Sunday, October 14, 2012

A solar project financed by sukuk in Indonesia

An Australian solar company Solar Guys, is installing a 50MW solar facility in Indonesia and it will finance the project using a sukuk.  The project is part of a 250MW plan dubbed 'one solar watt per person', and is an area where I think Islamic finance should be used more widely, since it will provide an additional area where Islamic finance can offer value to Muslims and non-Muslims by promoting greater sustainability. 

The companies say that solar PV offers the lowest levelized cost of energy in many Southeast Asian nations, compared to alternatives, which may be true if it can be sited near areas that are more distant to the existing generating capacity to lower the electricity loss from transmission.  It will certainly be more environmentally friendly, which has become of increasing concern, even in areas like the GCC that are dependent upon oil and gas for most of their export earnings and electricity generation.

For example, Saudi Arabia is planning on investing over $100 billion in solar capacity to try and reach one-third of generating capacity from renewable sources by 2032.  Other GCC countries have announced significant (although less ambitious) goals for renewable energy, but Islamic financial institutions have not been actively involved in most of these projects yet.  I wrote in my newsletter on May 20th (pdf) and questioned why concern for the environment has not played as much of a part in Islamic finance to date.  Hopefully the Indonesian solar facility will act as another step towards changing that. 

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