diff --git a/cloud/scope/powervs_machine.go b/cloud/scope/powervs_machine.go
index fc96bfd89..1c135d199 100644
--- a/cloud/scope/powervs_machine.go
+++ b/cloud/scope/powervs_machine.go
@@ -929,29 +929,45 @@ func (m *PowerVSMachineScope) GetZone() string {
 }
 
 // GetServiceInstanceID returns the service instance id.
-func (m *PowerVSMachineScope) GetServiceInstanceID() string {
+func (m *PowerVSMachineScope) GetServiceInstanceID() (string, error) {
 	if m.IBMPowerVSCluster.Status.ServiceInstance != nil && m.IBMPowerVSCluster.Status.ServiceInstance.ID != nil {
-		return *m.IBMPowerVSCluster.Status.ServiceInstance.ID
+		return *m.IBMPowerVSCluster.Status.ServiceInstance.ID, nil
 	}
 	if m.IBMPowerVSCluster.Spec.ServiceInstanceID != "" {
-		return m.IBMPowerVSCluster.Spec.ServiceInstanceID
+		return m.IBMPowerVSCluster.Spec.ServiceInstanceID, nil
 	}
 	if m.IBMPowerVSCluster.Spec.ServiceInstance != nil && m.IBMPowerVSCluster.Spec.ServiceInstance.ID != nil {
-		return *m.IBMPowerVSCluster.Spec.ServiceInstance.ID
+		return *m.IBMPowerVSCluster.Spec.ServiceInstance.ID, nil
 	}
-	return ""
+	// If we are not able to find service instance id, derive it from name if defined.
+	if m.IBMPowerVSCluster.Spec.ServiceInstance != nil && m.IBMPowerVSCluster.Spec.ServiceInstance.Name == nil {
+		return "", fmt.Errorf("failed to find service instance id as both name and id are not set")
+	}
+	serviceInstance, err := m.ResourceClient.GetServiceInstance("", *m.IBMPowerVSCluster.Spec.ServiceInstance.Name, ptr.To(m.GetZone()))
+	if err != nil {
+		m.Error(err, "failed to get Power VS service instance id", "serviceInstanceName", *m.IBMPowerVSCluster.Spec.ServiceInstance.Name)
+		return "", err
+	}
+	// It's safe to directly dereference GUID as its already done in NewPowerVSMachineScope
+	return *serviceInstance.GUID, nil
 }
 
 // SetProviderID will set the provider id for the machine.
-func (m *PowerVSMachineScope) SetProviderID(id *string) {
+func (m *PowerVSMachineScope) SetProviderID(instanceID string) error {
 	// Based on the ProviderIDFormat version the providerID format will be decided.
-	if options.ProviderIDFormatType(options.ProviderIDFormat) == options.ProviderIDFormatV2 {
-		if id != nil {
-			m.IBMPowerVSMachine.Spec.ProviderID = ptr.To(fmt.Sprintf("ibmpowervs://%s/%s/%s/%s", m.GetRegion(), m.GetZone(), m.GetServiceInstanceID(), *id))
-		}
-	} else {
+	if options.ProviderIDFormatType(options.ProviderIDFormat) == options.ProviderIDFormatV1 {
 		m.IBMPowerVSMachine.Spec.ProviderID = ptr.To(fmt.Sprintf("ibmpowervs://%s/%s", m.Machine.Spec.ClusterName, m.IBMPowerVSMachine.Name))
+		return nil
+	}
+	m.V(3).Info("setting provider id in v2 format")
+
+	serviceInstanceID, err := m.GetServiceInstanceID()
+	if err != nil {
+		m.Error(err, "failed to get service instance ID")
+		return err
 	}
+	m.IBMPowerVSMachine.Spec.ProviderID = ptr.To(fmt.Sprintf("ibmpowervs://%s/%s/%s/%s", m.GetRegion(), m.GetZone(), serviceInstanceID, instanceID))
+	return nil
 }
 
