Isolated grids in rural areas powered by independent renewable energy sources (‘renewable energy based village grids’) are widely considered a clean and sustainable solution for Indonesia’s rural electrification challenge. Despite the advantages of renewable energy based village grids, the number of conventional rural electrification solutions – such as costly grid extension (on-grid) or diesel powered village grids (off-grid) which are characterized by high operating costs and high greenhouse gas emissions – is much larger. One reason for the low diffusion of renewable energy based village grids can be attributed to the lack of private sector investments, leaving the responsibility of rural electrification predominantly on the shoulders of the government who often prefer the centralized and conventional solutions. To better understand this situation in this paper we perform a literature review on the economics of renewable energy based village grids in Indonesia, which reveals a gap in terms of cost data. Therefore, we calculate the levelized cost of electricity (LCOE) of solar photovoltaic (solar PV) and micro hydro powered village grids, and compare them to the conventional diesel solution. For solar PV, we additionally investigate different system configurations including a reduced supply contingency and a hybridization approach. Finally, we determine the CO2 emission abatement costs and reduction potentials. Our results show that micro hydro powered village grids are more competitive than diesel powered solutions (at least when taking out Diesel and other subsidies). Solar PV powered solutions increase their competitiveness with the remoteness of the village grid is and when reduced supply contingency is applied. From an environmental perspective, micro hydro powered village grid solutions are found to have negative abatement costs with significant potential to reduce emissions. We conclude by discussing our results addressing the question which measures could support private investments into renewable energy-based village grids.