Powering sustainable development: foreign renewable energy market entry strategies in Indonesia-an institutional theory perspective

Abstract

Indonesia has become an attractive destination for renewable energy investment due to its abundant renewable resources, rising electricity demand, and commitment to energy transition. Despite this potential, foreign renewable energy investors continue to face substantial institutional, regulatory, and market-related challenges. This study examines the market entry strategies adopted by foreign renewable energy companies in Indonesia, focusing on market-entry motivations, governance structures, and institutional barriers. Drawing on Institutional Theory, Dunning's Eclectic Paradigm (OLI), and the Uppsala Internationalization Model, the study explores how foreign firms navigate Indonesia's state-dominated electricity sector. A qualitative research design was employed using semi-structured interviews with eight industry practitioners representing foreign renewable energy developers and related stakeholders. Data were analyzed using thematic analysis to identify key themes related to investment motivations, entry-mode selection, and institutional challenges. The findings indicate that investment decisions are influenced not only by Indonesia's market potential and renewable resource availability but also by firm-specific capabilities, including financial strength, technical expertise, and institutional adaptability. Greenfield investment emerged as the preferred entry mode, often supported by joint ventures and strategic partnerships that enhance local market access and institutional legitimacy. Major barriers include regulatory uncertainty, procurement inefficiencies, permitting complexity, land acquisition difficulties, and fragmented governance structures, which increase transaction costs, reduce project bankability, and heighten investment risk. The study extends Institutional Theory, the OLI Paradigm, and the Uppsala Internationalization Model by demonstrating that institutional embeddedness functions as an important ownership-related capability in institutionally complex environments. It also shows that hybrid governance arrangements and partnership-based learning can accelerate institutional adaptation. The findings highlight the importance of greater regulatory predictability and stronger inter-agency coordination to improve investor confidence and facilitate foreign renewable energy investment in Indonesia.