Power wheeling can drive corporate investments and advance Indonesia’s renewable energy goals

On 3 July 2024, Vietnam issued its direct power purchase agreements (DPPAs) decree for renewable energy between private project developers and consumers. This allows renewable energy generators to sell their power to corporate consumers, using their transmission facilities or via state-owned utility lines. Additional legislation encourages investment opportunities and data center development. In response, companies like Alibaba, AWS, and Google plan to explore business opportunities, which could ignite rapid renewable energy growth.

On 26 July 2024, Malaysia introduced the Corporate Renewable Energy Supply Scheme (CRESS) which aims to enhance corporate access to green electricity through open grid systems, allowing third parties to supply or purchase electricity through the existing grid network. Following this, Google and Oracle announced investments in Malaysia, which are expected to contribute over US$9.5 billion to the country’s economy by 2030.

Indonesia’s intention to accelerate the renewable energy transition

Indonesia, the most populous Southeast Asian country, is ranked third in the region for solar potential. It has the capacity to become the leader in the renewable energy sector. However, its renewable energy development can be considered stagnant compared to its neighbors. This is due to the challenging financial position of its national electricity utility, PT Perusahaan Listrik Negara (PLN), the primary developer of renewable energy, and several regulatory challenges that reduce the attractiveness of investing in this sector.

To accelerate the energy transition, the Government of Indonesia (GOI) intends to expand the open market for clean energy by proposing power wheeling in the draft of its renewable energy bill. A power wheeling mechanism allows private companies or Independent Power Producers (IPPs) to sell renewable electricity directly to customers through PLN-owned transmission systems. Given PLN’s delays in implementing utility-scale renewable energy, private developers and industrial consumers can help fill the gap.

The power wheeling mechanism has been pushed by over 430 large global businesses that are members of the RE100, a global initiative comprising companies committed to 60% renewable electricity by 2030 and 100% by 2050. RE100 has 121 members operating in Indonesia. However, these companies still have inadequate renewable energy solutions for powering their facilities and supply chains, thus impeding their ability to meet RE100 pledges and corporate sustainability mandates.

Including power wheeling in the bill could increase Indonesia's attractiveness as an investment destination and simultaneously accelerate renewable energy development.

Power wheeling could boost renewable energy deployment and add to PLN’s revenue

Despite Indonesia’s commitment to reach a 23% share of renewable energy in its electricity mix in 2025, the share in 2023 was only 13.1%. Power wheeling can help the country achieve its renewable energy target by delivering the flexibility of direct transactions for the private sector, which is needed to accelerate the large-scale deployment of renewable energy.

PLN will also benefit from the power wheeling mechanism as it would help the utility maintain its electricity supply, especially outside Java and Bali Island. Additionally, the utility would gain another revenue stream by renting its transmission facilities to private electricity corporations through a wheeling charge. However, it is imperative that wheeling charges are developed in a fair and transparent manner to avoid excessive pricing while ensuring system integrity. Such conditions are important both for attracting investors and protecting PLN as the transmission network owner.

Increasing investment potential from global corporations and data centers

Indonesia’s heavy reliance on fossil fuels has become an obstacle to investments from global corporations that increasingly want clean energy. In September 2024, the Indonesian Minister of Investment stated that Tesla was hesitant to invest in the country because of Indonesia’s fossil fuel energy usage. The focus on the carbon emissions intensity of supply chains is increasing, most notably represented by Europe’s Carbon Border Adjustment Mechanism. There is a growing urgency to reduce the carbon emissions of the Indonesian grid, currently at over 682 grams of carbon dioxide equivalent per kilowatt-hour (gCO2e/kWh), making it one of the highest global emitters.

Power wheeling, reserved only for renewable energy, can be a solution to attract new investment from global corporations and data centers committed to achieving 100% clean energy.

Currently, data centers worldwide utilize 1-2% of total power. In 2022, the energy consumption of data centers was 460 terawatt-hours (TWh), 45% higher than Indonesia as a whole. The IEA expects that data center demand could increase to between 1.5% and 3% of global power by 2026.

Countries like Singapore have established themselves as leading data center hubs in Southeast Asia. However, the Singapore market faces supply constraints with restrictions on constructing new data centers, limited renewable energy availability, and higher cost of operations. Therefore, investors are increasingly looking towards emerging markets like Indonesia.

Google aims to achieve net-zero emissions across all its operations and value chains by 2030. Microsoft has also committed to being carbon-negative by 2030. By 2050, it also aims to remove all carbon emitted by the company, either directly or by electricity consumption, since its founding in 1975. Microsoft announced that it will invest US$1.7 billion over the next four years in new cloud and Artificial Intelligence (AI) infrastructure in Indonesia. Consequently, Indonesia needs to provide large-scale access to clean energy to offer companies like Google and Microsoft options to establish their data centers outside Singapore that meet their global sustainability goals.

Indonesia has a rapidly growing digital economy and can play a vital role in expanding data centers. Its digital economy had a gross merchandise value of US$77 billion in 2022 and is expected to increase to between US$220 and US$360 billion by 2030, making it the largest digital economy in Southeast Asia.

Power wheeling can boost economic growth through investments, create new jobs, and help Indonesia meet its decarbonization targets without burdening the national budget. It would also help PLN focus on grid modernization and improvements to facilitate energy transition.

Despite broad industry support, opposition to the power wheeling scheme remains, particularly within the GOI, where internal disagreements persist. There are concerns about power oversupply and PLN’s take-or-pay scheme with IPPs, which poses significant financial risks to the utility. The solution could lie in contract negotiations with IPPs, cost efficiency, and the retirement of inefficient coal-fired power plants combined with the right power wheeling formula.

Indonesia is already behind on its renewable energy targets. The lack of renewable energy supply in the country creates risks of missing out on golden economic opportunities and falling behind its neighbors. Power wheeling can play a crucial role in a balanced strategy that accommodates all stakeholders, enabling Indonesia to accelerate clean energy deployment while tapping into significant economic opportunities.

Read this analysis in Bahasa