Indonesia – Massive potential if obstacles can be overcome

The Indonesian data center market is poised to grow at a compound annual growth rate (CAGR) of 8% to reach US$ 3.79 billion in 2030 from US$ 2.39 billion in 2024, according to ResearchAndMarkets.com’s latest report. The market is driven by hyperscaler demand and growing adoption of the internet, artificial intelligence and cloud services. Being the fourth most populous country in the world – 280 million people – with a fast expanding middle class, demand for data storage and solutions is on an upward trajectory.

With 353.8 million active cellular mobile connections and more than 212 million internet users, the sheer size of this number which is growing rapidly by the day, makes Indonesia a country not to be ignored. Ecommerce platforms like TikTok Shop, Shopee, and Tokopedia are doing a roaring business. The country is projected to have the largest digital economy in Southeast Asia with Gross Merchandise Value estimates reaching upwards of US$ 360 billion by 2030.

Indonesia’s policies such as the National Data Center Strategy and Digital Indonesia Roadmap have played a part in pushing the digitalization of the economy.

As of late 2024, the Bifrost cable system, a trans-Pacific route, connects Indonesia (Jakarta and Manado), Singapore, the Philippines, and the United States, with a total cable length of over 20,000 km. The largest country in Southeast Asia is also connected to 18 international submarine cable system.

Hyperscalers like Google, AWS and Microsoft have already entered the country. Google had launched its cloud region in Jakarta in 2020, and had just unveiled a further cloud expansion; Amazon Web Services (AWS) is expanding its Jakarta region with new availability zones while Microsoft will invest US$ 1.7 billion over four years in new cloud and AI infrastructure.

The data center arm of Telkom Indonesia, NeutraDC currently runs one hyperscale data center in Jakarta and is developing two more, including a new hyperscale facility in Batam, on top of 29 other data centers. Global players such as NTT DATA and Princeton Digital Group, have established many data centers in Indonesia. Meanwhile, Edge computing finds a welcoming home in Indonesia, the world’s largest archipelago, comprising 17,508 islands. Edge data centers are critical for reducing latency in remote islands.

Jakarta has seen massive data centre growth over the past five years with billions poured into the sector. With 35 operational data centers in Greater Jakarta and five hyperscale projects underway in Batam, including the 221 MW Nongsa Digital Park bridging Singapore and Indonesia, the country’s total data center capacity had reached 514 MW by the end of 2023.

Wholesale colocation continues to dominate the colocation market. Growth is driven by increasing wholesale colocation demand from cloud operators and a focus on sustainability through liquid cooling technologies. There are currently 80 colocation data centers spread across the country, with most of them being in Greater Jakarta. Some of the leading operators include DCI Indonesia, NeutraDC, ST Telemedia Global Data Centres, Princeton Digital Group and NTT DATA. Other cities like Batam, Surabaya, Bandung, and Medan also hold promise in particular the island of Batam.

Foreign businesses are lured to invest in the data centre sector due to several attractive incentives offered by the Indonesian government, according to ASEAN Insider. Government policies such as “Making Indonesia 4.0” strategy aims to pivot the economy towards digital technologies.

Among the incentives are:

• Tax holiday of up to 10 years
• Exemption from withholding tax on dividends
• Easier process for repatriating profits
• Foreign ownership restrictions lessened
• Ability for foreign companies to own land for data centre projects
• Low energy prices

Unresolved Challenges

However, the path to regional data center hub status is not as straightforward as say, Malaysia or Thailand. Although Indonesia is blessed with abundant land and population, three obstacles still exist, says James Rix, JLL Head of Data Centres and Industrial, Malaysia & Indonesia. These are utility constraints, lack of talent and widespread red tape.

“In Indonesia, deals and agreements cannot be struck quickly because most businesses are relationship-based rather than transactional.”

He added that the wider international market has not yet embraced Indonesia as a country of choice for provision of services and this, he believes, is attributed to the difference in language and culture. In short, the Indonesian market is still an emerging market which nevertheless continues to grow with new facilities being planned and developed.

Another obstacle not often mentioned is compliance with Indonesia’s Personal Data Protection Law and the expected data sovereignty laws which are currently being discussed. Currently, only eight designated public sectors are required to store their data within the country.

NeutraDC’s CEO Andreuw Th.A.F meanwhile offers a very optimistic outlook, saying: “While Indonesia has traditionally been perceived as a market with regulatory and infrastructure hurdles, the country is witnessing significant and accelerating progress, especially in the data center and digital infrastructure sectors.

“Indonesia’s digital momentum is real and accelerating. We are seeing tangible policy shifts to support data center development, from improved utility access with competitive and predictive power tariffs to tax incentives and regulatory enforcement. These are not just plans; they are already in advanced progress. Rather than being held back by red tape, we’re witnessing alignment between industry and government to unlock growth at scale.”

Energy Dilemma

For a country that has an abundance of renewable energy such as solar, wind, hydropower, geothermal, and even tidal, Indonesia unfortunately still relies heavily on coal which comprises 60% of its energy mix. Solar and wind power combined account for only less than 2 per cent of Indonesia’s power mix.

The country has pledged to stop building new coal-fired power plants, but has nevertheless gone ahead with the construction of those that were already planned. Electricity supply could also be unreliable at times; meanwhile grid connectivity barriers exist for renewable energy projects.

Fortunately, the government allows landowners to build power plants to support their own usage which would benefit data centers greatly.

In November 2024, the world’s third biggest and Southeast Asia’s largest floating solar farm was inaugurated on a 200ha reservoir in West Java, about 130km from Jakarta. Built at a cost of US$ 100 million, the Cirata floating solar farm is expected to generate enough electricity to power 50,000 households and could potentially generate as much as 1,000 MWp which could flow to data centers.

The Indonesian government has said it would attempt to achieve net-zero emissions by 2060 but as of 2024, Indonesia’s renewables penetration is still only around 15 per cent. Clearly, Southeast Asia’s largest economy has been one of the slowest in the region to transition to renewables and this is due to a financing shortfall, as reported by Straits Times.

In conclusion, by resolving gaps in connectivity, talent, and regulation—and leveraging strategic partnerships—Indonesia could leapfrog and push forward its digital transformation agenda successfully while unlocking massive economic value.

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