Digital transformation has risen to the top of the agenda as a key driver of economic growth in the post-pandemic era in Indonesia.
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It is estimated there were 215 million internet users in Indonesia in 2023, a huge increase on the 143 million users in 2017, two years before Covid-19 pandemic movement restrictions swept across the archipelago, prompting rapid shifts in consumer behaviour.
As the number of internet users in the country has soared, the value of Indonesia’s digital economy has grown in tandem. The gross domestic value of Indonesia’s digital sector grew to US$82 billion in 2023, three times its value in 2018. Indonesia now accounts for 40 per cent of Southeast Asia’s entire digital economy, according to a report by Google, Temasek, and Bain & Company. It is poised to exceed US$100 billion by 2025.
As the country’s digital sectors continue to expand, demand for data centres has rocketed. Data centres play an integral part in the digital world as they supply a vast range of services, from website hosting to data storage and centralising data management and security. At the same time, they consume a large amount of power and require cooling systems to avoid overheating, since they run 24/7.
Minister of Communications and Information Budi Arie Setiadi has stated that Indonesia’s data centre market growth potential is estimated at up to US$47 billion. Currently, there are 94 commercial data centre operators in Indonesia. They use electricity from state utility company PLN to power their facilities, which have a total capacity of 727.1 megawatts (MW).
More data centre campuses are in the pipeline as major local and international technology companies look to gear themselves up for growth. The government has also unveiled a plan to operate national data centres with a capacity of 40MW by 2026 in four provinces, West Java, Batam, East Kalimantan, and East Nusa Tenggara.
Today, Indonesia ranks second in Southeast Asia for the country with the most data centres, behind Singapore and ahead of Malaysia. Furthermore, the country has set itself on the path to becoming a leading regional data centre hub, according to Minister of State-Owned Enterprises, Erick Thohir.
Energy guzzlers
The army of data centres that has underpinned Indonesia’s digital expansion has led to soaring energy use. The International Energy Agency (IEA) has reported that data centres and transmission networks account for 1 per cent of energy-related greenhouse gas emissions, amounting to 330 metric tonnes of carbon dioxide equivalent in 2020.
Like many other sectors in Indonesia, the data centres industry relies mainly on coal as their primary power supply. PLN, the major energy supplier for data centre operators, sourced 62 per cent of its total energy from coal last year.
As environmental concerns loom over the fast-growing industry, Indonesian policymakers have signalled an intention to rein in the sector’s energy use. In June, the government issued the Government Regulation (PP) No. 33 of 2023, which is intended to boost energy efficiency and energy conservation in the business sector.
The policy will require industry players that consume 5.8 gigawatt-hours (GWh) per year or more, or buildings that cover 2 hectares or more to report the measures they are taking to manage energy to the government. The previous regulation, PP No. 70 of 2009, only required businesses using in excess of 70 GWh per year to report their energy management measures.
While there have yet to be any records of data centres that use up to 5.8 GWh in Indonesia, facilities that cover more than 2 hectares are being developed and planned in some areas, including in West Java and Batam.
Taking a carrot and stick approach, incentives will be awarded to businesses that have successfully implemented adequate energy management processes, and penalties dished out to firms that have not.
However, regulatory action taking by Indonesia to curb the climate footprint of the data centre sector lags its regional peers. Singapore, Southeast Asia’s current data centre hub, is now more selective at accepting industry applicants who wish to set up their facilities in the city-state.
After lifting a moratorium on building new data centres, the Singaporean government issued a new set of criteria that require data centre facilities to have a power usage effectiveness (PUE) of 1.3 or less. PUE is calculated by dividing the total amount of power that enters a data centre by the power used to run the IT equipment within it. The ideal PUE ratio is 1.0, although most data centres in Asia Pacific have a PUE of above 2.0, including those in Indonesia.
In Malaysia, the country’s communications and multimedia regulator has also set the technical specification code for green data centres by setting a minimum PUE measurement at 1.9 and recommends a PUE at 1.6 or less. In 2021, the average data centre PUE in Malaysia stood at 1.57.
In Indonesia, technology players are not yet required to measure or report the PUE of their data centres – a loophole that needs to be closed if progress is to be made to limit the growth of the sector’s carbon footprint.
As demand for more computing power explodes in Indonesia, energy consumption is expected to increase rapidly. As the government prepares to revise PP No. 71 of 2019, a regulation that concerns the country’s electronic network and information systems, pressing environmental concerns must also be taken into account to bring about a sustainable digital ecosystem.
Close scrutiny of energy consumption and efficiency must be a priority for policymakers as Indonesia emerges as a regional digital powerhouse.
Rafi Adis Subarna is a research analyst at KRA Group, a Southeast Asia-based public affairs consultancy.
