To reduce carbon emissions by 29% by 2030 and achieve the renewable energy target of 23% by 2025, Indonesia needs to utilize more renewable energy. Although Indonesia is endowed with many renewable energy resources such as hydro, solar, wind and biomass, renewable energy currently only accounts for 14.37% of the total power generation installed capacity (Directorate General of Electricity, 2021). Of these renewable energy sources, Indonesia has a large potential for small hydro power that can be developed, particularly for rural electrification. Around 19,385 MW of small hydro power potential lies across the Indonesian archipelago (ESDM, 2017). However, it has not been harnessed optimally where only 0.6% of the total potential contributes to the overall power plant installed capacity in Indonesia.
Small hydro power has been slowly developed in Indonesia, although it has been reintroduced since the 1990s. Therefore, it is necessary to study the development of small hydro power in Indonesia to gain insights into factors that have influenced the development, barriers, opportunities for broader adoption. This research takes a qualitative approach to analyze niche development using the Strategic Niche Management (SNM) with complementary insights from the Multi-Level Perspective (MLP) and business models. The main research addressed in this thesis: "How has the small hydro power market niche developed in Indonesia, and how did business models facilitate the transition?". A case study research approach is used to gain insights on niche development while studying business models implemented in West Java. The data collection method includes interviews with 12 informants representing different groups of actors in the small hydro power sector and secondary data analysis.
The results show that the small hydro power niche was initially developed through grants from international donors and development agencies. Landscape factors that influenced niche development include low electrification in rural areas, the Asian Financial Crisis 1998 and the climate change issue. Learning process in the niche resulted in several local turbine manufacturers, improve local people capability and network of actors.
Niche actors have implemented business models to overcome adoption barriers of small hydro power in Indonesia. The cooperative business model has emerged to overcome social barriers and build the capacity of the local community. Niche actors created the PPP business model to support grant schemes through a partnership with the private firm. Furthermore, the IPP business model has emerged as incremental improvement in the regime sociotechnical dimension that facilitates niche development. A more significant contribution of the small hydro power plant in the electricity sector is expected in the future. This thesis shows that the Indonesian policymakers need to use shielding concepts from the SNM framework to formulate policies and regulations that support niche development.