By
Tungky Ariwibowo 21954004
MASTER’S DEGREE in
MASTER OF ARTS
FACULTY OF BUSINESS AND COMMUNICATION
SWISS GERMAN UNIVERSITY The Prominence Tower
Jalan Jalur Sutera Barat No. 15, Alam Sutera Tangerang, Banten 15143 - Indonesia
August 2020
Revision after Thesis Defense on 11 August, 2020
STATEMENT BY THE AUTHOR
I hereby declare that this submission is my work and to the best of my knowledge, it contains no material previously published or written by another person, nor material which to a substantial extent has been accepted for the award of any other degree or diploma at any educational institution, except where due acknowledgment is made in the thesis.
Tungky Ariwibowo 17-08-2020
Student Date
Dr. Antonius T.P. Siahaan, SE.Akt., M.M. 20-07-2020
Thesis Advisor Date
Dr. Nila K. Hidayat, SE., MM. 20-07-2020
Dean Date
ABSTRACT
BANK PERSPECTIVE OF SOLAR PV POWER PROJECT BANKABILITY IN INDONESIA
By
Tungky Ariwibowo
Dr. Antonius T.P. Siahaan, SE.Akt., M.M.
SWISS GERMAN UNIVERSITY
Lack of bankability project becomes one of the major concerns in the slow development of renewable energy in Indonesia. As of October 2019, there are 27 Power Purchase Agreements (PPAs) that have not reached financial close and 5 projects have been terminated out of 75 PPAs signed between 2017 – 2018. Despite being the most abundant renewable energy source in Indonesia, there are only 152 MW Solar PV powerplant (PLTS) installed or about 0.028%
of the total potential. This study aims to understand how the commercial bank’s perspective on Solar PV project bankability is influenced by several bankability criteria. In this research, there are five classifications of bankability criteria which are strength of sponsor, political and legal environment, project’s financial strength, transaction characteristic, and mitigation and security package. The survey is distributed to the commercial banks that ranked in the top 35 based on its total capital which covers banks with BUKU 4, 3, and 2. The result indicates that how the banks perceived Solar PV project bankability is influenced by their perception of the project’s financial strength and transaction characteristic criteria. This describes that the focus of the commercial banks in determining project bankability is the success in developing and operating the project to meet its financial obligation.
Keywords: Project Bankability, Commercial Bank, Solar PV Project, Strength of Sponsor, Political and Legal Environment, Project’s Financial Strength, Transaction Characteristic, Mitigation and Security Package
© Copyright 2020 by Tungky Ariwibowo
All rights reserved
DEDICATION
I dedicate this work to the development of Renewable Energy in Indonesia.
ACKNOWLEDGEMENTS
First of all, I would like to thank God for all the opportunity and strength to reach this far. I would also like to thank my family for their support in every way. I would also like to thank my thesis advisor, Dr. Antonius T.P. Siahaan, for giving me another perspective in my work.
I would like to express my sincere gratitude to my lecturers, Dr. Soebowo Musa, for his constant guidance and support throughout my thesis writing and Dr. Ir. Yosman Bustaman for providing his time to listen to my problems.
I also want to express my deepest gratitude to all my friends that also working on their thesis that still spare their time to support and listen to me when things get tough. Special thanks to Timotius William, who has the same thesis advisor, for going through any difficulties in the thesis writing together and supporting each other.
Lastly, special thanks for those who have volunteered to participate in the research, despite being conducted in the difficult time of the pandemic.
I have found my coursework throughout these years to be interesting and challenging which will be useful in the future. I will use the skills and knowledge gained throughout these years in the best possible way and will continue to strive to become a better person.
TABLE OF CONTENTS
STATEMENT BY THE AUTHOR ... 1
ABSTRACT ... 2
DEDICATION ... 4
ACKNOWLEDGEMENTS ... 5
TABLE OF CONTENTS ... 6
LIST OF FIGURES ... 9
LIST OF TABLES ... 10
CHAPTER 1 ... 11
1 INTRODUCTION ... 11
1.1 Background ... 11
1.2 Research problems ... 16
1.3 Research objectives ... 17
1.4 Research questions ... 17
1.5 Scope and limitation ... 17
1.6 Significance of the study ... 18
CHAPTER 2 ... 19
2 LITERATURE REVIEW ... 19
2.1 Solar PV Energy Sector in Indonesia ... 19
2.1.1 Introduction ... 19
2.1.2 Government Plans ... 19
2.1.3 Solar Energy Sources ... 21
2.1.4 Electricity Market ... 22
2.1.5 Legal and Regulation ... 23
2.1.6 Solar PV Investment ... 27
2.1.7 Barriers in Adopting Solar PV Energy in Indonesia ... 27
2.2 Solar PV Power Project Financing ... 29
2.2.1 Introduction ... 29
2.2.2 Corporate finance ... 30
2.2.3 Project finance ... 31
2.2.4 Financial Facilities Available to IPPs in Indonesia ... 32
2.3 Project Bankability According to Commercial Bank ... 34
2.3.1 Introduction ... 34
