GCF supports Indonesia's energy transition with de-risking geothermal development
GCF's Indonesia geothermal project is at the heart of Indonesia's energy transition drive and promises to improve the share of renewables which currently accounts for 12.5 percent of the country's electricity generation.
Indonesia's geothermal potential is estimated to be 29 GW, which is about 40 percent of the world's known reserves. Despite this potential, the country relies heavily on fossil fuel to meet its electricity demand. A key barrier to geothermal development in the country has been the limited availability of suitable financing instruments and options that adequately address geothermal resource confirmation early risks.
At its twenty first meeting in Bahrain, the GCF Board approved the first tranche of USD 100 million out of the USD 185 million requested from GCF to finance public and private sector geothermal development in Indonesia. The first tranche of the GCF multi-year support facility will mobilise USD 410 million with contributions from the World Bank, the Government of Indonesia and private sector developers to achieve 600 MW to 900 MW of additional geothermal capacity. The full project facility will mobilise USD 760 million to support exploration and resource confirmation for 1GW to 1.5 GW geothermal energy. This translates to 187-281 million tCO2eq mitigated over the lifetime of the generating assets.
The GCF contribution aims at reducing the early stage exploration risk taken by geothermal developers with the uncertainty to find resources. The funding from GCF is a package consisting of a senior concessional loan for public sector projects, a reimbursable grant for private sector projects, and a grant for technical assistance. A key innovation in the financing package is the use of convertible bonds that will enable private sector geothermal sponsors to mitigate the exploration risk while providing an adequate upside in case of success. It is estimated that less than 10 percent of the global geothermal capacity has been tapped so far, mainly because early stage exploration risks in geothermal development is a barrier that needs to be addressed with the right calibration of financing packages. Pierre Telep, Renewable Energy Senior Specialist at GCF, said that "convertible bonds facilities are promising to this effect, because of their nonrecourse features that follow the value of the developer and provide the adequate premium in case of success."
The Indonesia geothermal project is at the heart of Indonesia's energy transition drive and promises to improve the share of renewables which currently accounts for 12.5 percent of the country's electricity generation. The project will support the government's goal of increasing the share of renewables in the electricity generation mix to 23 percent by 2027 and geothermal energy is expected to contribute 7 percentage points of the 23 percent. German Velasquez, Director for the Division of Mitigation and Adaptation at GCF, said "this project emphasises the Fund's commitment to low-carbon climate resilient investments and represents a clear climate mitigation delivery pathway that will assist the Government of Indonesia achieve its emissions reduction targets."
GCF participates in the global energy transformation by helping developing countries reduce their carbon footprint in power generation and makes sure access to energy is access to clean energy.
Renewable Energy Senior Specialist
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