programme”.
  • By centralising funding, projects can be aggregated on a neighbourhood scale allowing access to completely different types of funding and crucially removing the requirement of indebtedness for individual property owners, which is a key barrier.

To fund the work, a mechanism is needed to attach the long-term energy and maintenance savings to the centralised funding source. The proposal is that this takes the form of a long term (30 year+) comfort and maintenance contract with the resident. The contract would be embedded into the property deeds so that it automatically novates to whoever lives in the property and does not follow the individual when they move away. Alternatively, the resident would be offered the option to contribute the funding for their property directly in which case they would receive the full benefits of reduced energy requirement going forward without any need to engage in the design, procurement and delivery process.

Figure 3: Operating Mechanism

This is not an ESCO model (1). The resident would retain their relationship with existing utility providers for any grid power that they require post retrofit. The significant reduction of energy use achieved through demand mitigation measures and maximising localised heat and electricity generation would create the financial space for the payment of the comfort and maintenance fee at no aggregate increase in cost to the resident.

Contracting all the energy and maintenance savings to the GNaaS organisation would maximise the potential for return-based finance in the funding model. Implementing governance structures that align the decision-making processes with the overall goals of the city could create a mechanism for social outcome goals to be included in contractual terms.

This mechanism could provide a theoretical lever to the public authority to leave part of the savings with the resident enabling the mechanism to become a powerful tool in tackling fuel poverty.

Figure 4: Funding Flow Through the OpCo / FinCo model

The Capital Stack That Will Be Needed

From the modelling work we have done with several cities, the internal rate of return (IRR) provided by the energy savings from this blended set of neighbourhood interventions is consistently negative, even assuming a 30-year payback period. But by considering a large enough layer of various non-repayable funding sources, or impact finance, we can move the IRR for the remaining funding requirement into positive territory. Furthermore, adding returns from other sources, e.g. health improvement, can further improve the pay-out profile.

The resulting model creates a potentially multi-billion, stable and low returning financial investment opportunity for sources of patient capital that also value a robust set of impact metrics such as decarbonisation, healthcare improvement, fuel poverty abatement, educational outcomes, air quality improvements or biodiversity gains. We would argue this could be a good fit for sources of capital such as pension funds and insurance companies, which are increasingly demanding products which offer impact related benefits in addition to a financial return, under pressure from underlying asset owners and regulators.

Further, it is a structure that can take in repayable, but zero or ultra-low coupon, finance from multilateral or development finance institutions seeking climate change impact and/or post-COVID recovery funding.

In addition, there is an opportunity to offer participation for local communities to invest through a community bond type structure allowing direct participation in the returns.

For the non-repayable layer of finance, various components will need to be combined.

  • Funnelling existing municipal budgets earmarked for improving energy efficiency of public owned properties into the mechanism
  • Repurposing existing subsidy schemes into the mechanism
  • Additional national/supranational grant funding schemes aimed at decarbonisation and/or post-covid recovery; the work is labour-intensive and community wealth building activities relating to asset maintenance and green infrastructure can be incorporated.
  • The potential to incorporate other outcome seeking pools of funding, for example allocation of healthcare budgets into what would become a preventative programme reducing future burden on the health care system, biodiversity improvement funding etc.
  • An option for building owners to fund the work themselves and have the occupant benefit from the energy savings. They still benefit from the centralised orchestration, better economics and broader impact.
  • Exploration of the potential to accredit such centralised and scaled retrofit programmes as sources of carbon credits for voluntary carbon offset schemes allowing corporates to achieve their own net zero targets by buying credits that directly improve the communities they operate in and their employees live in.

Figure 5: The proposed Capital Stack with illustrative figures

There are significant governance issues to solve in designing how this entity would operate and to align its actions with those of the public sector. We propose it would be a not-for-profit organisation using a standard return-based fund management fee structure to cover its own operating costs, with involvement from public sector officials in supervisory committees etc to ensure alignment.

We are not claiming that this proposal is yet a finalised solution; there are many complexities to work through (several which are being tackled in pilot projects planned in Milan and Zagreb). However, we are convinced that this concept has the potential to unlock the scaling of improved energy efficiency in the built environment in a meaningful way.

Next Steps

  • Integration with a mechanism to help scale beyond pilot phase, taking learnings from models like LABEEF in Latvia to enable an ecosystem of private sector contracting firms to take over the heavy lifting work of much of the OpCo envisaged above, thereby creating competition leaving the OpCo part of the retrofit company as a commissioning and refinancing engine for implementation firms.
  • Technical assistance funding is required to further develop this work, on the finance side, but also to develop the engagement process with citizens, scope out the legal challenges around contracting as well as integration with the supply chain
  • Pilots will need to be run in multiple cities to prove out the concept. We would envisage these covering 2-300 residential units at a total funding cost of €10-15m each. Pilots are in advanced stage of design in Milan and Zagreb) though engagement has begun in multiple cities across Europe including Copenhagen, Leuven, Vienna, Krakow and Edinburgh.
  • Funding providers, including private sector impact finance firms, development finance institutions and philanthropic outcome purchasers will need to engage who are willing to partner with cities to develop these structures so that they can grow to commercial scale.

