Powering Indonesia’s Growth

Indonesia's growth ambitions will require much more electricity

Indonesia's electricity demand could grow significantly over the next decade as the economy expands and activities across transport, manufacturing and other sectors increasingly electrify.

Under the report's High Electrification scenario, electricity demand could grow by up to 7% per year. By 2035, higher electrification, particularly across transport and manufacturing, alongside demand from sectors such as data centres and electricity exports, could add around 160 terawatt-hours of electricity demand compared with Business-as-Usual.

Meeting this growing demand will require a significant expansion of Indonesia's power system.

Solar is Indonesia's standout renewable opportunity

Indonesia has significant renewable energy resources, including solar, geothermal and hydropower. Solar stands out because it has the country's largest domestic renewable resource potential, can be built quickly and is benefiting from steep global cost declines.

The government's 100 GWp solar programme represents a step change in ambition. Yet Indonesia's utility-scale solar market remains caught in a low-volume equilibrium: project economics are weak because deployment has not reached scale, while deployment struggles to reach scale because project economics remain challenging.

Solar generation costs currently range from around 5 to 10 US cents per kilowatt-hour in Indonesia, compared with around 3 US cents per kilowatt-hour in India. Costs associated with components, land, grid connection and financing contribute to this gap.

The report finds that targeted interventions could reduce Indonesia's solar generation costs by 30 to 50%, towards around 4 to 7 US cents per kilowatt-hour by 2035. Scaling deployment and improving procurement processes could reduce financing costs further, with benefits across cost components.

Battery storage is also an important part of the solar opportunity. As battery costs fall, solar plus storage is becoming an increasingly competitive alternative to new coal and gas generation in sunny markets globally.

A lower-cost, more renewable power system can meet higher demand

Solar is the largest new renewable opportunity identified in the report, but it forms part of a wider electricity system.

Under the report's Least-Cost pathway, additional demand from higher electrification can be met without adding new coal or gas capacity. Between 2025 and 2035, the pathway adds around 65 GW of solar PV, alongside additional wind, geothermal and storage capacity.

By 2035, renewables could account for 44% of total electricity generation under this pathway.

The modelling finds that this more renewable supply mix could also be more affordable. Total power-system costs could be around 5 to 15% lower by 2035 than under the current Electricity Supply Business Plan pathway. Much of the saving comes from lower fossil-fuel consumption as cheaper solar displaces coal and gas generation.

A more electrified, more renewable Indonesia could deliver stronger economic outcomes

The implications extend beyond the power system. A more electrified economy, served by a more renewable power system, could contribute meaningfully to Indonesia's wider economic growth ambitions.

The report estimates that the Least-Cost High Electrification scenario could deliver around 8 to 10% of the additional growth needed to move Indonesia from its current annual GDP growth rate of around 5% towards the government's 8% ambition.

This represents around US$160 billion more GDP between 2025 and 2035 than under the report's Baseline scenario. The contribution comes from additional investment across the energy system, electrification, clean manufacturing and new growth sectors enabled by low-carbon power, alongside additional net exports from reduced oil imports and regional electricity exports.

The report also identifies wider benefits. Increased electrification and a more renewable energy mix could reduce Indonesia's exposure to imported fossil fuels and energy-price volatility, reduce spending on energy subsidies and strengthen the competitiveness of Indonesian industry as global demand for lower-carbon products grows.

Turning ambition into delivery

Capturing these gains requires coordinated action to bring down the costs of solar generation and scale deployment.

The report identifies four priority areas:

Fast-track catalytic grid-scale solar projects. Projects with premium buyers can anchor early demand at scale, create bankable precedents and help reduce financing costs.

Remove barriers to rooftop solar. Updating regulations around quotas and permits could allow capacity to scale more quickly and increase demand for domestic solar modules.

Reduce key solar cost components. Targeted policy support around areas including land acquisition and grid connection could address important contributors to Indonesia's cost gap with leading solar markets.

Develop a phased local content strategy. Domestic manufacturing ambitions need to be balanced with the cost competitiveness required to scale deployment.

Together with greater electrification across the economy, these interventions could help Indonesia meet growing electricity demand through a lower-cost, more renewable power system while contributing to wider economic growth, energy security and competitiveness.

About the report

Powering Indonesia's Growth examines whether higher electrification combined with a more renewable electricity supply could strengthen Indonesia's economic growth prospects.

Prepared by INDEF, IESR, the Energy Transitions Commission and Systemiq, in strategic collaboration with the Indonesian Independent Power Producers Association (APLSI).

If you would like to discuss this further with a member of our team, please contact: Sophie Slot and Abindra Soemali

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