Demand for electricity in Indonesia is set to rise sharply over the next ten years, underpinning rapid deployment of new generation capacity and battery energy storage. In the International Energy Agency (IEA’s) Stated Energy Policies Scenario (STEPS), electricity demand rises from nearly 500 terawatt-hours (TWh) in 2025 to nearly 800 TWh by 2035, driven especially by residential space cooling as both urban and rural regions see continued economic growth and households see income levels rise. The Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik [RUPTL]) 2025‑2034 published by state-owned utility PT Perusahaan Listrik Negara (PLN) addresses demand growth by aiming to install 69 gigawatts (GW) of power capacity, including 6 GW of standalone storage and 3.6 GW of hybrid (solar PV-plus-BESS) capacity. Low-emissions technologies account for less than 10% of PLN’s installed capacity in 2025, but they constitute three-fifths of planned capacity additions in the RUPTL, representing a significant step in PLN’s shift away from fossil power. This report considers only the RUPTL 2025‑2034 as its scope and does not include additional renewable energy development objectives.

By helping to integrate variable renewable energy, battery energy storage systems (BESS) will be a key enabler of reliable low-emissions electricity supply. BESS can perform a wide range of services that support grid stability and reliability, improve the integration of electricity generated by wind and solar photovoltaic (PV) systems, and enhance access to low-emissions electricity in isolated regions. The BESS projects in the RUPTL satisfy four broad needs: standalone assets provide load smoothing and ancillary services, while hybrid systems combine storage with solar PV generation to facilitate renewables integration and improve access to low-emissions electricity in remote areas.

The primary barrier to BESS deployment in Indonesia lies in a limited pipeline of bankable projects, rather than financing constraints. Domestic and international capital markets have demonstrated interest in supporting Indonesia’s clean energy ambitions, while concessional lenders such as multilateral climate funds and development finance institutions (DFIs) have established BESS-specific facilities. However, uncertainty over long-term visibility of cash flows stemming from a lack of BESS-specific regulation, especially for standalone assets, leads current projects to face bankability challenges.

PLN is largely tasked with developing standalone battery storage assets that will support the national grid, while hybrid (solar PV-plus-BESS) installations are generally allocated to independent power producers (IPPs). Of the roughly 6 GW of standalone battery storage outlined in the RUPTL’s Accelerated Renewable Energy Development (ARED) scenario, nearly 90% is planned for the regions of Sumatra and Java, Madura and Bali. These regions are the largest in Indonesia according to population, electricity consumption and grid infrastructure development. As a result, these standalone BESS installations will primarily serve as network assets and are closely aligned with PLN’s mandate to provide reliable electricity to its customers. Hybrid installations in the regions of Sulawesi and Nusa Tenggara, however, come with additional complexity – in both development and operation – which can benefit from the technical expertise of IPPs.

Constraints on PLN’s balance sheet mean that private capital is essential to meet BESS deployment targets. As Indonesia’s state-owned utility, PLN is mandated to provide reliable power to its customers at tariffs that are regulated by the state’s Ministry of Energy and Mineral Resources (MEMR). Despite maintaining investment-grade credit ratings, the utility’s balance sheet relies on government subsidies and equity injections to cover costs and make necessary investments. The participation of IPPs in building out the RUPTL’s BESS pipeline is instrumental to meeting investment needs in a financially sustainable manner, especially amid competing priorities for transmission, distribution, and generation infrastructure. Moreover, our analysis suggests that replacing PLN-run diesel generation with hybrid (solar PV-plus-BESS) installations could create further headroom and strengthen energy security for PLN by displacing the cost of imported fuel and reducing exposure to fuel price volatility.

