Indonesia’s plan to develop a 100-gigawatt (GW) solar plus battery energy storage system (BESS) program — beginning with a 13GW rollout to replace diesel power plants — represents a significant shift in how the country generates electricity.
The country’s geography, comprising a vast archipelago with over 17,000 islands, has long presented complex energy supply challenges. For decades, the government relied on diesel as the primary source of electrification for remote islands, given the financial and technical difficulties of extending transmission lines across thousands of islands. However, this approach, despite the logistical challenges and high costs of deploying diesel generators, has locked the country into a cycle of costly imports, volatile fuel prices, and heavy subsidy burdens.
Rising costs of diesel dependence
In 2024, Indonesia operated thousands of diesel units, supplying approximately 5.8GW of grid-installed power capacity. The national electricity utility, PT Perusahaan Listrik Negara (PLN), owns 3GW of this total, producing over 7,000 gigawatt-hours (GWh) annually. This output requires an estimated 2.7 billion liters of High-Speed Diesel (HSD), equivalent to about 17 million barrels of imported fuel, costing over USD2 billion (IDR33 trillion) each year.
The volatility of global oil markets has exacerbated the financial burden, with generation costs from diesel plants fluctuating from IDR4,746 (USD0.37) per kilowatt-hour (kWh) in 2020 to IDR8,748 (USD0.57) in 2023. The current Middle East conflict highlights Indonesia’s vulnerability as an oil importer, exposing it to supply disruptions of diesel and other refined products. This highlights that energy security cannot be achieved while relying on global fuel markets, with current market conditions likely to keep diesel generation costs elevated at or above 2023 levels.
Indonesia has sought to mitigate rising diesel costs through its biodiesel blending program, moving from B40 (40% biodiesel blended with oil-based diesel) to B50. However, biodiesel remains expensive and can reduce engine operational efficiency. At the same time, Indonesia continues to rely on imported oil‑based diesel, leaving the country highly vulnerable to volatile global prices. This dependence, combined with rising costs, has also increased the subsidy burden to sustain the biodiesel program.
The economic case for solar plus BESS implementation
Against this backdrop, solar plus BESS has emerged as a transformative alternative. Utility-scale solar in Indonesia now averages just USD0.04–0.06/kWh (around IDR660–1,000/kWh), while large-scale battery costs are around USD150/kWh and continue to fall. Data from Bloomberg New Energy Finance shows that the global benchmark cost for a four-hour battery system fell by 27% year-on-year to USD78 per megawatt-hour (MWh) (USD0.078/kWh) in 2025.
Based on calculations by the Institute for Energy Economics and Financial Analysis (IEEFA), solar plus BESS configurations can deliver electricity at USD0.08–0.20/kWh, compared to the far higher cost of USD0.29–0.40/kWh for diesel. Diesel costs may rise even further to USD0.55–0.65/kWh as seen in 2023.
Shifting to solar plus BESS would transform the cost structure of island electrification. Instead of importing fuel and undertaking complex and expensive logistics, Indonesia can harness its abundant sunlight, store it locally, and dispatch it reliably for more than a decade. IEEFA estimates savings of USD2 billion in avoided diesel fuel imports and USD1.5–2 billion in reduced subsidies annually from replacing diesel with solar plus BESS. This subsidy amount represents 15–18% of the subsidy and compensation paid to PLN, which was USD11 billion in 2024. These potential savings could contribute to the government’s solar program and strengthen the country’s energy security.
Addressing constraints to accelerate the solar plus BESS program
Despite the compelling economic and strategic case for replacing diesel with solar plus BESS installations, progress has remained sluggish. In 2022, PLN initiated a de-dieselization program to convert approximately 5,200 diesel plants operating in remote regions of Indonesia. However, implementation has been slow. To realize this renewable energy goal, the following measures should be considered to address regulatory, financial, and institutional barriers:
1. Manage regulatory uncertainty and streamline the procurement process to attract investment
Private capital will be essential in replacing Indonesia’s diesel fleet with 13GW of solar plus BESS, requiring an estimated USD15–19.5 billion in investment. Although the first phase of the diesel replacement program was announced in 2022, no power purchase agreements (PPAs) have been signed. Presidential Regulation PR 112 of 2022 established procurement timelines of under 180 days, but delays have persisted, dampening private sector interest.
To accelerate progress, the Ministry of Energy and Mineral Resources (MEMR) issued Regulation No. 19 of 2025, allowing PLN to operate hybrid plants. However, the tariff framework remains under discussion. Without a clear and finalized tariff structure, PLN is unable to execute PPAs, and developers lack the pricing certainty needed to mobilize capital. Establishing clear, transparent, bankable, and consistent tariff regulations will be critical to unlock private investment and accelerate deployment.
2. Accelerate blended finance to overcome financing hurdles
Rising interest rates have emerged as a significant barrier, increasing the cost of electricity from proposed systems and slowing project development. Benchmarked against the Secured Overnight Financing Rate (SOFR), which rose from 3% to 5.4% in 2023–2024, commercial interest rates increased to 7.5–8.5%, making projects unattractive — particularly for small island systems with limited economies of scale.
Although SOFR has fallen to around 3.6%, the ongoing conflict in the Middle East may drive inflation, raising both equipment and financing costs. Elevated interest rates have also raised the overall weighted average cost of capital, while equity return expectations remain unchanged, further constraining project viability.
To address these challenges, Indonesia should deploy innovative financing mechanisms, including blended finance and risk‑sharing arrangements, to lower borrowing costs and improve project viability. International initiatives are already underway to support Indonesia’s 2060 net‑zero target through the Just Energy Transition Partnership (JETP), but these efforts should be accelerated to meet immediate investment needs.
3. Address land acquisition challenges
Land acquisition regulations add complexity to renewable energy projects. Inconsistent policy implementation in resolving disputes has delayed projects and discouraged investors. Clear guidelines, consistent enforcement, and government‑backed solutions are needed to ensure land access is predictable, timely, and fair.
Indonesia’s toll road development program provides a good example. Strong government support — through legal instruments, dedicated agencies, and financial support for compensation — helped accelerate land acquisition and strengthened investor confidence that projects would proceed without prolonged delays. Applying similar approaches to renewable energy projects would improve predictability and enforceability.
Additionally, integrating land acquisition into broader spatial planning policies could help identify suitable sites in advance, reducing uncertainty for developers. Government‑backed land banks, standardized contracts, and community engagement programs could also minimize disputes and build local support.
A transformational opportunity for energy security and economic growth
Indonesia’s 100GW solar plus BESS program is more than an energy project — it could significantly boost energy security. The initial rollout to replace diesel plants with 13GW of solar and BESS capacity could deliver quick results and build momentum.
In addition to benefits to the energy sector, the program offers opportunities for economic transformation by enabling industrial growth and strengthening domestic industries such as battery manufacturing and solar panel production, thus creating reliable, long-term markets. This, in turn, would create jobs across the value chain, providing livelihoods in communities long reliant on diesel imports.
Indonesia has the vision, resources, and urgency to advance its energy transition. With greater regulatory clarity, effective implementation, and financial innovation, the 100GW solar plus BESS program could become one of the most transformative energy initiatives in Southeast Asia. By reducing dependence on imported fuel and curtailing subsidies, Indonesia can reshape its energy landscape and enhance long-term economic resilience.