Viability Gap Fund (VGF)

The Viability Gap Fund (VGF) is an innovative financing mechanism introduced by British embassy Jakarta (BEJ), in collaboration with PT Sarana Multi Infrastruktur (PT SMI), and facilitated by the MENTARI programme. Its primary focus is to unlock investment in small- to medium-scale renewable energy projects across Indonesia by offering partial coverage of project costs, lowering financial risk for developers and lenders, and enabling ventures that would otherwise struggle under conventional lending criteria.

This effort bridges the gap between policy aspirations and real-world deployment, accelerating Indonesia’s broader net-zero and just energy transition goals. Facilitated by MENTARI, the VGF is designed as a flexible, locally adaptive instrument featuring:

• Tailored Selection Criteria Focused on small-to-medium renewable projects, especially those using existing infrastructure (e.g., irrigation dams), to minimize environmental impact. • Blended Financing Model A hybrid approach in which VGF grants lower project risk, while PT SMI provides debt funding, ensuring the project’s long-term sustainability.
• Streamlined Disbursement Funds flow directly to developers, reducing administrative hurdles and speeding progress from design to implementation.
• Capacity Building for Green Finance Beyond the funds, PT SMI gains in-house expertise to assess and finance more renewable energy ventures over time, strengthening Indonesia’s overall green finance ecosystem

Thanks to this VGF three mini-hydro projects on irrigation dams in Bali, Lombok, and West Sumatra are currently being developed. These projects collectively have a capacity of 7.1 MW. A total of GBP 1.2 million in VGF funding was disbursed, while loans and the equity amounted to GBP 11.45 million in total capital expenditures.

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