Indonesia Renewable Energy Market Outlook to 2030

Indonesia Renewable Energy Market Overview

• The Indonesia Renewable Energy market size in terms of installed based is expected to grow 15 gigawatts, driven primarily by the governments ambitious target of achieving 23% of its energy mix from renewable sources. This market growth is fueled by the decreasing cost of solar and wind technologies, making them increasingly competitive with traditional fossil fuels. The rise in foreign investments, particularly in solar PV and geothermal projects, has also contributed significantly to the market's expansion. Major infrastructure projects and off-grid rural electrification initiatives further support this upward trend.
• Java and Sumatra dominate the renewable energy market in Indonesia due to their dense populations and high energy demand, as well as their proximity to major renewable energy projects. Java benefits from its well-established infrastructure and access to foreign investment, while Sumatra is a key location for geothermal energy development. These two regions have abundant renewable resources and government-backed projects, solidifying their leadership in the sector. The geographical advantages of abundant sunlight and wind also help foster renewable energy growth in these regions.
• Indonesias regulatory framework for renewable energy is anchored in Regulation No. 50/2017, which establishes feed-in tariffs and financial incentives for renewable energy projects. The regulation provides guidelines for pricing and procurement of renewable energy, specifically solar, wind, biomass, and geothermal energy. As of 2024, these laws have facilitated the development of over 2 GW of solar and wind projects. Presidential Decree 22/2017 further supports the national energy plan, prioritizing renewable energy in Indonesia's energy mix. This legislation ensures a stable framework for developers and investors in the renewable energy sector.

Indonesia Renewable Energy Market Segmentation

By Energy Source: The market is segmented by energy source into solar energy, wind energy, hydro energy, biomass, and geothermal. In this category, geothermal energy holds a dominant market share due to Indonesias vast geothermal resources, with over 30,000 MW of potential. The country has made significant investments in this area, particularly in Sumatra and Java, due to the availability of abundant geothermal reserves. These regions are home to some of the largest geothermal power plants in the world, which are critical to Indonesias energy mix.

By Application: The market is also segmented by application into utility-scale renewable projects, commercial installations, residential installations, and off-grid systems. Utility-scale renewable projects account for the largest share due to the Indonesian governments push for large-scale renewable energy projects to meet growing energy demands. The utility-scale projects, particularly geothermal and hydropower, dominate as they provide a more stable and consistent energy supply compared to small-scale, intermittent solar or wind installations. These projects are crucial in fulfilling Indonesia's renewable energy targets.

Indonesia Renewable Energy Market Competitive Landscape

The Indonesia Renewable Energy market is dominated by a mix of domestic and international players who play a significant role in shaping the markets dynamics. Key players are involved in large-scale projects ranging from geothermal to solar energy, bolstered by foreign investments and government incentives. The competitive landscape is influenced by various strategic initiatives such as partnerships, mergers, and investment in cutting-edge renewable technologies.

Indonesia Renewable Energy Industry Analysis

Indonesia Renewable Energy Market Growth Drivers

• Government Regulations (Renewable Energy Targets, National Energy Policy): Indonesia's National Energy Policy (RUEN) mandates an energy mix target of 23% from renewable energy sources by 2025, setting an ambitious framework for the sector. Regulation No. 50/2017 emphasizes the role of feed-in tariffs to support renewable projects, such as solar, wind, and hydro. In 2024, Indonesia produced about 11.5 GW of renewable energy, with a significant portion coming from geothermal and hydroelectric plants. These regulations help to streamline processes for renewable projects, accelerating implementation across the country. Additionally, Presidential Decree 22/2017 supports infrastructure development for renewable energy.
• Declining Technology Costs (Solar PV, Wind, Hydro): The cost of solar photovoltaic (PV) technology in Indonesia has seen a reduction, making it a more viable option for energy generation. In 2024, solar PV installation costs dropped to as low as $700 per kilowatt, reflecting global trends in technology affordability. Similarly, the cost of wind power technology has decreased, further promoting investment in this sector. The hydroelectric sector remains stable, with several new projects coming online, such as the 1,040 MW Upper Cisokan pumped storage plant.
• Increasing Energy Demand (Population Growth, Electrification Rate): Indonesia's energy demand is rising due to a growing population of over 276 million people and increased electrification, reaching 99.4% in 2024. The government aims to meet this demand sustainably through renewable sources. The demand for electricity is particularly high in rural and remote areas where the grid connection is limited, making off-grid solar and micro-hydro solutions more attractive. The total energy consumption in 2024 reached over 1,200 TWh, with renewable energy contributing to 13% of that demand.

Market Challenges

• Infrastructure Constraints (Grid Limitations, Transmission Losses): Indonesias renewable energy sector faces significant infrastructure challenges, particularly in integrating new renewable sources into the national grid. Transmission losses account for nearly 9.5% of electricity generated in 2024, hampering the efficiency of energy distribution. The grid is underdeveloped, especially in remote islands, where renewable energy projects are often situated, posing challenges to efficient power transmission. This constraint requires extensive grid modernization and expansion to support further renewable energy deployment.
• Financing Issues (High Capital Expenditure, Risk Aversion): Financing remains a major hurdle for renewable energy projects in Indonesia. High capital expenditure for infrastructure development, particularly for large-scale solar and wind projects, has deterred investors. In 2024, the average cost of establishing a large-scale solar project was $1.4 million per megawatt. Additionally, risk-averse financial institutions remain reluctant to fund long-term renewable projects, leading to a financing gap. Government-backed financial mechanisms and international climate funding need to be strengthened to address these issues.

Indonesia Renewable Energy Market Future Outlook

Over the next few years, the Indonesia Renewable Energy market is expected to witness continued expansion, driven by the governments consistent efforts to meet renewable energy targets. The countrys energy policies focus on increasing the use of clean energy sources while reducing dependence on fossil fuels. Technological advancements, such as the deployment of storage solutions for intermittent renewables, and the increasing availability of green financing options, will likely fuel future growth. Additionally, regional collaborations and foreign investments will be instrumental in helping Indonesia achieve its energy transition goals.

Future Market Opportunities

• Rural Electrification (Off-Grid Solar, Micro-Hydro, Small-Scale Biomass): Indonesias rural electrification initiatives present significant opportunities for renewable energy deployment. With over 5,000 villages still lacking grid access in 2024, off-grid solutions like solar home systems and micro-hydro installations are gaining traction. The government has allocated $700 million for rural electrification projects, focusing on small-scale renewable energy systems. This presents a substantial opportunity for investors and developers to tap into the growing demand for decentralized energy solutions.
• International Funding and Collaboration (Multilateral Agency Investments, Climate Financing): International organizations like the World Bank and the Asian Development Bank (ADB) are key players in funding Indonesia's renewable energy transition. In 2024, the World Bank provided a $500 million loan to support Indonesias energy transition, focusing on renewable energy infrastructure. Climate financing through the Green Climate Fund and other multilateral agencies is also gaining momentum, providing the necessary capital for large-scale renewable projects. These collaborations are essential for bridging the funding gap and accelerating Indonesias renewable energy deployment.