Distributed energy and smart grids market in Indonesia

Indonesia is making significant strides in developing Distributed Energy Resources (DER) and Smart Grids as part of its renewable energy strategy. The country's electricity generation from renewable energy market is expected to reach 63.21 billion kilowatt hours (kWh) in 2025, with an estimated annual growth rate of 3.09% from 2025 to 2029.

This growth is driven by Indonesia's ambitious climate goals and efforts to cut reliance on fossil fuels. Solar energy is a key part of Indonesia's DER strategy. Electricity generation in the solar energy market is expected to reach 179.37 million kWh in 2025, growing at 1.83% annually from 2025 to 2029.

The country is also leveraging its vast geothermal resources to improve energy independence and reduce carbon emissions. Indonesia is also investing in biofuels, with targets set for both bioethanol and biodiesel blending in various sectors.

Key opportunities for Canadian cleantech companies in supporting the energy transition in Indonesia

  • Indonesia's energy transition offers significant opportunities for clean technology providers. The country aims to achieve 23% renewable energy use in 2025 and 31% by 2050, with plans to add 60 gigawatts of renewable-based electricity generation capacity by 2040. Key opportunities lie in hydropower, bioenergy, geothermal, and solar energy development. 
  • Hydropower is currently the leading renewable source, accounting for about 7% to Indonesia's electricity mix, with bioenergy close behind at 6%. Indonesia also holds the world's second-largest geothermal capacity, with  significant untapped potential. Despite Indonesia's strategic equatorial location, solar energy remains underdeveloped, offering a greater growth opportunity. 
  • The share of electricity generated by solar and other new renewable energy sources was only 0.6% of the energy mix in 2023, indicating significant room for growth in DER implementation.

Industry highlights

22.8% of domestic energy production came from renewable sources in 2022 (hydro, wind, solar, biofuel, waste)

60 Gigawatts (GW) of additional renewable energy production is needed to reach climate neutrality in electricity generation by 2040

61% of total energy generated from renewables was hydropower

2.1 million new jobs are projected to be generated in the energy transition sector by 2030 

  • Indonesia's government is actively promoting waste-to-energy (WTE) solutions. These include the National Waste Management Program and plans for WTE plants in various cities. The country has significant potential for biogas production from organic waste, particularly from palm oil mill effluent (POME) and agricultural waste. Indonesia generates a large amount of waste, with a significant portion being organic waste, which is suitable for biogas production. Biogas and WTE are seen as crucial components in Indonesia's energy transition towards a cleaner and more sustainable energy mix. 

Notable challenges in developing distributed energy resources in Indonesia

  • Challenges continue, including high capital costs for renewable infrastructure, environmental concerns, and the ongoing dependance for coal. Clean technology providers can address these challenges by offering affordable solutions, creative financing options, and technologies that reduce environmental impact while maximizing energy output.
  • Although Indonesia lies along the Ring of Fire, which offers substantial geothermal resources, development has been stagnant. This is primarily due to financial constraints and environmental concerns. Establishing geothermal energy infrastructure requires high capital, and areas with geothermal reserves often overlap with protected forests.
  • Over the years, Indonesia's main electricity provider, Perusahaan Listrik Negara (PLN), has heavily depended on subsidies from the government to maintain affordable electricity rates. This is another obstacle in transitioning to clean energy, as the cost of renewable power generation is considerably higher than coal. Nonetheless, Indonesia has seen a steady increase in renewable energy capacity over the past decade, indicating commitment and hope for a sustainable future. 

Indonesian business landscape

  • Indonesia is Canada's 24th largest trading partner globally and fourth largest in the Association of Southeast Asian Nations. Two-way merchandise trade totaled CAD$5.1 billion in 2023. Canadian merchandise exports to Indonesia were valued at CAD$2.3 billion in 2023 (up from CAD$2.2 billion in 2021), making it Canada's largest export market in Southeast Asia.
  • Indonesia is the second-largest destination of Canadian direct investment abroad in Southeast Asia. In 2023, it held a total stock of about CAD$6.7 billion, in 2023, which includes investments in toll roads, container ports and industrial logistics parks.
  • Establishing a local presence is essential to advancing business growth in the market. This can be achieved through a local representative (agency or distributorship) or via a foreign-owned investment.
  • In December 2024, Canada and Indonesia signed a joint statement announcing the conclusion of negotiations for a Canada-Indonesia Comprehensive Economic Partnership Agreement (CEPA), and committed to signing the CEPA in 2025. Canada also launched free trade agreement negotiations with the Association of Southeast Asian Nations (ASEAN), aiming for a substantial conclusion by 2025.

Upcoming projects and events

  • Power Generation, Distribution and Transmission Mission to Indonesia, October 20 to 21, 2025
  • Waste, Waste-to-Energy and Clean Energy Trade Mission to Indonesia, January 27 to 29, 2026

Summary

For decades, coal has been the primary fuel for most of Indonesia’s power plants. Today, the country is facing a major challenge in reaching the government’s ambitious goal of achieving net-zero emissions by 2060. Indonesia is known to be rich in natural resources. This presents significant potential for renewable energy sources such as hydropower, bioenergy, and geothermal. 

Indonesia's DER sector is growing, driven by government policies and investments. This includes technologies like solar PV, wind, and geothermal. While renewable energy currently contributes 19% of the electricity mix, the government plans to raise this to 26% by 2030, relying heavily on DERs like hydro, solar, wind, geothermal and WTE.

For more information on the opportunities in the Indonesian market please contact:

Additional Information

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