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PurposeThis study aims to focus on the design of a sustainable business model on the development of a biofuel industry in Indonesia.Design/methodology/approachThe changed status from a net oil exporter to net importer in 2004, the highly subsidized price of fossil fuel, the depleting oil resources and a strong dependency on oil for domestic production are the driving forces for introducing biofuel in Indonesia. The Indonesian government enacted an energy policy in 2006 which aims to partially shift fossil fuel consumption to renewable energy sources including biofuel. The mandatory requirement to use biofuel and the given subsidies will help to make biofuel competitive. However, till now, biofuel still has not achieved the aimed target for several reasons, e.g. higher cost of production relative to fossil fuel, distribution barriers due to geographical constraints, reluctance from industry due to uncertain markets and relative low participation from local government. This paper develops strategic analysis based on the diffusion process of biofuel development.FindingsThe tools applied are a SWOT analysis, Porter 5 Force analysis, and Business Portfolio analysis to understand the position of the biofuel industry.Originality/valueThis study provides an innovative business model to accelerate the integration of biofuel into the Indonesian energy markets and create profitable and sustainable business.

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