INDONESIA
Grid investment pathway
Wider context and explainer
A modern transmission network will underpin Indonesia's transition to a cleaner power system. Strengthening the grid will help connect renewable resources, improve electricity access and enable a more flexible and resilient power system. This overview summarises Indonesia’s grid investment pathway, focusing on limitations, opportunities, and key recommendations. The Indonesia overview is one of the case studies within the broader grid finance programme, which aims to identify practical ways to unlock investment for grid modernisation across Asia. Explore the other country case studies on the Philippines and Japan to see how different markets are approaching the financing challenges and opportunities associated with grid modernisation.
Country context
Indonesia has a vertically integrated market structure. Perusahaan Listrik Negara (PLN) is the state-owned national utility, and is managed by Danantara, Indonesia’s sovereign wealth fund. Indonesia’s grid is divided into five large grid areas: Java-Madura-Bali, Sumatra, Kalimantan, East Indonesia and Sulawesi. These grid areas are largely not interconnected with each other, which creates structural challenges in moving electricity between areas of high demand and areas with strong renewable energy potential.
Grid investment has become a strategic priority because Indonesia needs stronger interconnections, more flexible system operations and upgraded distribution networks to support renewable energy integration. The latest Electricity Supply Business Plan (RUPTL) sets out planned investment needs of USD 24 billion for transmission, USD 11 billion for distribution and USD 5 billion for system operations by 2034. Key drivers include renewable energy targets and supply-demand mismatches between islands for transmission, and the need for system flexibility and the continued importance of reliable electricity access, especially in remote and outer island areas, for distribution and systems operation.
Source: PLN (2025). RUPTL 2025 – 2034
Key finance dynamics
Grid financing in Indonesia is closely linked to PLN’s role as the central planner, owner and operator of the grid. PLN prepares the RUPTL, subject to approval by the Ministry of Energy and Mineral Resources (MEMR), and delivers grid investment primarily through public financing, and its own balance sheet.
PLN’s own balance sheets are constrained, as their tariffs are set below full cost recovery, with the gap covered through subsidy and compensation payments from the Ministry of Finance (MOF). This limits PLN’s ability to build internal equity and increases reliance on debt, leaving PLN overleveraged. As a result, PLN relies heavily on public financing through direct fiscal support through state capital injections (PMN) and concessional loans from multilateral development banks and development finance institutions, usually guaranteed by the MOF. While PLN can also raise finance through corporate financing, its ability to do so is constrained by high leverage, low regulated returns and domestic lending limits. Danantara now manages PLN’s assets and investments and may play a greater role in structuring future financing, although its role in relation to PLN is still emerging.
Main barriers
Indonesia’s main challenge is raising sufficient capital within the constraints of their market structure and regulations. Low cost recovery and reliance on subsidy, compensation payments and public capital support limit PLN’s ability to build internal equity for grid investment. At the same time, high leverage, low regulated returns and local lending limits restrict PLN’s access to private financing, particularly for large transmission projects.
Low cost recovery and reliance on public funding
PLN's tariffs do not fully recover costs, leaving PLN dependent on subsidies and compensation payments. This has resulted in low returns, limited ability to build internal equity, and a heavy reliance on debt financing, which has left PLN overleveraged and constrained its ability to fund the scale of grid investment required.
Limited access to private finance due to market structure and regulation
Indonesia's grid is operated under a vertically integrated model. Private participation is legally possible but remains limited in practice, while large transmission projects often exceed domestic bank lending limits (BMPK), restricting access to commercial financing and reducing the amount of capital available for grid development.
Recommended solutions
Indonesia's most promising financing pathway is to strengthen PLN's financial position while creating clearer routes for private capital to participate in grid development. A first priority is regulatory reform to provide greater clarity on how private investors and developers can be involved in grid projects. Delivering these reforms would require support from Parliament, alongside coordination with PLN and Danantara. A second priority is to explore alternative financing structures that can mobilise additional capital while allowing PLN to retain strategic control. Climate Policy Initiative recommends various alternative business models that could be explored, such as leasing, joint venture, and investment trusts. These structures could reduce pressure on PLN's balance sheet and make large grid projects more investable. Key stakeholders would be PLN and Danantara.
Indonesia could also strengthen PLN's revenue base without increasing household tariffs or public expenditure. Joint transmission network utilisation (PBJT) is a scheme proposed by IEEFA, IESR and RE100, which could allow independent power producers to use PLN's network to sell electricity directly to private customers, generating network access or wheeling fee revenues for PLN. Over time, these revenues could support additional grid investment and improve PLN's financial position. This would require enabling legislation from Parliament and implementation by PLN and Danantara.
The path forward
Indonesia’s power system has significant grid investment needs, but mobilising finance at the required scale will depend on reforms that improve cost recovery, expand viable financing options and enable more targeted private participation. Further work can help test these pathways, build confidence among public and private stakeholders, and identify where targeted support can unlock practical grid investment at scale.
The pathway forward is to support regulatory and structural reforms that improve PLN’s ability to finance, deliver and modernise the grid, while using targeted public, concessional and blended finance where it can unlock the practical investment. These interventions would help shift grid finance toward a reform-led agenda for stronger cost recovery, credible private participation and more effective delivery.
Indonesia has a clear need for grid investments, but PLN is constrained by its small revenue base and inability to access sufficient private financing. The pathway forward for grid financing should focus on regulatory and structural reform that improve PLN's ability to finance, deliver and modernise the grid.
Our experts:
Andrew Lever
Director, Energy Transition
Masao Ashtine
Senior Manager, Energy Transition
Daphne Lim
Senior Analyst, Energy Transition
