Indonesia’s data center market is set for continued expansion, supported by international private capital, cloud adoption, data localization requirements and spillover demand from Singapore, but growing constraints around power, land, water, connectivity and renewable energy could increasingly challenge the country’s ability to sustain its growth, BMI Country Risk and Industry Research said on Thursday.
While Jakarta will remain the dominant data center market, Batam is likely to strengthen its position as a secondary hub for Singapore spillover and localization-driven demand, BMI said Batam is unlikely to match Johor’s hyperscale trajectory due to tighter land availability and less robust connectivity.
The growing competition for electricity is also emerging as a key risk.
According to the research house, international private capital is increasingly dominating Indonesia’s data center pipeline, allowing operators to procure large blocks of electricity and bid aggressively for power-adjacent sites. This is contributing to strain on local grids, rising wholesale electricity prices and severe interconnection queues.
At the same time, Indonesia’s coal-heavy electricity mix could make it increasingly difficult for the country to attract and retain hyper scalers with stringent environmental, social and governance (ESG) requirements.
Coal accounts for approximately 60 percent to 65 percent of Indonesia’s power generation, creating a significant challenge for global technology companies that have committed to net-zero emissions and 100% renewable energy targets.
Microsoft, Google, Amazon and Meta all maintain ambitious renewable energy commitments, making sustained sourcing from coal-heavy grids increasingly difficult to reconcile with their corporate sustainability frameworks.
BMI said ESG-focused institutional investors are similarly applying pressure on data center operators to demonstrate credible and near-term renewable energy transition pathways before committing capital.
Indonesia does possess significant renewable potential, including geothermal resources in Sumatra. However, the transmission infrastructure needed to transport renewable power to key data center markets such as Batam is largely absent.
“Until this transmission gap is closed, or until on-site and near-site renewable solutions are deployed at scale, Batam will face a structural disadvantage in competing for the most ESG-constrained capital allocations,” BMI said.
Jakarta and Cikarang are comparatively better placed because of their stronger grid connectivity, although they remain reliant on the same coal-heavy national electricity mix.
Beyond power, water availability is emerging as another major constraint in Batam, one of Indonesia’s most important secondary data center locations.
Unlike mainland Indonesia, BMI noted Batam has no major rivers or groundwater aquifers, with its freshwater supply entirely dependent on rainfall.
PT Moya, Batam’s water utility, has acknowledged that current supply infrastructure is insufficient to simultaneously meet residential and industrial data centre demand as the market scales.
As data center capacity increases, competition for water could create growing social and political pressure, said BMI.
Community and local government objections to data centers consuming water at the expense of residential users could become a reputational and operational risk for developers, particularly as the industry expands at a faster pace.
One possible mitigation is seawater cooling and desalination, which is viable given Batam’s coastal geography. However, BMI noted that this would require substantial upfront capital investment and introduce additional operating costs and complexity.
Water and land pressures are not unique to Batam. In Greater Jakarta and Cikarang, operators are increasingly weighing the impact of data center development on local communities and water use as available land becomes tighter amid strong demand, according to BMI.
Land availability is another area where Batam faces a disadvantage compared with neighboring Johor, said BMI.
Malaysia’s total data center pipeline, excluding cloud service provider self-builds, is estimated at approximately 5GW, with Johor attracting a large volume of hyperscaler commitments and emerging as one of the most significant data center markets in the Asia-Pacific region.
BMI opined that Batam’s land availability is materially more constrained than Johor’s.
The absence of direct wireline, or non-subsea, fiber connectivity between Batam and Singapore also introduces latency and resilience considerations that do not apply to the Singapore-Johor corridor.
For operators and investors evaluating hyperscale developments, Johor’s combination of scale, land, power infrastructure and physical connectivity to Singapore therefore provides a stronger supply profile.
Batam nevertheless retains an important role because of its proximity to Singapore, said BMI.
To note, Singapore’s data center market is among the most sophisticated and well-capitalized globally but remains structurally constrained by land scarcity, high land costs and power limitations. Data centers are expected to account for more than 10 percent of the city-state’s electricity consumption by 2030.
Batam, located within sub-five-millisecond latency of Singapore and connected through direct fiber routes and access to more than 15 operational and planned submarine cables, is well positioned to absorb part of this overspill demand, said BMI.
Singapore’s tightly rationed approach to new capacity approvals, even following the partial lifting of its data center moratorium, is also expected to support Batam’s role.
BMI said Singapore’s physical constraints are structural rather than policy-driven, meaning new capacity additions will remain limited regardless of demand pressure. This should help preserve Batam’s position as a destination for cost-sensitive and compliance-driven workloads.
However, Batam’s electricity system presents another potential bottleneck.
The island’s electricity supply is separated from Indonesia’s national grid. While this provides some operational flexibility, it also means Batam cannot rely on the national grid as a backstop during periods of supply shortfall.
BMI noted that the NeutraDC Nxera BTM-1 facility already represents a significant share of total available capacity for a single installation, highlighting how quickly individual large-scale facilities can place pressure on a relatively constrained grid.
By contrast, Greater Jakarta benefits from a denser and more established electricity and fiber network, which is a key reason it continues to dominate Indonesia’s data center deployment.
Despite these challenges, regulatory requirements continue to generate a discrete and growing source of demand for Indonesian-based facilities, said BMI.
Government policy mandates that certain categories of data, specifically government and financial data, must be stored on Indonesian-domiciled infrastructure.
For Singaporean companies with Indonesian operations, this creates a mandatory compliance requirement, as data must be routed through Indonesian-based facilities, according to the research house.
Batam, as the closest Indonesian territory to Singapore, therefore provides a natural and relatively low-friction compliance hub. It allows operators to meet Indonesian localization requirements while maintaining near-Singapore latency profiles.
Oracle’s launch of its Indonesia North Cloud Region in Batam in July 2025, hosted at DayOne’s Nongsa campus, is a prominent example of this trend.
The competitive structure of Indonesia’s data center market also presents challenges of its own.
According to BMI, local data center companies accounted for approximately 10 percent of total live capacity as of early 2026 and are increasingly struggling to compete with foreign co-location providers, hyperscale operators and private equity-backed platforms.
Digital Edge, owned by Stonepeak, PDG, owned by Warburg Pincus, DCI, owned by Brookfield Asset Management, and BDx, owned by I Squared Capital, are among the private capital-backed platforms expanding their presence.
Local operators such as Biznet Bali, IDC Indonesia and Omadata Surabaya largely operate smaller-scale facilities for enterprise customers, with co-location capacities typically in the 1-2MW range.
Their fragmented geographic footprints and limited multi-site portfolios reduce their attractiveness for consolidation strategies, suggesting that future market growth will be driven predominantly by international capital rather than domestic consolidation.
More than 60 percent of Indonesia’s data center pipeline is held by operators backed by private capital players, according to BMI.
While this provides the funding required to accelerate infrastructure development, it is also intensifying competition for scarce electricity and suitable sites.
Large funding pools allow private equity-backed platforms to procure significant blocks of power, contributing to grid strain and forcing operators to compete aggressively for power-adjacent locations.
Indonesia’s Special Economic Zone framework has helped offset some of the investment risks, said BMI.
Data center and artificial intelligence (AI) investors operating within these zones can benefit from tax holidays of up to 20 years, value added tax (VAT) and import duty relief, regional tax reductions and 100 percent foreign ownership rights.
Nongsa Digital Park in Batam has emerged as the flagship beneficiary, offering streamlined permitting and greater regulatory certainty for foreign operators and institutional investors.
However, BMI’s outlook suggests that incentives alone will not be sufficient to overcome the infrastructure challenges facing the market.