Regulated pricing slows Indonesia’s renewable energy transition

Market reforms and decentralised systems might address pricing inefficiencies.  

Indonesia is expanding its energy storage capacity with 5 MW battery systems, but experts warn that rigid pricing structures and centralised systems are slowing progress and preventing efficient energy management.  

“Indonesia is a regulated energy system at the moment. Prices are energy that is bought by PLN at a regulated price and sold to consumers at a regulated price,” said Tim Colyer, Head of Climate and Sustainability for Asia Pacific at Oliver Wyman. “By design, it has quite a stable energy pricing at the moment, [but] we actually think that's not a good feature of the system.”  

Colyer pointed out that fixed prices prevent consumers and businesses from responding to supply fluctuations, which are a natural feature of renewable energy. “It fails to send a signal about where behavioral change would make sense,” he said, adding that Indonesia’s transition to renewables would accelerate if price signals were allowed to reflect market dynamics.  

Oliver Kerr, Partner at Oliver Wyman, stressed that introducing market-based mechanisms is key to addressing energy supply fluctuations. “We shouldn't be scared of prices being higher at times and lower at other times. This is actually a good feature, and this can encourage the right investment and the right behavior,” he said.  

Kerr emphasised that Indonesia should adopt a combination of strategies that have proven effective in other markets, including grid interconnection, large-scale battery storage, and demand response systems. “If we've got more energy than we need, and it's very cheap right now, how can we send that to other provinces or even other countries who need it more?” he explained.  

Indonesia’s unique geographic challenges also play a role in its energy transition. Colyer argued that the country's centralised energy model is not well-suited to its archipelagic structure.

“With a more decentralised, distributed energy system, you don't need to spend quite as much on infrastructure,” Colyer said.