IEA analysis shows that investment needs in BESS projects across all regions average nearly USD 560 million annually from 2026 to 2034. This annual spending lies below the country’s total investment in solar PV in 2025, but is well above historical investment in BESS, implying a rapid acceleration in spending. Capital expenditure, which is determined by capital costs, grid connection costs and technology degradation rates, varies according to the degree of grid development in each region. In the first half of the RUPTL, one-third of spending is concentrated on the island of Kalimantan to support the development of nearly 0.6 GW of standalone systems for Indonesia’s new capital city, Nusantara. By contrast, the second half of the RUPTL sees the region of Java, Maduraand Bali account for the largest share (three-fifths) of spending as PLN builds nearly 3.5 GW of storage to address rapid growth in electricity demand in its most populous region.

Despite being responsible for over 70% of total capacity additions, PLN accounts for only 60% of overall BESS spending needs from 2026 to 2034. Cumulative investment for PLN is estimated to reach nearly USD 3 illion by 2034, mainly towards development in the regions of Sumatra and Java, Madura and Bali. Private sector investment accounts for the remaining USD 2 billion. Projects led by IPPs tend to be in more remote and isolated areas, driving up BESS technology and grid connection costs and leading those projects to face more bankability hurdles than those in Sumatra and Java, Madura and Bali.

Commercial debt accounts for the largest share of financing for the RUPTL’s BESS pipeline, though international public financiers are key to bridging gaps in bankability for first-of-a-kind projects. Based on the financing structures considered in this analysis, commercial financiers provide an estimated USD 2.5 billion to deploying Indonesia’s BESS projects, representing half of total investment needs. Public finance, which generally comes in the form of equity injections from the government of Indonesia, the country’s state-backed development bank PT Sarana Multi Infrastruktur (PT SMI), or sovereign wealth funds Indonesia Investment Authority (INA) and Danantara, provides an estimated USD 2.3 billion. International public finance (IPF) from multilateral climate funds, export credit agencies (ECAs), multilateral development banks (MDBs), DFIs or bilateral lending reaches an estimated USD 275 million. Despite accounting for a relatively small share of total investment, the concessional and other favourable terms associated with some of IPF make it an essential tool for crowding in additional private investment.

Concessional funding is critical to establishing first-of-a-kind projects in the RUPTL, and must be phased out gradually. Grants and below-market-rate loans are particularly effective when used to mitigate precise obstacles such as hedging costs to mitigate currency risk or revenue uncertainty in the first few years of operation. Meanwhile, capacity building and technical assistance programmes can support the design of BESS-specific regulation. Our analysis suggests that an estimated USD 460 million in grants and concessional loans from international and domestic public financiers – representing nearly 10% of total investment – is needed. For Indonesia’s first standalone BESS projects, replacing commercial debt with concessional terms could lower necessary availability payments by around 6%, improving bankability and reducing PLN’s financial burden. Concessional funding should be accompanied by clear exit strategies to ensure capital recycling. Moreover, the use of concessional funding – while important – should not replace the development of regulation that provides long-term frameworks for projects to succeed.

Regulatory foundations for BESS remuneration have been established, but additional details are needed to boost investor confidence. Uncertainties around regulation and permitting are cited by the IEA’s Cost of Capital Observatory as the main drivers of the weighted average cost of capital in Indonesia, which lies between 9% and 11% for BESS projects. Initial regulatory frameworks for hybrid installations have been implemented through MEMR Regulations 5/2025 and 19/2025 and Presidential Regulation 112/2022. Together, these lay the foundation for IPPs developing hybrid assets to recover costs of both the generation and storage components through the signing of power purchase agreements (PPAs) with PLN. A lack of parallel regulations concerning standalone BESS installations is currently the largest barrier to bankability for these types of projects.

Business models for BESS remain highly dependent on asset configuration and operational use cases, which in turn directly affect revenue certainty and bankability. Within the scope of BESS projects connected to PLN's electricity network, two main models are considered: full tolling schemes for standalone BESS, and PPAs for hybrid projects. While these structures provide revenue visibility, uncertainties remain regarding their practical implementation. Limited clarity around intended BESS use cases, remuneration for specific services and battery degradation can delay investment decisions, ultimately constraining the pace of BESS deployment.

