Willy Halim, founder of a green nickel startup, has spent the last half decade diving deep into battery chemistry for electric vehicle and battery storage companies. The experiences “showed me how everything in our world’s green transition depends on nickel,” says Halim, a chemical engineer by profession. That realization inspired him to launch Baniql, a Jakarta- and San Francisco-based climate technology startup that aims to cleanly and efficiently harness Indonesia’s abundant supplies of low-grade nickel ore deposits.
Climate tech startups that focus on curbing greenhouse gas emissions are capital-intensive investments that require longer payback times. Private market financing for climate technology, in the form of venture capital (VC) and private equity investment, has been increasing steadily since mid-2010s, but recent years have been rocked by all-time highs and steep declines. In 2021, global venture capital investment across all sectors soared to a record level $671 billionwith investment in climate technology accelerating to $37 billion. But by 2023, venture capital funding for climate tech has plummeted as a combination of rising inflation and interest rates and intensifying geopolitical conflict made investors more risk-averse. The drop to delay initial climate technology financing in five years.
The recent VC winter affected Indonesia’s climate technology momentum. But in recent months, investments have been slowly but steadily returning, with investors and entrepreneurs pointing out that, despite a difficult couple of years, Indonesia’s urgent need for tangible climate solutions is revitalizing the sector.
Withdrawal and all-time highs
Funding for Southeast Asia (SEA) climate tech startups coming in 2022 10.4 billion dollars, the third strongest year on record. Indonesia stood out as a bright spot in the region: funding for the country’s climate technology surpassed $1 billion that year. “Indonesia is only behind Singapore [in funding] and its growing population and middle class…underlines its potential as a major player in climate technology both regionally and globally,” says Nicolo Castiglione, managing partner of Bali Investment Club, a climate-focused network of angel investors.
Indonesia’s position as one of the most climate vulnerable countries in the world and like a main emitter of CO2 reinforces their need for new climate solutions: “If we talk about how to decarbonize SEA, Indonesia is a market we can’t ignore,” says Zachary Lee, senior investment director at the Radical Fund, which invests in early-stage climate investments. technological startups in the region. With coal representing two-thirds of Indonesia’s electricity generation, the government aims for a high 2060 net zero target by scaling up renewable energy and early decommissioning of coal-fired power plants.
But after 2021, investors in Indonesia’s climate tech sector became “much more selective,” says Aswin Rahadi, assistant professor at Institut Teknologi Bandung and partner working on business incubation at financial advisory firm Jawara Partners. . Some “investors are not investing more capital until they see more exits,” an issue that has plagued SEA’s climate technology sector, Lee says. Indonesian venture capitalists now “invest 80 percent less than before. There has been a notable pushback in climate-focused companies,” says Castiglione.
New ‘shoots’ of growth
However, in recent months, Indonesia’s climate technology sector has begun to revive and investors have begun to funnel funds back into this space. The number of startups and the funding they have generated is “still low” compared to sophisticated markets like the United States and Europe, “but it is a hot industry that is capturing investors’ attention again. The sprouts are starting to grow,” says Rahadi. Indonesia’s climate technology landscape “has not yet fully recovered to previous activity levels… [but is experiencing] a slow movement towards recovery,” says Castiglione.
Private #market financing for #climatetechnology has steadily increased, but recent years have been rocked by all-time highs and steep declines. #Indonesia
According to Castiglione, investors looking at Indonesian climate technology have faced “a lack of targeted focus, gravitating mainly towards the already saturated carbon credit market.” But at the end of 2023, investors pushed tens of millions in early stage indonesian startups focused on areas such as carbon capture, waste management and battery energy storage. Halim founded Baniql in late 2021, a company that hopes to produce nickel using 50 percent less water than traditional methods and convert waste from that process into reusable materials for fertilizers and bricks. He propelled the company to a more opportune time, raising $1.5 million from international investors in Singapore, South Korea and Thailand late last year.