1 ESCO – Energy Service Company – is a company that provides energy to customers and services to improve efficiency. An ESCO typically sits between the consumer and the utility providers.

Heimdal: Startup for the Environment

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This article by Tech Times written by Isaiah Richard is about how Heimdal: a Startup for the Environment aiming at a high level of sustainability, is proposing to help in the carbon-free industrial materials like cement, concrete, limestone, and more. from extraction to production. Here it is.

(Photo: Photo by Lukas Schulze/Getty Images)

Steam and exhaust rise from the steel mill HKM Huettenwerke Krupp Mannesmann GmbH on a cold winter day on January 6, 2017 in Duisburg, Germany. According to a report released by the European Copernicus Climate Change Service, 2016 is likely to have been the hottest year since global temperatures were recorded in the 19th century.

Heimdal describes themselves as “decarbonizing industries and the world,” and the main goal of the company is to create materials that people can use without guilt or worries. Why is that? Because its industrial products would be carbon-negative or carbon-free.

This is something that has been achieved before, but what Heimdal aims to debut is the novel.

Heimdal’s focus is to extract different raw materials from the Earth using their renewable energy source and creating what people need without leaving any carbon footprint. Cement and concrete production are known to be major contributors of greenhouse gases in the world, something which startups try to change.

There is a lot of focus which the company aims to venture on, and according to Tech Crunch, it would potentially help in preserving the environment with its efforts. Heimdal demonstrates a high level of sustainability from its extraction to production, something which is not widely that practised in the industry. 

Heimdal Carbon-Free Industrial Materials

Erik Millar and Marcus Lima founded Heimdal, and this is something that the duo has brought with them upon completing their studies at Oxford University, United Kingdom. Heimdal aims to bring carbon-free industrial materials like cement, concrete, limestone, and more. 

Its main focus of using seawater and CO2 can help in bringing these said industrial materials, which aims to remove the dangerous greenhouse gas from the equation. The company engineers are working on ways to do this, particularly with a design from the founders to extract energy from seawater. 

Heimdal Renewable Energy

(Photo : Jason Weeks from Pixabay)

One of Heimdal’s main focuses as well is to extract energy from seawater, and it would alter the components to several stages such as making it alkalinized. After which, several gases are extracted, and here, they return seawater to its source.

From this process, Heimdal can collect the raw materials it needs to start on its limestone making while using clean and renewable sources of energy to do so. The venture of the company hits two birds with one stone, and can potentially reduce significant uses of raw materials in the environment. 

Related Article: ‘Green Steel,’ aka Carbon-Free Steel, Has Come Sooner than Expected

Read Also: Solar, Wind Power Now Cheaper than Coal, Renewable Energy Revolution Against Climate Change

Innovators in Indonesia are advancing renewable energy

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Innovators in Indonesia advancing renewable energy as per the Indonesian government strategy that is pushing to almost triple, shortly, the share of renewables in the country’s energy mix. Let us see how.

The above image is of Rio Pramudita contributed photo of an off-grid installation in Berau on Kalimantan, Indonesia.

Innovators in Indonesia are advancing renewable energy

By Ines Ayostina

Solar panels in Sulawesi, Indonesia.

The Indonesian government promises to almost triple the share of renewables in its energy mix in the next three years. That would reverse an investment climate in which fossil fuels saw 3 times more capital than renewable energy between 2016 and 2019. It would also require the nation’s monopoly power provider, Perusahaan Listrik Negara (PLN), to approve new projects at a rate that entrepreneurs don’t expect now. Moreover, all the distribution to customers is strictly handled by the state-owned company.

Accordingly, entrepreneurs work with global networks to improve the state’s literacy and risk appetite. One network is the Clean Energy Investment Accelerator. The CEIA works as a joint endeavor coordinated by Allotrope Partners, World Resources Institute (WRI), and the United States National Renewable Energy Laboratory (NREL) to accelerate renewable energy solutions for large electricity consumers in key emerging markets. CEIA brings together corporate buyers in Indonesia and magnifies their joint ideas to develop an enabling regulatory environment for accelerating renewable energy investment and use.

“How renewable energy fluctuates were claimed to be the greatest risk by potential investors to Indonesia,” says Rio Pramudita, a business development analyst for developer Akuo Energy. Because of the intermittent nature of renewable energy, the state-owned company must be ready to supply the client if renewable energy is unavailable. “Renewable energy faced some hurdles because they have to ‘pay’ for the uncertainty that PLN has to bear,” says Pramudita. In that context, a range of partners use a range of tools to promote the country’s renewable ecosystem.

Can renewable energy thrive in Indonesia’s current energy landscape?

