Indonesia’s Grid Modernization Gains Momentum With Proposed Transmission Subholding Model

Indonesia’s energy sector is advancing its grid modernization efforts through a proposed transmission subholding model, according to a recent analysis by the Institute for Energy Economics and Financial Analysis (IEEFA). The framework, outlined in a fact sheet published by the research group, aims to accelerate infrastructure development by separating transmission operations from other energy activities, potentially attracting private investment and improving efficiency.

How Does a Transmission Subholding Work?

A transmission subholding is a corporate structure that isolates grid operations—such as power line maintenance, grid management, and infrastructure development—into a distinct entity. This model, already used in other countries, allows for focused investment and regulatory oversight. According to IEEFA, the approach could address long-standing challenges in Indonesia’s electricity sector, including uneven regional access and aging infrastructure.

“By creating a dedicated transmission entity, Indonesia can streamline decision-making and attract specialized expertise,” said a spokesperson for IEEFA, citing the organization’s analysis. “This could reduce bottlenecks in grid expansion and support the country’s renewable energy goals.”

Why Is This Important for Indonesia’s Energy Transition?

Indonesia, the world’s largest archipelago, faces unique challenges in distributing electricity across its 17,000 islands. Over 10% of its population still lacks reliable access to power, according to the International Energy Agency (IEA). The proposed subholding model is seen as a potential solution to modernize the grid and integrate renewable energy sources like solar and geothermal, which are abundant in the region.

The Indonesian Ministry of Energy and Mineral Resources has acknowledged the need for grid upgrades, stating in a 2023 report that “transmission infrastructure must keep pace with the country’s growing energy demand and decarbonization targets.”

What Are the Potential Benefits and Risks?

The IEEFA report highlights several advantages of the subholding model, including clearer regulatory responsibilities, improved transparency, and the ability to secure financing from both domestic and international investors. However, the success of the approach depends on effective governance and regulatory frameworks to prevent monopolistic practices or inefficiencies.

“The key will be ensuring that the subholding operates independently while aligning with national energy policies,” said Dr. Lina Suryani, an energy economist at the University of Indonesia. “Without strong oversight, there’s a risk of fragmentation or mismanagement.”

How Does This Compare to Other Countries’ Approaches?

Several nations, including the United States and Brazil, have implemented similar transmission subholding structures to enhance grid reliability. In Brazil, for example, the state-run transmission company EPE has been credited with improving infrastructure planning and reducing power outages. However, critics argue that such models require robust regulatory bodies to prevent conflicts of interest.

In Indonesia, the current grid is managed by PT Perusahaan Listrik Negara (PLN), the state-owned electricity company. While PLN has made progress in expanding access, its dual role in generation, distribution, and transmission has drawn criticism for limiting private sector participation. The subholding model could address this by creating a separate entity for transmission, potentially opening the door for private investment.

What’s Next for Indonesia’s Grid Investment?

The IEEFA report calls on the Indonesian government to explore the subholding model as part of its broader energy strategy. A pilot program or regulatory review could be introduced in the coming years, pending approval from policymakers. Meanwhile, energy stakeholders are monitoring developments closely, with some advocating for a phased implementation to test the model’s viability.

As Indonesia aims to achieve 23% renewable energy in its power mix by 2025, grid modernization remains a critical priority. The proposed transmission subholding represents one of several potential pathways to meet this goal, though its success will depend on collaboration between government, industry, and international partners.