There have been other encouraging signs from investors. Investible, an early-stage venture capital firm based in Sydney and Singapore, announced last October that it will partner with Mandiri Capital Indonesia, the venture arm of Indonesia’s largest bank, to launch an early-stage climate technology fund in Indonesia. Bali Investment Club aims to launch a $25 million climate-focused fund which Castiglione calls Indonesia’s “first early-stage impact venture capital fund.” Jakarta-based Ecoxyztem, a climate-focused venture builder, has seen a recent surge in interest from foreign investors from Singapore, Malaysia and Hong Kong, says Andreas Pandu Wirawan, the fund’s chief commercial officer.
Now, Indonesian climate tech startups are navigating growth obstacles that include a lack of public and investor participation in cleantech and the need for regulations that create a fairer playing field for such companies.
Xurya Daya Indonesia, a solar panel rental company that has raised $33 million from a consortium of global investors, including France’s Schneider Electric and Japan’s Mitsui & Co., now provides solar power to more than 160 customers, including shopping malls, factories and warehouses. Over the next five years, Xurya is looking to expand nationally and achieve first-mover advantage: “We are lagging behind Singapore and Thailand in renewable energy, markets that are already saturated,” says Adhi Laksmanaputra, vice president of Xurya.
The government aims to increase Indonesia’s share of renewable energy from 12 to 40 percent by 2030. But today, the Indonesian clean technology market is still underpenetrated. “Indonesia offers an opportunity for investors and companies like us,” says Laksmanaputra. Laksmanaputra sees public education and awareness about climate change as Xurya’s biggest challenge: “The clean energy sector in Indonesia is still new. Not everyone understands the benefits of renewable energy. “There is a lot to do… to engage policymakers, financiers and potential clients.”
Investors like Lee agree that Indonesia’s clean energy startups are lagging because state-owned utilities still dominate the country’s fossil fuel-dependent energy sector, which has access to billions in government subsidies. For climate tech startups to succeed, “we need to see fairer policies that eliminate the underpricing of pollution in Indonesia,” such as carbon taxes and the abolition of subsidies for fossil fuel companies, he says.
Arfan Arlanda, 43, founder of Jejakin, a Jakarta-based carbon management platform that calculates, monitors and analyzes the carbon footprints of companies and individuals, says the last half decade has laid the groundwork for climate technology of Indonesia grow. . “When we launched in 2018, it was difficult to even present our idea to investors. “We couldn’t find any company in Indonesia that could serve as a reference.”
Jejakin, now helps 20 companies (including major Indonesian conglomerates and state-linked companies such as Sinarmas, Bank Mandiri and Telkomsel) measure, manage and offset their carbon emissions. Arlanda sees the company’s carbon trading platform, its fastest-growing service, as the main driver of its future business. He sees carbon trading as an integral, if temporary, pillar of Indonesia’s ecological change: “This is a transition model [for Indonesia] as a carbon-based economy. Not all countries can jump [fossil fuels] to renewable energy immediately because of the cost.”
But the success of such businesses depends on new Indonesian carbon market regulations, expected in 2025, and the $2 billion global carbon offset market that has been plagued over accusations of accounting errors and greenwashing. Investors and entrepreneurs are also looking toward newly elected President Prabowo Subianto and his new administration’s climate policies and climate technology support. “Our expectations are tempered by Indonesia’s past unpredictability,” Castiglione says.
More than venture capital
As Indonesia’s climate vulnerabilities become starker: Forest fires exacerbated by warming climate destroyed a million hectares of land Last year had its worst fire season since 2019: Investors and entrepreneurs say relying on venture capital won’t be enough.
Radical Ventures’ Lee says: “We need trillions to move the needle. “We need foundations, endowments and government grants to play a role… to invest financial and human capital in ventures beyond financial and consumer technology companies to solve climate problems.”
As Wirawan says: “Local and foreign investors are playing a wait-and-see game… to see if those startups become more profitable. The interest is already there to put money. [in the sector]. We just need to activate it.”