Financing over 7 GW of BESS will require multiple sources of capital, each playing a distinct and complementary role across the capital stack. Multilateral development banks, DFIs, ECAs and other providers of concessional capital can absorb the project-specific risks that commercial lenders are not yet willing to assume during construction and early market formation. As Indonesia’s BESS market matures, commercial financing is critical to replicating successful projects and reducing the state’s fiscal burden. The scale at which lenders operate is also an important consideration: local banks, with limited experience financing BESS, are likely to be more cautious on technology and performance risk, while international lenders are more sensitive to currency and regulatory risk. A syndicated structure that combines both domestic and international lenders is therefore well suited to addressing the full range of risks for Indonesia’s first wave of BESS projects.

Address regulatory risk by clarifying remuneration structures and technical and operational expectations. Investor and lender confidence in Indonesia’s emerging pipeline of BESS projects depends heavily on visibility over how assets are expected to be used and remunerated. The classification of BESS as network or generation assets, permitting and licensing requirements, and careful integration of BESS into the national grid code enable developers to design systems that are well suited to PLN’s needs. Meanwhile, financiers require visibility over project cash flows before being able to provide capital to new projects – this can be addressed through standardised tolling agreements, PPAs and ancillary service procurement agreements. Our analysis finds that, for standalone BESS, steady capacity payments of an estimated USD 111 per kilowatt (kW) to USD 297/kW per year would be sufficient to deliver the returns that commercial investors seek. Meanwhile, the addition of battery storage to solar PV projects, which ultimately improves solar PV utilisation and facilitates their integration into PLN’s network, raises PPA prices by a range of USD 8 per megawatt-hour (MWh) to USD 18/MWh across the RUPTL’s main regions.

Prioritise the long-term system benefits offered by the first standalone assets over their short-term profitability. Early standalone BESS projects face bankability challenges, which result from regulatory uncertainty and relatively high financing costs. While Indonesia’s first standalone projects may not be profitable in their first years of operation, they will provide long-term grid flexibility that will be essential to maintaining a reliable grid as the country addresses rapidly rising demand for electricity and ambitious targets for the development of renewable generation.

Prioritise financing for the development and construction phases of hybrid projects. While hybrid BESS benefits from well-established regulatory frameworks, the technology remains in its early stages in Indonesia. As a result, hybrid BESS projects struggle to secure financing in phases before the start of commercial operation. Targeted public support, such as guarantees or subordinated debt from international public financiers, can help to unlock commercial lending in subsequent project stages.

Establish pilot projects that clearly demonstrate the range of services BESS can offer. Early pilot projects in the regions with the highest needs for storage can accelerate learning, build investor confidence and demonstrate the full value of BESS services. While standalone projects in Java, Madura and Bali can be used to show BESS’ role as network assets, hybrid projects in Sulawesi can demonstrate how BESS can be used to improve utilisation of renewable generation assets.

Tailor concessional funding and technical assistance programmes to address specific challenges. Concessional support is essential to de‑risking early BESS projects, particularly first-of-a-kind projects in the easternmost islands of Indonesia where isolation and small system sizes pose challenges to bankability. Targeted instruments, such as first-loss guarantees, long-tenor loans and grants, can address financing barriers for de‑dieselisation projects, while technical assistance and capacity building are well suited to projects in regions with more mature grids. However, well-defined exit strategies ensure that future projects do not develop a dependency on concessional capital.

Engage a broad range of stakeholders early and often to demonstrate a long-lasting commitment to BESS development. Visible alignment among key stakeholders in Indonesia is necessary to address political risk, which is perceived in particular by international developers and financiers. Close co-ordination between MEMR and PLN will ensure that regulations are well suited to BESS’ needs, while regular engagement with developers and capital providers brings technical expertise. Cross-cutting institutions such as Danantara are positioned to facilitate engagement across many corners of the public and private sectors. Meanwhile, regional co-ordination – especially with other member states of the Association of Southeast Asian Nations (ASEAN) – can strengthen the resilience of supply chains and battery recycling facilities.