By Raymond Hendriawan*, Pandu Setiabudi* and Rikordias Siahaan*
Indonesia has never lacked potential. With abundant natural resources, a growing consumer base, and strategic importance in the region, the country should be a magnet for energy investment. But the problem isn’t a lack of interest or capital. The real issue lies in the system itself: outdated regulations, excessive bureaucracy, and inconsistent policymaking.
The establishment of PT Daya Anagata Nusantara (Danantara), a government-backed investment holding company that manages various state-owned enterprises including those in banking, energy and infrastructure, has been presented as a major step to support national development. However, when it comes to the energy transition, Danantara risks shifting attention away from the more pressing issue, which is fixing the country’s outdated and restrictive regulatory framework. Take the case of renewable energy development in Indonesia. As of today, we have identified nearly fifty companies that have expressed serious interest in building renewable power plants to supply clean electricity to the domestic market. Yet, almost all of them have failed to move forward.
The key roadblock? Presidential Regulation No. 112 of 2022 (PR 112 / 2022), which ties renewable electricity pricing to coal price benchmarks. This pricing mechanism makes most renewable projects economically unviable from the outset—not due to a lack of technology or ambition, but because the policy framework penalizes clean energy simply for not being coal.
In our interviews with several renewable energy company executives, a common theme emerged: under PR 112/2022, the expected return on investment simply doesn’t make financial sense. The numbers don’t work—and as long as the regulation remains unchanged, neither will their projects.
But what if developers want to bypass the low tariffs and instead sell renewable electricity directly to high-income consumers, industrial estates, or data centers that are willing to pay premium prices?
Another regulation stands in the way.
To sell electricity commercially to consumers, developers must first obtain a business area license (Wilayah Usaha). But is that license truly obtainable for private players?
In theory, yes.
In practice, almost never.
This leads us to Article 14 in the Regulation of Minister EMR (Permen ESDM) Number 11/2021, which technically allows for a business area license to be granted if the existing holder—typically PLN—fails to supply electricity, fails to meet service standards, or leaves an area underserved. Yet in reality, these provisions are rarely enforced, and the licensing process remains opaque and heavily skewed in favor of state-owned entities.
The result? A market full of willing investors and potential off-takers—but locked out by regulations designed to protect a monopoly.
Article 14 of Ministerial Regulation No. 11 of 2021 clearly allows for new electricity providers to be granted business areas if:
The current business area holder (such as PLN) fails to supply electricity;
Fails to meet service standards; or
The proposed area remains underserved or unserved.
In theory, this provision opens the door for private sector participation. In practice, that door remains closed.
A Missed Billion-Dollar Opportunity
Indonesia has a golden opportunity to export clean electricity to Singapore, where power prices exceed 30 US cents per kWh. With its vast geothermal, solar, and hydro resources, Indonesia could supply electricity at around 20 US cents per kWh—a price point that remains profitable for developers and cost-effective for Singapore.
This isn’t a theoretical possibility. The market exists. Developers and financiers are ready. The margins are real. The export route is feasible. And yet, the opportunity remains unrealized—not because of cost or risk, but because the regulatory system won’t allow it.
The government’s usual justification? That Indonesians also need the electricity.
But in our view, Indonesia’s middle- to low-income population does not need premium-priced green electricity. What they need is affordable, coal-based electricity to power their homes and support small businesses. We should—and must—continue using coal to maintain purchasing power and secure basic energy access for the majority of the population.
Ironically, the legal tools to seize the export opportunity already exist. For instance, Article 14 of Ministerial Regulation No. 11/2021 permits new electricity providers to be granted business areas if the existing holder—such as PLN—fails to supply electricity, meet service standards, or if the area is underserved. Instead of enforcing these provisions, the government is choosing to introduce Danantara.
Contrary to popular belief, Indonesia is not starved for capital. Both domestic and international investors are ready to pour billions of dollars into energy infrastructure, renewables, and industrial zones.
The Ministry of Investment – BKPM recorded that total investment in 2024 reached Rp. 1,714 trillion, up from Rp. 1,418 trillion in 2023, an increase from Rp. 1,207 trillion in 2022. The investors are there, and they are financially capable. The problem is not a shortage of capital; it’s the inability to deploy that capital.
The regulatory environment is deeply entangled. Land acquisition is unpredictable. Licensing processes differ between ministries. Rules often change mid-project. Inter-agency coordination is lacking. As a result, even the most committed investors are caught in a web of delays and confusion.
This is not a funding problem. It’s a systemic regulatory failure.
Danantara may appear to be a bold move—but in practice, its role remains unclear. What’s clear to us is that it distracts from the urgent need to fix the rules of the game.
Indonesia has the natural resources.
It has the investor interest.
It even has the enabling regulations—on paper.
What it lacks is the political will to act.
*Raymond, Pandu and Rikordias are senior researchers at Petromindo Research and Consulting and has been deep researching Indonesia energy sector
