PnP PowerShell - PnP Provisioning package (pnp) with folders

You could create a extention in your template and use this code:

Snippet

private void CreateFolders(ClientContext context, Web web, List list, Project.Provisioning.Models.ListConfigurationListFolder[] folders)
      {
          foreach (var folder in folders)
          {
              ListItem newItem;
 
              try
              {
                  // Create folder
                  ListItemCreationInformation itemCreateInfo = new ListItemCreationInformation();
 
                  itemCreateInfo.UnderlyingObjectType = FileSystemObjectType.Folder;
                  itemCreateInfo.LeafName = folder.Title;
 
                  newItem = list.AddItem(itemCreateInfo);
                  newItem["Title"] = folder.Title;
                  newItem.Update();
                  context.ExecuteQueryRetry();
              }
              catch (Exception e)
              {
                  TraceHelper.WriteInformationToListener("LogFile", $"Couldn't create folder: {folder.Title}.");
                  continue;
              }
 
              if (folder.ObjectSecurity != null)
              {   // Set item security
                  var securitySettings = folder.ObjectSecurity.BreakRoleInheritance;
 
                  if (securitySettings.RoleAssignment.Length == 0) continue;
 
                  try
                  {
 
                      var groups = context.LoadQuery(context.Web.SiteGroups.Include(g => g.LoginName));
                      var webRoleDefinitions = context.LoadQuery(context.Web.RoleDefinitions);
 
                      context.ExecuteQueryRetry();
 
                      newItem.BreakRoleInheritance(securitySettings.CopyRoleAssignments, securitySettings.ClearSubscopes);
 
                      foreach (var roleAssignment in securitySettings.RoleAssignment)
                      {
                          Principal principal = groups.FirstOrDefault(g => g.LoginName == roleAssignment.Principal);
                          if (principal == null)
                          {
                              principal = context.Web.EnsureUser(roleAssignment.Principal);
                          }
 
                          var roleDefinitionBindingCollection = new RoleDefinitionBindingCollection(context);
 
                          var roleDefinition = webRoleDefinitions.FirstOrDefault(r => r.Name == roleAssignment.RoleDefinition);
 
                          if (roleDefinition != null)
                          {
                              roleDefinitionBindingCollection.Add(roleDefinition);
                          }
                          newItem.RoleAssignments.Add(principal, roleDefinitionBindingCollection);
                      }
                      context.ExecuteQueryRetry();
                  }
                  catch (Exception e)
                  {
                      TraceHelper.WriteInformationToListener("LogFile", "Error occured when setting itemlevel security on folder.");
 
                      continue;
                  }
              }
          }
      }