 // GetMachineInternalIP returns the machine's internal IP.
diff --git a/controllers/ibmpowervsmachine_controller.go b/controllers/ibmpowervsmachine_controller.go
index 69ff1e4f0..81d5059af 100644
--- a/controllers/ibmpowervsmachine_controller.go
+++ b/controllers/ibmpowervsmachine_controller.go
@@ -248,7 +248,9 @@ func (r *IBMPowerVSMachineReconciler) reconcileNormal(machineScope *scope.PowerV
 		if err != nil {
 			return ctrl.Result{}, err
 		}
-		machineScope.SetProviderID(instance.PvmInstanceID)
+		if err := machineScope.SetProviderID(*ins.PvmInstanceID); err != nil {
+			return ctrl.Result{}, errors.Wrapf(err, "failed to set provider id")
+		}
 		machineScope.SetInstanceID(instance.PvmInstanceID)
 		machineScope.SetAddresses(instance)
 		machineScope.SetHealth(instance.Health)
diff --git a/controllers/ibmpowervsmachine_controller_test.go b/controllers/ibmpowervsmachine_controller_test.go
index 84cb2fc70..d6d999943 100644
--- a/controllers/ibmpowervsmachine_controller_test.go
+++ b/controllers/ibmpowervsmachine_controller_test.go
@@ -512,6 +512,9 @@ func TestIBMPowerVSMachineReconciler_ReconcileOperations(t *testing.T) {
 						},
 					},
 					Spec: infrav1beta2.IBMPowerVSClusterSpec{
+						ServiceInstance: &infrav1beta2.IBMPowerVSResourceReference{
+							ID: ptr.To("serviceInstanceID"),
+						},
 						VPC: &infrav1beta2.VPCResourceReference{
 							Region: ptr.To("us-south"),
 						},
@@ -606,6 +609,9 @@ func TestIBMPowerVSMachineReconciler_ReconcileOperations(t *testing.T) {
 						},
 					},
 					Spec: infrav1beta2.IBMPowerVSClusterSpec{
+						ServiceInstance: &infrav1beta2.IBMPowerVSResourceReference{
+							ID: ptr.To("serviceInstanceID"),
+						},
 						VPC: &infrav1beta2.VPCResourceReference{
 							Region: ptr.To("us-south"),
 						},
@@ -708,9 +714,15 @@ func TestIBMPowerVSMachineReconciler_ReconcileOperations(t *testing.T) {
 						Ready: true,
 					},
 				},
-				IBMPowerVSClient:  mockpowervs,
-				DHCPIPCacheStore:  cache.NewTTLStore(powervs.CacheKeyFunc, powervs.CacheTTL),
-				IBMPowerVSCluster: &infrav1beta2.IBMPowerVSCluster{},
+				IBMPowerVSClient: mockpowervs,
+				DHCPIPCacheStore: cache.NewTTLStore(powervs.CacheKeyFunc, powervs.CacheTTL),
+				IBMPowerVSCluster: &infrav1beta2.IBMPowerVSCluster{
+					Spec: infrav1beta2.IBMPowerVSClusterSpec{
+						ServiceInstance: &infrav1beta2.IBMPowerVSResourceReference{
+							ID: ptr.To("serviceInstanceID"),
+						},
+					},
+				},
 			}
 
 			instanceReferences := &models.PVMInstances{
@@ -822,6 +834,9 @@ func TestIBMPowerVSMachineReconciler_ReconcileOperations(t *testing.T) {
 					},
 				},
 				Spec: infrav1beta2.IBMPowerVSClusterSpec{
+					ServiceInstance: &infrav1beta2.IBMPowerVSResourceReference{
+						ID: ptr.To("serviceInstanceID"),
+					},
 					LoadBalancers: []infrav1beta2.VPCLoadBalancerSpec{
 						{
 							Name: "capi-test-lb",