ADB, PLN to Pilot Issuance Of Energy Transition Bonds in 2021

ADB, PLN to pilot issuance of energy transition bonds in 2021. The Asian Development Bank (ADB) and state-owned electricity giant PLN aim to issue PLN’s first-ever “sustainable transition bonds” next year as the power company seeks to improve its green energy credentials. 

ADB Southeast Asia director general Ramesh Subramaniam said on Monday that such bonds would improve PLN’s ability to raise capital and reduce the company’s carbon footprint. 

Energy Transition Bonds in 2021

The Manila-based lender defines transition bonds, a concept that only emerged last year, as a financial instrument issued by inherently high-emission, ‘brown’ industries to finance clean energy programs. Such industries include oil and gas, mining and steelmaking. 

“This is a super exciting initiative,” Subramaniam said during the virtual launch of PLN’s still-in-progress Sustainable Financing Framework. “ADB has been privileged to assist PLN on its first sustainable transition bond, which is now planned for 2021.

The ADB previously committed to disbursing US$80 billion in the period of 2019 to 2030 for climate-related projects in Asia Pacific. The value is, however, tiny compared to the $3.1 trillion needed in 2016 to 2030 to achieve Southeast Asia’s climate goals alone, according to the bank’s estimates. 

For PLN, a company whose expansion plans are dominated by coal-fired power plants, both the transition bonds and the financing framework are a means of raising capital in a world slowly moving away from coal. 

Since 2013, more than 100 financial institutions, led by the World Bank, have closed their wallets for new coal plant projects as major economies double down on clean energy commitments, wrote the Institute for Energy Economics and Financial Analysis (IEEFA) in a 2019 report. 

“Over 100 and counting. The implications of this are electrifying,” reads the report. 

As of last year, PLN had 15,868 megawatts of coal-fired power generation capacity, which accounted for almost 40 percent of its total power generation capacity, official data show. 

The company plans to add more such plants to produce at least another 18,389 MW between 2020 and 2029. 

“We are aware that our journey is still long, however, we are ready to transform,” said PLN president director Zulkifli Zaini at the launch event. 

With the world turning away from coal, PLN has been increasingly reliant on selling bonds domestically to finance its coal-led expansion plans, which are part of its 35-gigawatt program. 

The company last raised Rp1.88 trillion ($122.6 billion) through the Indonesia Stock Exchange (IDX) in September to fund the program. 

PLN has been slow to adopt renewables. The company has several big renewable energy programs in the pipeline, such as floating solar farms and hydropower plants for still-in-progress industrial areas. 

Finance Minister Sri Mulyani Indrawati, also on Monday, reaffirmed her office’s commitment to help PLN issue green financial instruments. The aim was not only to tackle climate change but also to improve the financial stability of Indonesia’s sole electricity distributor. 

The Finance Ministry is experienced in green financing as it is Indonesia’s biggest issuer of green bonds, according to Climate Bonds Initiative (CBI) data. The ministry’s affiliated infrastructure financier, PT Sarana Multi Infrastruktur (SMI), is the second biggest. 

“Developing renewables is always very challenging, but it is not impossible,” Sri Mulyani said. ADB, PLN to pilot issuance of energy transition bonds in 2021 (Norman Harsono, The Jakarta Post)