Vietnam and Indonesia are among Southeast Asia’s fastest-growing energy markets. Vietnam’s government estimates that electricity consumption will rise by 10%-12% annually through 2030, one of the highest rates in the region. Demand is also surging in Indonesia — and emissions from its energy sector are rising even faster, according to the International Energy Agency (IEA), since new demand has been met primarily with coal.
Both Indonesia and Vietnam are working to address this challenge. The two countries have committed to Just Energy Transition Partnerships (JETPs), designed to channel finance to developing nations to support their low-carbon transitions. Under these partnerships, they’ve established ambitious targets to reduce emissions and accelerate the shift toward more sustainable energy systems. Indonesia’s JETP includes targets to cut on-grid power carbon emissions from over 350 to 250 million metric tons (MMT) and to increase the share of renewable energy generation from 20% in 2022 to 44% by 2030. Vietnam’s JETP aims to reduce peak annual power sector emissions by up to 30%, from 240 MMT to 170 MMT, and to increase the share of renewable energy from 44% in 2024 to at least 47% by 2030.
While their specific targets differ, Indonesia and Vietnam confront similar challenges when it comes to achieving their energy transition goals:
- Both countries are manufacturing powerhouses, which means that decarbonizing their industrial sectors will be critical to reducing emissions. Both have a heavy reliance on fossil fuels — especially coal — for energy-intensive manufacturing processes. This makes industrial decarbonization difficult due to real and perceived technological and financial barriers to transitioning to low-carbon alternatives. For example, continued subsidies to fossil fuels in Indonesia have made coal the cheapest energy source.
- The two countries face significant gaps in financing. Although Indonesia has $20 billion committed in JETP funding, it still faces a financing gap of roughly 70% to achieve its JETP targets. The country needs $67 billion to fund over 400 priority projects in its power sector by 2030. Vietnam’s government estimated that achieving a just energy transition will require $135 billion from domestic and international sources by 2030, leaving a financing gap of nearly 90% after the $15.5 billion committed primarily through its JETP. To advance their JETP plans, both countries will need to mobilize additional resources, including public funding, private investment and commercial loans.
- IEA research has shown that Southeast Asian nations, including Indonesia and Vietnam, face significant gaps in market-enabling policies and regulatory frameworks (such as offering de-risking instruments, co-financing early-stage projects or imposing mandatory industrial emissions-reduction targets). This hinders their ability to attract the scale of private investment required for industrial clean energy transitions with renewable power.
WRI, together with HSBC and a broad network of local partners, worked to help address these barriers through the Climate Solutions Partnership (CSP). The CSP Energy Finance workstream focused on mobilizing new finance for clean energy technologies — especially those that have significant emissions-reduction potential but are still at the pre-commercial stage.
Here, we take a closer look at two specific technologies that could help drive decarbonization in important industrial sectors in Vietnam and Indonesia, as well as potential strategies to enhance the bankability of these technologies and accelerate investment.
Meeting Heat Demand in Indonesia’s Textile Industry
The challenge
Textiles and textile products play a significant role in Indonesia’s economy, employing nearly 20% of its manufacturing workforce and contributing nearly 2.75% of its GDP. The sector also contributes significant greenhouse gas (GHG) emissions. This is because core processes in textile manufacturing — such as wet-processing for bleaching, dyeing and printing — are energy-intensive and require significant thermal energy. In addition, around 35% of the thermal energy demand is lost during steam production and distribution due to technology inefficiency.
Indonesia’s textile sector is dominated by manufacturers producing for global apparel brands. Because many of these brands have made commitments to reduce their Scope 3 emissions, multinational apparel companies that source from Indonesia are seeking lower-carbon supply chains, prompting its textile industry to decarbonize. For example, in 2021, major national and international companies (including H&M and Nike) released a Statement of Mutual Aspiration supporting renewable energy procurement for commercial and industrial sectors in Indonesia. This helped push Indonesia’s government to set a renewable energy target of at least 50% by 2045.
