Indonesia, a climate-vulnerable archipelagic nation, faces mounting pressure to meet its rising energy demand while curbing greenhouse gas (GHG) emissions. With the energy sector accounting for 65.43 percent of national emissions, it represents a central focus of the country’s climate mitigation strategy. Guided by the National Energy Policy (Kebijakan Energi Nasional – KEN) and the Roadmap for Energy Conservation, Indonesia targets a 1 percent annual reduction in energy intensity and aims to cut GHG emissions by over 31 percent by 2030 (or 43.20 percent with international support). Energy efficiency plays a critical role in achieving these objectives, offering cost-effective ways to curb energy demand, improve energy security, and reduce emissions.
The 825,000 small, and medium-sized enterprises (SMEs) of Indonesia play a significant role in the local economy. A study by the Institute for Essential Services Reform (IESR) estimated that industrial SMEs emitted in 2023 approximately one-third of Indonesia’s industrial emissions in 2022. Despite their significant energy consumption, SMEs face barriers to adopting more sustainable technologies, such as limited access to finance, technical capacity gaps, and high-risk perceptions, leaving untapped potential for decarbonisation.
Although energy-efficient solutions can reduce long-term operating costs, small businesses are often reluctant to invest due to uncertainty around future savings. In addition, financial institutions typically overlook these potential savings in their credit assessments, while technology providers tend to prioritise short-term sales rather than long-term performance outcomes.
The Energy Savings Insurance (ESI), initially developed by BASE and the Inter-American Development Bank (IDB) in 2025, is an insurance-based model that aims to enable SMEs’ investments in cleaner energy solutions by building trust among key actors and addressing their main market obstacles.
BASE was contracted by UK PACT to drive energy efficiency SMEs’ financing through the ESI model in Indonesia in partnership with the ASEAN Centre for Energy (ACE).
The ESI model, a mechanism successfully implemented in Mongolia, Europe, and Latin America, effectively ensures trust in long-term operational cost reduction upon the uptake of efficient systems by providing a guarantee on energy savings: if the consumption does not achieve the pre-determined targets against the baseline, the technology provider pays the difference. If the provider cannot meet this obligation, the insurance is triggered. In addition to this core feature, ESI combines supporting tools, such as standardised contracts, independent technical validation, and access to green and competitive financing options, to build trust and reduce risk for all parties involved.
To effectively conduct this implementation of ESI in Indonesia, the BASE team along with its partner ACE will 1) undertake a thorough market assessment, analysing the energy efficiency and electrification potential in the country’s SMEs; 2) adapt ESI standardised tools and methodologies to the local market to allow for systematic adoption of the model; 3) engage stakeholders to create the enabling environment for ESI and encourage the adoption of the model; 4) coordinate efforts for the creation of a pipeline of energy efficiency pilot projects in SMEs to test and validate the model locally; 5) case studies to provide evidence of ESI benefits and support replication and scalability. Throughout these different steps, the project will conduct comprehensive capacity-building and outreach activities targeting SMEs, financial institutions (FIs), technology providers (TPs), and public authorities.
This implementation of ESI in Indonesia aligns with existing initiatives, such as the USD 100mn credit guarantee deployed by the Korean Development Bank and green-financing programmes from OJK (Financial Services Authority), Ministry of Finance, and banks like Mandiri and DBS. These efforts create synergies for systemic market transformation and the decarbonisation of SME energy systems.
The ESI Indonesia project aims to empower SMEs, including women-led enterprises, to contribute meaningfully to climate goals through improved energy efficiency, emissions reductions, and sustainable economic growth. Over three years, the project aims to support over 70 SMEs, mobilising GBP 17mn in investments. Projected 10-year impacts include around 186,000 MWh in energy savings and nearly 109,000 tCO₂e reductions.
More importantly, the project will engage and enable FIs, TPs, and SMEs to adopt the ESI model, fostering reliable investment and financing for EE in SMEs.
