The Impact of Green Financing on Transmission Projects in Indonesia

Abstract

This study asks which capital structure creates the highest risk-adjusted value, comparing one operating cash flow under 100% equity and under conventional and green or concessional loans. Capital budgeting is applied through discounted cash flow analysis, sensitivity and break-even testing, and a 2,000-iteration Monte Carlo simulation. At project level the investment is feasible: NPV is Rp 12,327.93 billion at the 6.19% corporate discount rate, IRR is 11.65%, payback is nine years after commercial operation, and the probability of a non-negative NPV is 100.0%. Green or concessional debt at 3.93% under a 70% debt / 30% equity structure raises equity NPV from Rp 12,327.93 billion to Rp 13,894.82 billion and the return on XYZ equity from 11.65% to 17.43%, while annual debt service falls Rp 182.14 billion against conventional borrowing at 6.50%. Because the after-tax cost of concessional debt of about 3.06% lies far below the 11.25% cost of equity implied by a beta of 0.86 and a 6.69% country risk premium, leverage lowers the weighted average cost of capital to 5.52% and raises project NPV to Rp 15,099.87 billion, while project IRR remains 11.65% and Rp 8,437.74 billion of XYZ equity is freed. Both structures reach 100% simulated feasibility at the RKAP rate; tested against the stricter cost-of-equity hurdle, feasibility probability still rises from 68.40% under equity-only funding to 98.55% under green financing. Green or concessional financing is therefore preferable to both conventional debt and full equity funding, provided its currency-adjusted all-in cost remains below the cost of equity.