Indonesia is advancing an 100GW solar plus battery energy storage system (BESS) program aimed at replacing diesel-based power generation, reducing energy costs, and improving long-term energy security across its archipelago, according to Institute for Energy Economics and Financial Analysis (IEEFA).
IEEFA’s Mutya Yustika said large-scale deployment of solar and storage across Indonesia could significantly lower electricity generation costs while reducing dependence on imported fossil fuels.
Diesel dependence creates structural cost burden
Diesel power generation remains widely used in Indonesia, particularly in remote and island regions where grid connectivity is limited. While it has supported electrification, it also represents one of the most expensive forms of power generation.
According to IEEFA report, diesel-based electricity generation in Indonesia costs between $0.29 and $0.65 per kWh, significantly higher than renewable alternatives.
Indonesia also spends more than $2 billion annually on diesel imports, exposing its power sector to global oil price volatility and supply risks.
To mitigate rising diesel costs, the government has expanded its biodiesel blending program, moving from B40 toward a planned B50 mandate. However, the report notes that biodiesel remains relatively expensive and, in some cases, may reduce engine operational efficiency.
At the same time, continued reliance on imported oil-based diesel leaves Indonesia vulnerable to external price shocks. This dual dependence has increased the fiscal burden, with higher subsidies required to sustain the blending program.
Solar plus storage delivers cost advantage
IEEFA analysis shows that solar PV combined with battery storage offers a more cost-effective and scalable alternative.
Utility-scale solar generation costs have declined to approximately $0.04 to $0.06 per kWh, while solar plus BESS systems can deliver electricity at $0.08 to $0.20 per kWh, depending on project configuration and location.
These systems are particularly well suited for remote and island grids, where diesel fuel transportation further increases costs. In addition, battery storage enhances reliability by ensuring power availability beyond daylight hours.
Initial 13GW rollout targets diesel replacement
Indonesia’s roadmap includes an initial deployment of approximately 13GW of solar plus storage capacity, aimed at replacing around 5,200 diesel power plants currently in operation.
This phased rollout is part of a broader de-dieselization strategy to modernize the power sector, reduce fuel dependency, and improve electricity access in underserved regions.
Data cited by IEEFA from Perusahaan Listrik Negara indicates that diesel generation costs have remained significantly higher than regulated electricity tariffs over recent years. This persistent gap underscores the scale of subsidies required to sustain diesel-based power generation and highlights the economic case for accelerating the transition to solar and battery storage.
Key measures to address structural barriers
Managing regulatory uncertainty and procurement
IEEFA emphasizes the need for clearer regulatory frameworks and streamlined procurement processes to improve investor confidence. Transparent and bankable power purchase agreements will be critical to attracting long-term capital.
Scaling blended finance mechanisms
Blended finance — combining public, private, and concessional capital — will be essential to overcome financing barriers and reduce project risks. Support from development finance institutions and climate funds can accelerate deployment.
Addressing land acquisition challenges
Land acquisition remains a key constraint for large-scale solar projects. Simplified approval processes and improved coordination between national and regional authorities will be necessary to accelerate implementation.
Energy security and economic impact
Reducing dependence on diesel imports can enhance Indonesia’s energy security while lowering exposure to global fuel price fluctuations.
IEEFA estimates that transitioning away from diesel could generate significant cost savings, while also reducing subsidy pressures and supporting long-term fiscal stability.
In addition to cost benefits, the solar program is expected to drive investment in renewable energy infrastructure, improve electricity reliability, and expand access in remote regions.
Outlook: Strategic shift toward sustainable power
Indonesia’s 100GW solar initiative represents a major structural shift in its energy strategy.
With strong policy support, effective financing mechanisms, and timely execution, Indonesia has the potential to significantly reduce diesel dependence and build a more resilient, cost-efficient, and sustainable power system.
FASNA SHABEER
