By Wai-Shin Chan, Director of Research, Asia Research & Engagement
When Sumatra experienced two major transmission grid failures within the space of a month earlier this year, it exposed more than a vulnerability in Indonesia’s electricity system. It highlighted a broader challenge facing the country’s energy transition that’s reflected across the wider Southeast Asian region: building an electricity system that gives investors the confidence to commit long-term capital.
The incidents prompted calls for a comprehensive review of Indonesia’s grid resilience and warnings that the country’s ageing infrastructure must be better prepared for more frequent extreme weather events and the growing demands of a modern power system.
Indonesia has no shortage of ambition. The country has committed to expanding renewable energy, attracting international climate finance, and strengthening its role in the regional energy transition. Yet too many renewable energy projects stall before construction even begins.
The common assumption is that financing is the problem. This is a fallacy. Institutional investors, development finance institutions, and commercial lenders express strong interest in financing credible renewable energy projects across Asia. The challenge is that investment cannot flow where confidence is weak.
That confidence is determined by the practical realities of developing power infrastructure. Across Southeast Asia, developers face uncertainty around grid access, planning approvals, transmission permits, and long-term power purchase agreements. These challenges directly influence whether projects reach final investment decision, regardless of how attractive the underlying economics may appear.
Indonesia illustrates this problem particularly clearly. PT Perusahaan Listrik Negara (PLN), the Indonesian government-owned electricity utility, holds a monopoly over electricity transmission and distribution while also acting as the sole electricity buyer. Unlike several neighbouring countries, Indonesia also lacks a competitive spot market for surplus electricity. Renewable energy developers therefore depend on a single buyer and a market structure that can make project development slower and less predictable than investors would ideally seek.
At the same time, Indonesia’s Domestic Market Obligation (DMO) policy caps domestic coal prices at about half prevailing international market rates. While this has helped shield users from short-term price volatility, it has distorted the price gap between coal and renewable generation, making fossil fuel power appear significantly more competitive than it would under normal market conditions.
These market signals matter. Investors assess regulatory certainty as carefully as they assess project economics. When policy evolves slowly, permitting timelines remain unclear, or transmission infrastructure cannot accommodate additional renewable capacity, capital simply moves elsewhere.
This is why discussions about Indonesia’s energy transition often circle around the wrong issue, focusing on mobilising more finance or international funding commitments. Those conversations remain important but the implementation gap is increasingly one of execution rather than funding. That distinction becomes even more important as Indonesia seeks to expand downstream manufacturing, develop its critical minerals sector, and attract investment in artificial intelligence-enabled industries and data centres.
Reliable, affordable electricity is becoming a prerequisite for industrial competitiveness. Businesses evaluating long-term investment opportunities increasingly assess whether electricity systems can provide reliable – and resilient – supply, under a predictable regulatory regime, and long-term energy stability alongside competitive costs.
This is where long-term energy self-sufficiency is becoming an imperative. Countries that invest in their grids, modern market design, and domestic renewable energy capacity are better positioned to reduce exposure to global fuel-price volatility while strengthening true energy security. Looking only at today’s electricity price risks overlooking the longer-term economic benefits of building a more resilient power system.
Encouraging examples are emerging across Asia. China has strengthened renewable deployment through priority dispatch mechanisms that ensure renewable electricity enters the grid ahead of fossil fuel generation. The Philippines has introduced battery storage requirements for larger renewable energy projects to improve system stability. While every market faces different challenges, the common objective is reducing investment uncertainty through clearer policy and market signals.
Indonesia has every opportunity to achieve the same outcome. The recent Sumatra transmission failures serve as a reminder that the energy transition is not simply about building more renewable generation. It is equally about ensuring the grid is resilient enough to deliver that power reliably, particularly as climate risks intensify and the electrification of economies gathers pace.
Ultimately, Indonesia’s energy transition needs to be viewed through an investment lens, not just a climate one. The countries that succeed in implementing the transition will not necessarily be those with the largest renewable resources or the greatest access to climate finance. They will be those that create the confidence investors need to deploy capital at scale.
For Indonesia, confidence may prove to be its most valuable resource.