But decarbonizing is not an easy task for small- and medium-sized enterprises (SMEs), which make up 99% of the companies in Indonesia’s textile value chain. Research by McKinsey found that most suppliers in the textile and fashion industries lack sufficient capacity or resources to decarbonize in a cost-effective manner and often have limited access to capital to fund decarbonization efforts.
Exploring solutions: Electric boilers
In a typical textile wet processing plant, boilers used for steam and thermal oil heating account for approximately 50%-60% and 30%-40% of fuel use, respectively. In Indonesia this energy demand is primarily met using fossil fuels, particularly coal. This reliance is driven in part by Indonesia’s abundant and low-cost coal resources.
Today, cleaner options are emerging. A 2024 analysis by the Apparel Impact Institute evaluated alternative low-carbon technologies for the textile sector and found that electric boilers are the most mature electrification option for processing heat. They can offer the highest GHG-reduction potential — particularly as countries’ electricity mixes shift toward renewable energy sources — and relatively low operation and capital costs.
Other alternatives, such as sustainable biomass-fired boilers, industrial heat pumps and thermal energy storage, also offer significant GHG emissions-reduction potential, but they face various challenges. For instance, biomass use raises environmental concerns around deforestation, air pollution and land-use change; heat pumps involve substantially higher upfront capital costs; and thermal energy storage technologies remain relatively immature.
Potential pathways to unlock financing
In the near term, electric boilers can increase energy costs compared with conventional fuels such as coal, creating a potential cost barrier. Innovative and accelerated investment and financing pathways may be needed to help spur their adoption.
WRI conducted multi-stakeholder consultations and interviews with brands or supplier partners, textile suppliers, technology providers and financial sector leaders in Indonesia. We heard from multiple supplier partners that, despite the growing availability of sustainable finance products, SMEs still face barriers in accessing finance for decarbonization.
Interviewees said the major challenge is SMEs’ lack of access to suitable financial products. Larger ticket size requirements and higher interest rates on green loans, compared to conventional credit, can discourage uptake among SMEs — especially those with limited financial capacity. While smaller banks could potentially offer favorable financing mechanisms, their reach and resources are limited compared to larger financial institutions.
Industrial experts and supplier partners interviewed suggested that overcoming these challenges will likely require targeted efforts to increase awareness among SMEs; reduce borrowing costs through governmental subsidies or blended finance mechanisms that leverage both public and private funding; and extend the reach of sustainable finance to underserved regions and sectors.
Stakeholders convened by the Climate Solutions Partnership suggested several pathways to accelerate finance for decarbonizing Indonesia’s textile sector, including:
- Establishing a clear regulatory framework for potential aggregators of clean energy solutions, such as industrial parks or Energy Service Companies (ESCOs), to help streamline fund distribution and enhance the efficiency of implementation.
- Scaling up the use of ESCO financing models — including guaranteed savings, shared savings and leasing schemes — to enable performance-based repayment and reduce upfront capital burdens.
- Leveraging international guarantee facilities and liquidity support from development banks (such as ADB, IFC or the UN Capital Development Fund) to improve creditworthiness and attract private investment.
- Promoting direct financing and credit guarantees for technology modernization — including through blended finance mechanisms backed by institutions such as the Korean Development Bank — to help lower the financing costs for SMEs.
- Encouraging brand-driven mechanisms — such as long-term purchasing agreements, preferential pricing for green products, higher order volumes and guarantee fees — to help strengthen suppliers’ financial profiles and incentivize sustainable investments.
- Expanding access to Green Tariff Agreements to facilitate supplier-developer contracts for off-site renewable energy, with brands stepping in to guarantee supplier payments if needed.
Addressing High Electricity Demand in Vietnam’s Manufacturing Sector
The challenge
The processing and manufacturing sectors have been key drivers of Vietnam’s economic growth: They contributed 24% of the country’s GDP in 2024 and are projected to reach 25% by 2025. This rapid industrialization has significantly increased electricity demand, with commercial and industrial users accounting for 33% of the nation’s power consumption.
Stakeholders interviewed noted that clean electricity is already in high demand among Vietnam’s manufacturers. But challenges remain: The commercial and industrial sector faces rising electricity costs; frequent power disruptions; and grid constraints, including high levels of renewable energy curtailment at industrial parks due to overloaded local infrastructure.
