Financial Feasibility of Solar Photovoltaic Investments: A Comparative Analysis of Tariff Policies and Local Content Rules

Abstract

This study examines the financial challenges of building large-scale solar power plants in Indonesia. While the country is urgently pushing to transition toward clean energy, strict government limits on the price of electricity make it difficult for private investors to achieve a profitable return. The primary objective of this research is to evaluate whether investing in solar energy is financially viable across different Indonesian regions under current pricing policies. To answer this, we used financial forecasting models (Discounted Cash Flow) to analyze four distinct regions: Java, Sumatra, Maluku, and Papua. We tested how specific obstacles, such as the legal requirement to use expensive locally manufactured materials and the high costs of buying private land can affect project profitability. Our findings reveal a major viability gap: under current price limits, solar projects are not financially sustainable if developers must bear both local material mandates and private land costs. The investments only become profitable when the government assists by providing land or relaxing manufacturing rules. Ultimately, to successfully attract the private investment needed for the energy transition, policymakers must offer fairer, region-specific electricity prices, align local manufacturing rules with market realities, and actively help secure land to reduce investment risks.