Indonesia has set a target to deploy 24 gigwatts (GW) of renewable energy capacity by 2025 (around 23% of total capacity). There is much to do to achieve this goal with the energy mix in 2020 at around 9% renewables. Meeting clean energy targets will require accelerating renewable energy investments, including international capital flows to meet the estimated USD 72.5 billion of needed renewable power generation investments by 2025 (and more than USD 250 billion to 2050).
For the electricity sector, the government of Indonesia has made concerted efforts to increase renewable energy development, including notably past investments in large-scale hydro and geothermal power installations. However, progress on achieving the energy mix target is uninspiring, renewable energy such as solar and wind remain largely untapped with big growth potential, that could be realised under the right policy environment and market conditions.
The renewable energy market in Indonesia is still considered a high-risk undertaking given the lack of commercial business models, long lead times and high capital expenses for renewable energy project development. Moreover, commercial banks still lack appetite for renewable energy for several reasons mainly related to the risk profile and limited project finance capacity.
The risk management of the whole life cycle of renewable project, should be defined by the relevant stakeholders in detail to mitigate potential pitfalls, several attempts have been carried out in the past by stakeholders including mechanism that can be applied to de-risk projects and access to affordable capital. However, not much attention has been given to the role of the insurance industry in the development of renewable energy market particularly when it comes to risk management.
The insurance industry has been supporting the development of the renewable energy market through a variety of insurance products to manage risk. Globally the renewable energy sector is evolving rapidly as are risks faced by different project owners. Extreme weather events, changes in regulation, construction delays, obsolete technologies and rising claims linked to fire and theft are key issues facing the industry.
This webinar, organised as part of the Indonesia CEFIM programme, explored the use of insurance products to de-risk renewable energy projects and facilitate access to financing. Experts presented on country/regional experience on the use of insurance to manage various construction, operational, policy and physical risks related to renewable energy technologies. The webinar also examined options for acquiring insurance coverage on a collective basis in order to provide a more diversified pool of project risks to lower insurance costs and provide access to smaller projects. It also explored the role of governments and development partners in supporting the development of financial instruments to protect against renewable energy sector risks and its potential to help scale future renewable investments.
The webinar was targeted at CEFIM stakeholders including: Ministry of Energy and Mineral Resources (MEMR), the Financial Services Authority (OJK), the Fiscal Policy Agency (BKF), Coordinating Ministry for Economic Affairs, Coordinating Ministry for Maritime and Investment Affairs, Ministry of Environment and Forestry, Bappenas, Asosiasi Pialang Asuransi Indonesia, Asian Development Bank, World Bank, IFC, OECD development partners.
Moderated by Cecilia Tam, CEFIM Team Leader, OECD
Moderated by Leigh Wolfram, OECD