Strengthening Indonesia's Renewable Energy Project Finance Capacity

One of the foundational distinctions covered in the workshop was how project finance differs from conventional corporate lending. In project finance, the borrowing entity is a Special Purpose Vehicle (SPV) whose loan repayment relies entirely on the projected revenues of the project itself — not the balance sheet of a parent company. The primary collateral is the project's documents and income streams, and lenders' recourse in a default event is a "step-in" to the project agreements rather than pursuit of corporate assets. This structure allows sponsors to ring-fence project debt and distribute risk across multiple parties, including EPC contractors and O&M operators.

The Power Purchase Agreement (PPA), or the Perjanjian Jual Beli Listrik as an important document as it determines the business model for an independent power producers (IPP) as it pertains to PLN, thus its bankability is critical. Key bankability features include take-or-pay or fixed tariff mechanisms to address dispatch risk, currency alignment between tariff and loan denomination, adequate force majeure protections — particularly Government Force Majeure provisions — and clear termination and buy-out formulas that protect lender recovery.

The workshop emphasized that proper risk allocation — assigning each risk to the party best positioned to manage it — is what makes a project financeable on a limited recourse basis. An example is the management of Construction risks (delay, cost overrun, performance shortfall), in the workshop it was discussed that it must sit with the IPP to manage its interactions with their EPC contractor. When too many risks remain unallocated or fall back on the sponsor, lenders will require additional guarantees — ultimately pushing the structure away from project finance toward conventional corporate lending.

A robust security package is essential for lenders in project finance. This typically includes a mortgage (Hak Tanggungan) over project land and buildings, fiduciary security over machinery, equipment, insurance proceeds, and project document receivables, a pledge of shares in the project company, a pledge over project bank accounts, and conditional novation arrangements over material project contracts. In addition, lenders will typically require a Letter of Undertaking from the sponsor and a Direct Agreement (or PLN Consent Letter) with PLN. This security package structurally allows lenders step-in rights in the event of developer default.

The workshop walked participants through the key elements of a project finance facility agreement, including the Cash Account Management Agreement (CAMA) which governs the cash waterfall — from the Revenue Account through to the Operational Account, Debt Service Reserve Account, Debt Repayment Account, and finally the Excess Funds Account. Participants were also introduced to affirmative and negative covenants, representations and warranties, events of default (including cross-default provisions), conditions precedent to signing and drawdown, and mandatory and voluntary prepayment mechanics.

ndonesia's regulatory framework for PLTS project finance has undergone significant evolution. Presidential Regulation No. 112 of 2022 now governs electricity tariff structures, moving away from an escalation-based system to a staging approach with a ceiling price (Harga Patokan Tertinggi). The BOOT ownership model previously mandated under older ESDM regulations has been abolished for renewable energy projects under Permen ESDM 4/2020, providing developers greater ownership flexibility. Meanwhile, local content requirements (TKDN) for solar projects have been reset to a combined goods-and-services threshold of 20% under Kepmen ESDM 191/2024, a notable reduction from prior requirements that will ease procurement constraints for developers.