Jakarta, INTI - Indonesia’s data center industry has an attractive cost advantage, but capacity expansion continues to face challenges related to power availability and lengthy grid connection timelines.

Batam is emerging as one of the regions with the strongest long-term growth potential, although it still requires further infrastructure development to fully capitalize on the opportunity.

In a research report published on September 17, 2026, Mirae Asset Sekuritas analyst Daniel Widjaja maintained a neutral outlook for Indonesia’s data center sector in the medium term, while seeing positive long-term prospects.

According to Daniel, lower construction and electricity costs give Indonesia a competitive advantage. However, these benefits are constrained by the time required to secure reliable power supplies.

Indonesia currently needs around 36 months to connect 100-megawatt (MW) data center projects to the electricity grid, significantly longer than Malaysia’s estimated 12-month timeframe.

This gives Johor an advantage in development speed, despite Malaysia’s higher construction costs. Malaysia’s operational data center capacity has surpassed 1,300 MW, with approximately 3,252 MW in the development pipeline.

By comparison, Indonesia currently has around 394 MW of operational capacity and a pipeline of approximately 1,221 MW.

The challenge extends beyond electricity supply. Daniel also noted that tenant absorption in Jakarta has lagged behind the growth in new capacity.

Jakarta’s vacancy rate of 20.4% means developers need to closely monitor the market’s ability to absorb newly built capacity.

Batam Emerges as a Key Growth Opportunity

Against this backdrop, Batam is emerging as a major growth opportunity.

Its geographic proximity to Singapore, lower land costs, and latency of less than 2 milliseconds to Singapore position Batam as a potential alternative data center hub for hyperscale requirements and artificial intelligence (AI) workloads.

From a cost perspective, Indonesia remains competitive.

Data center construction costs in Indonesia are estimated at approximately USD 8.9 million per MW, compared with USD 9.9 million per MW in Malaysia.

Electricity costs are also lower, at around USD 0.063 per kilowatt-hour, versus approximately USD 0.106 per kilowatt-hour in Malaysia.

These cost advantages support an estimated yield on cost of around 10%–11%.

In a 100 MW project simulation, Daniel estimated that the internal rate of return (IRR) for colocation facilities in Jakarta could reach 16.3% at a rental rate of USD 200 per kilowatt per month, slightly above Kuala Lumpur’s 16.2%.

For hyperscale facilities operating at a rental rate of USD 150 per kilowatt per month, Batam’s estimated IRR stands at 15.1%, compared with 13.4% in Johor.

However, lower costs do not automatically guarantee that new capacity will be absorbed by the market. Daniel said electricity availability and connectivity will be critical in determining how quickly demand can be converted into revenue.

Connectivity Strengthens Batam’s AI Potential

Batam’s connectivity infrastructure is developing faster than its power infrastructure.

Investments committed by Google, Meta, and Microsoft are expected to push Batam’s total submarine cable capacity to more than 1,750 terabits per second (Tbps) by 2029, representing an estimated 407.8% increase.

The expansion in connectivity strengthens Batam’s position to capture growing AI workloads, particularly AI inference. Power availability, however, remains its key weakness.

Indonesia has an estimated 41 terawatt-hours (TWh) electricity generation surplus, but grid reliability and lengthy connection timelines remain challenges.

The PLN Java-Sumatra grid connection, for example, is not expected to become available until 2031.

Solutions such as behind-the-meter generation, solar power, and battery storage could reduce dependence on the main grid, although adoption of these alternatives in Indonesia remains limited.

AI Drives Regional Data Center Demand

Across the region, demand for data center capacity continues to rise alongside the rapid adoption of AI.

Global data center electricity demand is projected to reach approximately 945 TWh, while global capacity is expected to exceed 200 GW by 2030.

Hyperscaler capital expenditure is also projected to reach around USD 1.25 trillion by 2027, supported by an estimated USD 2.5 trillion cloud backlog.

AI workloads are expected to account for approximately 65% of data center computing in 2027, rising to around 71% by 2030. AI inference is also projected to overtake training as the primary source of computing demand.

Asia-Pacific remains one of the world’s most aggressive data center expansion markets.

The region currently has approximately 15.1 GW of operational data center capacity, with another 4.8 GW under construction and 21.7 GW in the pipeline. This means the pipeline is approximately 1.7 times the region’s existing installed capacity.

Tight supply conditions across major regional data center hubs are also creating opportunities for alternative locations.

Johor, for instance, has a vacancy rate of just 0.7%, while Singapore faces restrictions on new development, with only around 25 MW of construction pipeline capacity.

Investment Opportunities Across the Data Center Ecosystem

In Indonesia, Daniel estimates that approximately USD 13 billion in data center development could create opportunities for several publicly listed companies.

DCII, EDGE, ISAT, TLKM, and DSSA have direct exposure to data center operators.

The opportunities also extend to infrastructure companies supporting data center development.

DMAS, for example, has land with committed electricity supply of 993 MVA. TOTL derives approximately 39% of its projects from the data center sector, while POWR could benefit from recurring growth in electricity demand.

On the connectivity side, KETR and MORA have exposure to network development projects with design capacity of up to 400 Tbps.

Ultimately, the growth of Indonesia’s data center industry will not be determined solely by the scale of incoming investment.

The ability to deliver reliable electricity on schedule, expand connectivity, and convert available capacity into tenants will determine how quickly these investments can generate returns.

Conclusion

Indonesia’s data center sector offers strong cost advantages and long-term growth potential, particularly in Batam. However, power availability, grid connection timelines, connectivity, and tenant absorption remain key factors that will determine how quickly the industry can expand and generate returns. 

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