2.3.3 Basel Committee’s Rating Criteria ... 38
2.4 Bankability Factors ... 39
2.4.1 Strength of Sponsor... 42
2.4.2 Political and Legal Environment ... 43
2.4.3 Financial Strength ... 43
2.4.4 Transaction Characteristic ... 44
2.4.5 Mitigation and Security Package ... 45
CHAPTER 3 ... 47
3 RESEARCH METHODS ... 47
3.1 Type of Study ... 47
3.2 Unit of Analysis ... 47
3.3 Sampling Design ... 47
3.3.1 Population and Sample Target ... 47
3.3.2 Sampling Method ... 48
3.3.3 Sampling Size ... 48
3.4 Location and Time Frame of Study... 49
3.5 Data Sources and Collection ... 50
3.5.1 Type of Data ... 50
3.5.2 Data Collection Method ... 50
3.5.3 Questionnaire Structure ... 50
3.6 Research Model ... 51
3.7 Variable Operationalization ... 52
3.8 Data Processing Procedures ... 56
3.8.1 Data Preparation... 56
3.8.2 Model Evaluation ... 57
3.8.3 Data Analysis ... 58
3.9 Data Analysis Technique ... 58
3.9.1 Measurement Model Evaluation ... 58
3.9.2 Structural Model Evaluation ... 59
3.9.3 Bankability Criteria Ranking ... 61
CHAPTER 4 ... 63
4 RESEARCH ANALYSIS ... 63
4.3 Structural Model Evaluation ... 71
4.4 Bankability Criteria Ranking ... 78
4.5 Comparison of Bankability Criteria between BUKUs ... 83
4.6 Discussions ... 88
4.6.1 Bank exposure to Solar PV Project ... 88
4.6.2 Influence of the perspective on Project’s Financial Strength and Transaction Characteristic towards the perspective on Project Bankability... 90
4.6.3 Influence of the perspective on Strength of Sponsor and Mitigation and Security Package towards the perspective on Project Bankability ... 92
4.6.4 Influence of the perspective on Political and Legal Environment towards the perspective on Project Bankability ... 93
CHAPTER 5 ... 95
5 CONCLUSIONS AND RECOMMENDATIONS ... 95
5.1 Conclusions ... 95
5.2 Recommendations ... 96
5.2.1 Recommendations for project’s stakeholder ... 96
5.2.2 Recommendations for the Government of Indonesia ... 97
5.2.3 Recommendations for further research ... 97
5.3 Contribution to knowledge and practice ... 97
REFERENCES ... 99
APPENDIX ... 106
Appendix 1. Commercial Banks Top 35 Ranking based on Total Asset... 106
Appendix 2. PLS-SEM Result with All Bankability Criteria (SmartPLS) ... 108
Appendix 3. Relative Importance Index (RII) Calculation in Excel ... 109
Appendix 4. Questioner ... 109
Figure 1. Change in annual CO2 emissions ... 11
Figure 2. Indonesia CO2 emissions by fuel type ... 12
Figure 3. Indonesia primary energy consumption by source ... 12
Figure 4. Years of fossil fuel reserves left ... 13
Figure 5. Indonesia renewable energy generation ... 15
Figure 6. PV cell, PV panel, and PV array ... 19
Figure 7. Indonesia energy target in 2025 and 2050 ... 20
Figure 8. Photovoltaic power potential in Indonesia regions ... 21
Figure 9. Solar policy roadmap in Indonesia ... 24
Figure 10. Electricity Feed-In Tariffs differences between region in Indonesia ... 26
Figure 11. Solar PV module prices vs. Cumulative capacity (1991-2016) ... 27
Figure 12. Corporate finance flow (IFC, 2015) ... 31
Figure 13. Project finance flow (IFC, 2015) ... 32
Figure 14. Conceptual Framework ... 41
Figure 15. Top 35 Commercial Bank Market Share based on Total Assets in Indonesia per third quarter of 2019 (Kinerjabank.com, 2019) ... 49
Figure 16. Questioner Scales ... 51
Figure 17. Research model ... 52
Figure 18. Bank's BUKU observed in the samples ... 64
Figure 19. BUKU 4 Banks Experiences ... 67
Figure 20. BUKU 3 Banks Experiences ... 67
Figure 21. Extracted model ... 71
Figure 22. Predictive relevance of the model ... 77
Figure 23. Bankability criteria classification degree of significance ... 87
Figure 24. Bankability criteria classification degree of significance comparison (One-way ANOVA) ... 87
Figure 25. Commercial bank's financing structure type preferences ... 90
LIST OF TABLES
Table 1. Theoretical potential for renewable energy in Indonesia ... 14
Table 2. Comparison of solar energy policies in Indonesia ... 24
Table 3. Electricity tariffs ... 25
Table 4. Identified bankability criteria for solar PV project ... 40
Table 5. Variable Operationalization ... 53
Table 6. Likert scale rating and weight value ... 61
Table 7. Estimated commercial bank population in Indonesia ... 65
Table 8. Demographic information ... 65
Table 9. Construct reliability and validity ... 69
Table 10. Fornell-Larcker criterion test ... 70
Table 11. Cross-loadings ... 70
Table 12. R2 value of the endogenous latent variables ... 71
Table 13. Path Coefficients significance with bootstrap samples of 300 ... 74
Table 14. Confidence intervals bias corrected ... 74
Table 15. Effect size of each exogenous variables towards endogenous variable (f2) ... 76
Table 16. Goodness-of-Fit Index calculation... 77
Table 17. Critical bankability criteria ranking ... 79
Table 18. Bankability criteria classification ranking ... 82
Table 19. Bankability criteria ranking between BUKUs ... 84
Table 20. Bankability criteria classification ranking between BUKUs ... 86
