Eyes on Indonesia. Tom Coombes, Co-Founder and Managing Partner of Indoinvestors on the country’s renewable energy potential

“Indonesian economic development is inevitable, but this will have major consequences for the environment unless steps are taken quickly”. This is the mantra of investor and entrepreneur Tom Coombes, and the vision that led him to launch the first platform to focus on sustainable investment opportunities in “not Asia generally, not ASEAN as a group, but Indonesia on its own”.

Indoinvestors bucks the current trend of caution by focusing on Indonesian renewable energy – a market many in the international investment community see as “too challenging under current regulations”. Nonetheless, IndoInvestors believe a growing participation from foreign investors is “unavoidable” as policy makers shift towards an increasingly favorable regulatory environment. In his opinion, “this powerful combination will see a rapid growth in clean energy power production over the next 5 year”.

Here he shares insights on the country’s budding green finance ecosystem, and the necessary role of sustainable investing within a rapidly developing economy. 

The Indoinvestors story 

With a background in fund management, Coombes has spent the last 8 years focusing on the Asian, where he found that while countries like Vietnam and the Philippines had already seen “rapid increases in clean energy investment over the last 18 months, Indonesia “had fallen some way behind”. Smaller developers in particular have historically been “excessively dependent on the local banking sector where availability of funds for uncapitalized business is limited, and project finance rates too high”.

To plug this gap, he believes “foreign capital must play a greater role”. In 2020, he co-founded Indoinvestors alongside local partner Kidang Emir to “help smaller renewable energy projects in Indonesia reach the eyes of investors across the world”. Their business is highly specialized by focusing on “one sector in one country” which has helped secure the trust of international private equity, family office and corporate M&A teams that are looking to expand their portfolios in an untapped, high-potential market.

Already he and colleagues work with over 50 small and medium size projects across the solar, mini-hydro and biomass markets, typically between 5-10MW. They work on an investment horizon of 5+ years, linking international investors with SME’s that show great potential yet have no access to funds. 

Fertile ground for green projects

While Indonesia occupies just 1.3% of global land surface, it is one of its richest nations in terms of biodiversity. Its 34,000 miles of coastline are home to 23% of the world’s mangroves, and the country holds 10% of the world’s tropical rainforests. For Coombes, it is “the stunning rainforests, rivers and vast ocean coast-lines”, as well as its tropical climate, that make it a fertile ground for renewable energy projects, especially in the solar and mini-hydro sectors. “The country [also] has over 400 major rivers and two rainy seasons”, making the capacity for hydro-power projects much higher than other countries. 

The ‘Indonesian Conundrum’ 

As the Indonesian economy grows, set to rise to the 4th largest GDP PPP in the world by 2050, this will “put substantial strain on the environment”. This “rise in wealth will have drastic impacts on electricity consumption and broader consumer spending”.

For Coombes, it is imperative that Indonesia “achieves this inevitable economic development in a sustainable way”. But in a fast-developing market, where “the population rightfully wants to get wealthier….businesses too are compelled to take lower cost routes to sustain profitability”. These shortcuts lead to the ‘Indonesian Conundrum’, where the desire to produce energy quickly, and inexpensively, comes at the price of greater sustainability goals.

“Coal remains 60% of the total energy mix”, Coombes points out, and the country only consumes 25 % of what it produces, with the rest being exported for quick profit. Because of this, he warns:

“The prevailing view from many International investors we speak to is that policies, particularly within renewable energy, need to improve before justifying an entry into the market”

Public sector pushing private investment 

In order for the government to reach its carbon emission reduction goals, they have targeted that renewable energy will increase from 10% to 25% of national power supply by 2025. If this is achieved “a substantial increase will be required from each [renewable] energy type,  with the bulk coming from Solar (7GW) and Hydro (6GW) at least up until 2025, with Wind playing a greater role from 2025 onwards”. 

With a background in fund management, Coombes has spent the last 8 years focusing on the Asian, where he found that while countries like Vietnam and the Philippines had already seen “rapid increases in clean energy investment over the last 18 months, Indonesia “had fallen some way behind”. Smaller developers in particular have historically been “excessively dependent on the local banking sector where availability of funds for uncapitalized business is limited, and project finance rates too high”.

There have been fundamental shifts at a national level. Coombes describes a recent regulatory draft that would potentially allow a greater number of projects to receive energy payments (tariffs) in US dollars instead of the Indonesian Rupiah, which would allow lower project finance costs and higher IRRs to entice foreign investment.

Furthermore, the much anticipated presidential decree is expected to “address many of the issues that exist within renewable energy power purchase agreements and the general tendering process”, according to Coombes this “certainly suggests that the authorities know what needs to be done to attract investment”. 

A not too distant green future 

“We believe that in the not too distant future, significant investment opportunity will exist in Indonesia as policy makers seek to address climate change, waste management and habitat destruction”, confirms Coombes. It’s an optimistic vision, and looking at Indoinvestors’ early success, one that could soon be a reality. 

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They may be early movers, but in a fast-changing climate, they’ve come not a minute too soon. Innovative financing solutions are needed to solve not only project financing for renewable energy but also for many other businesses that seek to solve Indonesia’s sustainability conundrum, such as making better use of palm oil waste and alternatives to palm oil  which remains one of the country’s largest causes of mass deforestation.

Investing in Indonesia’s green economy could reap rich rewards. Ignoring it could come at a cost.

Amanda Oon

Amanda Oon is a freelance journalist, content producer and communications professional, based in Singapore. She has written numerous articles on Southeast Asian business and culture, with a specialist focus on technology, sustainability and ESG.

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