[JAKARTA] The planned export of solar energy from Indonesia’s Batam to Singapore appears to have hit a snag, as appointed electricity exporters face challenges in securing financing under Jakarta’s licensing rules.
Several Indonesian and multinational companies have been commissioned to build solar farms in Batam and sell the output to Singapore, based on multiple memorandums of understanding (MOUs) inked between the two countries in 2023. The projects involving billions of dollars are expected to begin commercial operations by early 2028.
However, The Straits Times understands that none of the solar farms has seen significant construction progress yet as companies face challenges in securing financing for the projects.
The projects would have had to begin construction by now, in order to meet the delivery deadline, analysts said.
Senior executives from the Jakarta-based companies told ST that one important detail seems to have rendered the projects “unbankable”, or deemed too risky for a bank loan.
Specifically, Indonesia requires renewable energy exporters to renew their permits every five years under Clause 37 of the Ministry of Energy and Mineral Resources’ (ESDM) 2021 regulation on electricity business operations. This creates uncertainty, since the government can revoke a licence, or reduce the permitted export quota, if it determines that electricity exports are disrupting domestic supply and causing local blackouts.
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In Indonesia’s major economic hub of Java island and its main tourist island of Bali, electricity supply has typically exceeded demand, thanks to the government’s aggressive push to build power plants.
The industrial island of Batam generally mirrors this situation, enjoying a comfortable electricity surplus, but this does not always extend past the main coastlines. Dozens of more remote islets off the coast of Batam are frequently left disconnected from the robust main grid due to geographical challenges.
For major infrastructure projects such as solar farms to secure financing, they typically have to be considered “bankable” for about 20 to 25 years – which means project developers must be able to fulfil their financial obligations for the entire duration.
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A senior executive at one of the companies told ST on condition of anonymity that these projects – involving the construction of vast solar farms, laying of undersea transmission cables and procuring solar panel electric storage – require billions of dollars of investment and would not be able to proceed without external financing.
“Projects of such a magnitude, there is no way any company can fully finance it with internal cash,” he added. “How can we continue to generate revenue and service debts if after five years, we are told to stop exporting?”
The mismatch between permit tenure and financing horizon is why several companies find themselves caught in a bind, analysts noted.
“They are expected to secure a 20-year electricity sale and purchase contract, so this five-year review cycle obviously creates uncertainty”, hence the situation is going “nowhere”, said Mr Fabby Tumiwa, chief executive officer of Jakarta-based think-tank Institute for Essential Services Reform.
Mr Fabby noted that the previous Indonesian energy minister, Mr Arifin Tasrif, had initiated a review to revise Clause 37 sometime after he met Singapore’s then Second Minister for Trade and Industry Tan See Leng in Jakarta in September 2023. However, Mr Arifin was replaced in a Cabinet reshuffle in August 2024, before the revision could be completed.
