ASEAN Beat | Economy | Southeast Asia

How Indonesia Can Get Ahead in the Artificial Intelligence Race

The country has the abundant land and energy resources needed to power hyperscale data centers. Can it harness them effectively?

Artificial intelligence (AI) is transforming economies around the world, but much of the discussion about it focuses on software, algorithms, computing power, regulation, and talent. While these factors are important, they overlook the one major precondition upon which everything else depends: a reliable supply of electricity.

Every AI application ultimately runs inside an AI data center and requires industrial land, electrical substations, cooling systems, fiber-optic connectivity, backup power, and, depending on the cooling technology employed, significant quantities of water. Without this infrastructure and the energy to power it, even the most advanced AI software, algorithms, and talent cannot be deployed at scale.

For Indonesia, this raises an important strategic question: Does it have the land, infrastructure, and energy needed to become a leading destination for AI investment? The answer will help determine whether Indonesia becomes a regional AI hub or watches investment flow elsewhere.

The Energy Bottleneck in Digital Infrastructure

AI is rapidly becoming as dependent on energy as it is on technology. Training advanced AI models requires vast numbers of specialized processors operating continuously for weeks or months. Even after models have been trained, serving millions of AI queries each day creates a permanent and growing demand for electricity. The newest AI data centers already consume hundreds of megawatts of power, while some planned facilities are expected to consume as much electricity as medium-sized cities.

In this regard, Indonesia possesses several important advantages. It has Southeast Asia’s largest economy, a population approaching 300 million people, a rapidly expanding digital economy, growing cloud adoption, and government policies that recognize AI as a national priority. Unlike Singapore, where land and energy have become increasingly scarce, Indonesia has abundant industrial land, substantial natural gas resources, and one of the world’s largest geothermal resource bases.

The country currently has approximately 580 megawatts of operational AI data center capacity, with more than 1.3 gigawatts of additional capacity announced or under development. Much of this expansion is being driven by growing demand for AI, cloud computing, and digital services, with investment concentrated around Greater Jakarta, West Java, and Batam.

The largest hyperscale data center developers in Indonesia are now negotiating electricity supply years before construction begins. They are seeking dedicated substations, transmission infrastructure, reserved generating capacity, and long-term power purchase agreements. BDx, one of Indonesia’s largest data center developers, recently secured commitments totaling approximately 1.2 gigawatts of electricity for future AI campuses in West Java. This illustrates the scale of electricity that future AI infrastructure will require.

Energy analysts have warned that reserve margins on the Java-Madura-Bali grid could fall below recommended levels by 2027 if sufficient new generating capacity is not brought online. As more data centers are developed, they will require significant amounts of electricity that households and industry could otherwise need. This could create political resistance if data centers are seen as contributing to higher electricity costs or reduced reliability, while making alternative power solutions more attractive.

Harnessing Natural Gas and Geothermal

Here Indonesia possesses another strategic advantage: large natural gas developments and one of the world’s largest undeveloped geothermal resource bases. Instead of viewing these resources solely as sources of electricity for the national grid or LNG exports, they could become the foundation for a new generation of AI infrastructure. While Indonesia is unlikely to manufacture the advanced AI processors used in these facilities, it has the potential to provide the physical infrastructure and energy needed to support them.

Several major gas developments are either under construction or entering expansion phases. These include the Masela LNG project operated by INPEX, the Tangkulo gas development operated by Mubadala Energy, BP’s expansion of the Tangguh LNG project, and ENI’s North and South Hub developments in the Kutei Basin. Together, these projects will substantially increase Indonesia’s future natural gas production and its ability to generate electricity.

Traditionally, natural gas produced in remote locations has been processed primarily into LNG for export. Some gas has also been used to support fertilizer and petrochemical industries, as well as on-site power generation. Instead of allocating a portion of that gas to fertilizer and petrochemical production, it could be used to generate electricity for hyperscale AI data centers located adjacent to LNG facilities.

Natural gas also provides reliable dispatchable power that can operate around the clock while offering lower greenhouse gas emissions, making it well suited to support energy-intensive AI infrastructure. Additionally, using a portion of Indonesia’s natural gas resources to........

© The Diplomat