Since its inception in 2018, CEIA has formed a taskforce in Indonesia that comprised of more than 25 corporate buyers. These corporate buyers are global firms with operations in Indonesia. They are among the companies who wish to source their energy from renewable sources but have discovered there is limited supply.There are reasons to discern a clean-energy economy growth curve in the country.

Independent Power Producers (IPP) that generate renewable energy remain limited in Indonesia. Currently, they supply 26 percent of national energy, and most lack transmission and distribution connections to sell energy directly to end users. Building distribution lines, of course, is expensive: The other option is to lease existing ones through PLN. “Transmission and distribution lines are a strategic asset of the state,” says Gina Lisdiani, director of Allotrope Partners Indonesia, part of the Clean Energy Investment Accelerator Indonesia.

“Because Indonesia is an archipelago, this transmission and distribution network becomes even more critical,” adds Lisdiani.

Although this means that IPPs generally cannot sell directly to end consumers, or be off the grid, some companies in Indonesia use their own solar panels to operate their factories and manufacturing facilities. For example, PT. Coca Cola Amatil Indonesia has this kind of solar panel arrangement with a capacity of 7.13 MW. However, an arrangement such as this is not completely off the grid. If something goes wrong and the supply falls below what the factory requires to run, PLN would supply electricity to the factory.

If industry has more supply than it needs (such as during the Eid Mubarak vacation period), they can sell it to PLN, a practice known as net metering. PLN smiles on this innovation, perhaps because it improves electrical supply without requiring new investment. “Net metering exists in Indonesia. In some cases, the PLN can reduce the price by roughly 35 percent. The process for obtaining a permit, or simply determining whether it is possible, is not uniform and depends on the location and permit by PLN regional office in the area,” adds Lisdiani.

Private-sector renewable energy purchasing

For generating and distributing renewable energy without running into the corruption that comes with permits, CEIA has worked with PLN to create and disseminate a Renewable Energy Certificate (REC). “It is hoped that it could serve as a catalyst for PLN to build and/or permit more renewable energy projects,” says Lisdiani.

Renewable energy certificates provide a simple way for businesses, institutions and individuals to offset their carbon footprint and support renewable energy. As more companies proclaim commitment to climate action and renewable energy, purchasing RECs allows businesses to source their energy from renewable sources. When demand rises, the possibility to create renewable energy power plants rises with it.

“They [corporate buyers] are also concerned about whether a renewable energy power plant has reached its break-even point. They would rather fund and incentivize generation that is not yet profitable [so they can realize higher returns in the future]. This is critical in order to assist project developers who wish to launch a renewable energy project in Indonesia,” Lisdiani says.

These enabling conditions and potential incentives are essential for project developers from the start of the project. “A new project developer without a portfolio will face enormous challenges. One of them is obtaining financing from a bank,” Lisdiani explains. “And REC has the opportunity to play a significant role in resolving some of the issues.”

The first solar off-grid system in Indonesia to serve communities

Despite hurdles, there are reasons to discern a clean-energy economy growth curve in the country. Akuo Energy, a renewable energy developer, has developed the first solar off-grid electrification systems that powers three villages in Berau, Kalimantan.

Because Akuo Energy is off-grid, it both generates and distributes energy directly to customers without running through the state pricing system. This project was mostly funded by the Millennium Account Challenge Indonesia and United States Agency for International Development (USAID). The solar off-grid is managed by a joint venture between Akuo Energy and the village-owned company (Badan Usaha milik Desa; Bumdes), with the latter owning the majority.One common misconception is that since Indonesia is a tropical country situated on the Equator, we would have been able to deploy solar energy everywhere.

The joint venture was able to obtain the required permit by presenting their project in front of the ministry, emphasizing the importance of electricity access in these three villages and how their distance from the transmission line is so far that the state-owned company cannot benefit from it. There is also a regulation that restricts the price they may charge customers; the ceiling is the price set by the state-owned company. If the joint venture wishes to raise the price above what the state-owned company has set, they must present the case to the Regional House Representative with rigorous justification.

“One common misconception is that since Indonesia is a tropical country situated on the Equator, we would have been able to deploy solar energy everywhere,” says Pramudita, who trained as a mechanical engineer. “There is a lot of heat in Indonesia, but what we need for solar panels are photons. As a result, different renewable energy technologies would be appropriate in different parts of Indonesia.”

Some parts of Indonesia are cloudy most of the year, while others are not. East Nusa Tenggara is one of the few places in the world where it is never cloudy. “Other locations such as some parts of Sumatera, the south coast of Papua, and West Java are not suitable for solar panels but are suitable for wind turbines,” explains Pramudita. Indeed, a study shows that Sukabumi and Garut, in West Java, are among the potential sites for wind turbines.

In a challenging environment, organizations and businesses such as these show a way forward. CEIA brings together renewable energy buyers and consolidates a unified voice to the government, whereas Akuo Energy is able to operate off-grid solar panels. This demonstrates a few of the opportunities for patient renewable energy investment in Indonesia.

This story first appeared on: Clean Energy Finance Forum