German development bank KfW will provide €2bn ($2.25bn) loans for the development of new and renewable energy resources in Indonesia.
The move forms a part of an agreement signed between Indonesia and Germany in 2013 for bilateral cooperation on climate change and energy, Jakarta Post reported citing KfW Office Jakarta senior sector coordinator Christoph Twerenbold.
The loan amount will be given to state-funded projects including small and big hydro power plant projects, geothermal, solar power and electricity network transmission over the next five years.
Of the total loan amount, around €300m will be provided to state electricity firm PLN this year, while the remainder amount will be offered to several projects until 2019.
"We see huge potential, a huge need for investment in infrastructure because nothing has been done in the last 10 years. So now everything has to come up to secure electricity supply," Twerenbold added.
Indonesia President Joko Widodo has committed to provide an additional electricity supply of 35,000MW over a period of five years in order to cater to the increasing electricity needs in the industrial sector.
Of the total 35,000MW power planned to be added, around 25% will come from new and renewable energy sources.
KfW has previously provided a €7.7m grant to finance a geothermal project in Aceh in 2011.