Exploring solutions: Behind-the-meter battery energy storage
Currently, both onsite and offsite options exist to reduce emissions from purchased electricity for manufacturing facilities. On-site solutions, such as rooftop solar, have limited impact in the absence of available storage solutions, since generation and use are restricted to daylight hours. Off-site renewable generation mechanisms, like those enabled by the Direct Power Purchase Agreement (DPPA), are still under development and will require more research to assess their technical and policy effectiveness.
A joint study in 2023 by the Clean Energy Investment Accelerator (CEIA) and the National Renewable Energy Laboratory (NREL) examined the possibility of using onsite behind-the-meter battery energy storage systems (BtM-BESS) to enhance the impact of rooftop solar. These are battery systems installed on the same side as the consumer’s electricity meter, rather than on the utility side. The study showed that, when combined with rooftop solar, scaling up BtM-BESS in Vietnam’s processing and manufacturing sectors can help bridge the gap between limited onsite potential and unrealized offsite solutions in manufacturing clusters, such as industrial parks. By storing excess solar energy for use during peak demand, this solution can help reduce grid overload and maximize renewable energy usage, significantly improving the effectiveness of rooftop solar.
Case studies at industrial parks in Vietnam, conducted by the same study, further demonstrated that the value of combined rooftop solar plus BtM-BESS can be greater than the value of standalone PV plus the standalone BtM-BESS. This solution can boost resilience in the event of power outages, significantly reducing reliance on grid electricity. It can also contribute to Vietnam’s National Strategy on Green Growth by cutting GHG emissions and local pollutants.
Reflecting these benefits, the Vietnamese government has highlighted its commitment to expanding rooftop solar PV plus BtM-BESS systems in its Decree 58/2025/ND-CP. This decree prioritizes the sale of electricity during peak hours for renewable energy projects with rooftop solar PV plus BtM-BESS systems connected to the national grid. Analysis by the IEA also suggests that BESS systems need to grow alongside renewables in Vietnam to achieve critical climate targets (such as net zero by 2050).
Potential pathways to unlock financing
In Vietnam, the high costs associated with green technologies like BtM-BESS can pose a hurdle for SMEs. Mobilizing more funds for decarbonization at scale will likely require a combination of traditional and innovative financing tools.
Traditional financing instruments — such as grants, loans and equity investments — draw from both public and private sources. A 2022 WRI study showed that innovative mechanisms — such as green bonds, climate funds, carbon credits and blended finance models — can complement these traditional instruments and create new opportunities to attract investment, leveraging public funds to unlock private capital.
Stakeholders convened by the Climate Solutions Partnership in Vietnam suggested several actions to scale up the application of BtM-BESS, including:
- Developing internal appraisal criteria for BESS-linked credit products and leasing structures, with an emphasis on performance guarantees and lifecycle cost savings.
- Exploring partnerships with developers and EPC firms to co-create standard packages for green leasing or vendor finance, especially for smaller customers like SMEs.
- Designing pilot financial products that leverage blended finance approaches, including concessional capital from GCF/CIF and JETP-related facilities.
- Carrying out deeper financial modeling scenario analyses to evaluate exposure and resilience of BtM-BESS investments under various power price, curtailment and policy environments.
- Assessing the integration of BtM-BESS into ESG and green finance portfolios, including frameworks for sustainability-linked loans and climate-related disclosures.
WRI organized a JETP-focused dialogue in Hanoi in April 2025, alongside the P4G Summit, to further explore financial mechanisms that can accelerate Vietnam’s clean energy transition. Participants emphasized the need for dedicated and tailored climate finance products to support supply chain partners of global brands, enabling broader access to decarbonization solutions, including BtM-BESS. International cooperation partners — including DFIs, multilateral banks, and climate-focused funds — have increasingly positioned the JETPs as vehicles for deploying catalytic capital and leveraging concessional finance to unlock larger pools of commercial climate investment. Further assessment and pilots can help determine the feasibility of these various options for Vietnam’s industries.