Supporting Indonesia’s renewable energy development in remote and rural areas through innovative funding

Abstraksi

With an expected 7% annual growth of electricity demand in the coming years and some 30 million people without sufficient access to electricity, Indonesia faces an immense electricity challenge. Renewable energy is one of the solutions to address the growing electricity demand and increase the electrification ratio in Indonesia, especially in remote and rural areas where the national electricity grid is not yet available. However, despite the Government of Indonesia’s efforts in promoting renewable energy (RE) technology, significant barriers remain that hinder the widespread application of renewable energy technologies in the energy generation and energy end use sectors. Some of the main barriers involve lack of access to affordable financing and sufficient investments in renewable energy projects. To this end, UNDP and the Government of Indonesia, have initiated a project that addresses the barriers to the sustainable market-based investment in renewable energy. Through a partnership between UNDP, the Government of Indonesia, Bank Jambi and the religious institution Badan Amil Zakat Nasional (BAZNAS), the project has financed construction of one micro hydro power plant and renovation and revitalization of three existing micro hydro power plants in Jambi province. Once installed and revitalized, the micro hydro power plants will provide electricity to approximately 806 households, benefiting the people, businesses, infrastructure and services in four villages. The project demonstrates an innovative partnership between the public and the private sector while it also illustrates the important role Islamic finance can play in supporting the regional development of Indonesia.