Indonesian SWF deputy chief outlines green investment plans

Indonesia Investment Authority’s (INA) participation in the initial public offer of a geothermal energy entity represents the start of efforts by the sovereign wealth fund (SWF) to build a comprehensive renewable energy portfolio, a senior executive has said.

“We have started with our investment in geothermal and are continuously looking for opportunities in other [forms of] renewable energy,” he said.

“We see major opportunities in geothermal given Indonesia’s natural potential,” Arief Budiman, deputy chief executive officer of Indonesia Investment Authority, told AsianInvestor, noting that green energy and transformation is one of four priority investment sectors for the wealth fund.

Arief Budiman

INA invested roughly $120 million in Pertamina Geothermal Energy (PGE), an affiliate of state-owned national oil and gas company Pertamina during the IPO, the SWF told AsianInvestor in an exclusive interview. 

The amount is equivalent to about 5% of the total shares of PGE.

PGE listed its shares on the Indonesia Stock Exchange in late February, offering about 10.35 billion ordinary shares, or 25% of the company’s issued capital. 

“We are optimistic that we can contribute not only capital but also our knowledge and expertise in accessing and leveraging the most optimal capital to develop geothermal opportunities given its unique characteristics,” said Budiman.

Indonesia is home to about 40% of the world's geothermal resources. Image credit: Shutterstock

Geothermal energy is created by harnessing the heat produced by the earth, through using steam from underground reservoirs of hot water to power turbines that generate electricity.

Indonesia is home to about 40% of the world’s geothermal resources. However, the country’s installed capacity of around 2.3 gigawatts of geothermal energy accounts for less than 10% of its total known potential.

PGE aims to increase installed capacity from 672 megawatts (MW) to 1,272 MW by 2027. The company currently manages 13 working geothermal areas, with a total installed capacity of 1,877 MW.

IPOs like PGE's will help in unlocking the potential for geothermal energy in Indonesia, Muhammad Shidiq, senior officer in the energy modelling and policy planning department at Jakarta-based ASEAN Centre for Energy (ACE), told AsianInvestor.

“Financing plays a key part in promoting geothermal energy, and the IPO will bring in money from sources other than the government."

Monika Merdekawati, research analyst at ACE, noted there needs to be more initiatives like IPOs to encourage private sector participation to help develop the geothermal energy sector further.

AREAS OF FOCUS

Budiman highlighted three key focus areas in INA’s green investment plans.

The first is energy transition. The SWF is also actively developing a concept for the energy transition mechanism, jointly with the Asian Development Bank and PT SMI (a government-owned special purpose vehicle to finance sustainable transitions) to accelerate the transition to cleaner power generation by phasing out coal-fired power plants, Budiman said.

The wealth fund in December signed an investment framework agreement with IFU to explore prospective opportunities in renewable energy, water, waste management, and other opportunities in the circular economy. A circular economy refers to a model of production and consumption that involves sharing, reusing and recycling existing materials and products for as long as possible.

The goal is to reach a total of investments up to $500 million, with the Indonesian and Danish funds providing risk capital to projects in the range of $100 million each.

The second focus area of green investments is the electric vehicle ecosystem. INA continues to look for opportunities across the EV value chain, Budiman said.

The SWF has already undertaken initiatives in this direction: In November 2022, it announced it would set up a $2 billion Green Fund to focus on investing and developing the EV value chain mainly within the country, in partnership with two other entities, one based in Hong Kong and the other based in mainland China.

Finally, the SWF is also looking at whether there are commercial opportunities to invest in nature-based solutions "such as conservation projects, given that Indonesia possesses one of the world’s largest physical carbon stocks,” said Budiman.

Carbon stock refers to the amount of carbon stored in forests in the form of biomass, soil, deadwood and litter.

The higher the carbon stock, the higher the forests’ capacity to absorb and sequester carbon dioxide, the main greenhouse gas in the atmosphere.