To Phase Out Coal by 2040, Indonesia Should Address Captive Coal and Scale Up Renewables

In 2021, Indonesia pledged to stop building new coal power plants after 2023. However, this year, the government continued proposing new projects and has substantially expanded the country’s captive coal fleet. While Indonesia has a long way to go in weaning itself off fossil fuel dependence, the new leadership pledged to accelerate the economy’s decarbonisation and clean energy transition. 

“As the world’s fifth biggest coal power generator, Indonesia’s promise to phase out coal by 2040 marks a significant turning point. Delivering on this promise will demand a rapid expansion of renewables and just transition policies,“ says Rini Sucahyo, Asia communications manager at Ember. “It is a daunting challenge but an opportunity for Indonesia to steer its economy towards sustainability and potentially redefine global coal use.”

CREA and GEM: Captive Coal Power Expansion in Indonesia Shows No Signs of Slowing Down

In November, the Centre for Research on Energy and Clean Air (CREA) and Global Energy Monitor (GEM) published their second annual review of the captive coal situation in Indonesia.

The previous edition of the analysis, covered in detail on Energy Tracker Asia, concluded that nearly 25% of operating coal capacity in Indonesia was for captive use – power generated by plants operated and utilised off-grid by the industry. The authors estimated that captive coal power capacity increased eightfold over the past decade to 10.8 GW in 2023, with another 14.4 GW proposed or under construction. Around 76% of the captive coal plant capacity was used to develop metals for the clean energy transition.

A year after their first annual review, CREA and GEM found that captive coal power in Indonesia shows no signs of slowing down. Between July 2023 and 2024, the country’s coal power generation saw a 15% increase, totalling 7.2 GW. Of this, 4.5 GW was captive coal. 

The analysts see industrial captive coal demand doubling by 2026 to 11.04 GW. New proposals will increase Indonesia’s total captive coal power capacity to 26.2 GW, or nearly the entire coal power capacity of Vietnam.

“Indonesia’s willingness and ability to meet global climate commitments is manifest in the JETP and the recent release of the Second Nationally Determined Contribution (SNDC) draft. However, the efficacy of these actions is being threatened by an ever-expanding coal capacity within our nation’s core industries,” said Katherine Hasan, an analyst at CREA.

The report attributes the growth in captive coal-fired power plants to Indonesia’s booming metal processing industry, with nickel holding the biggest share. According to the researchers, captive coal plants are among the most carbon-intensive routes to meet this demand. Emissions aside, they warn that the current nickel industry’s growth trajectory risks causing 5,000 deaths by 2030 due to increased air pollution from coal-based smelters and associated captive coal-fired power plants.

If captive coal capacity, which has tripled in the past five years, isn’t excluded from the 2040 national coal phase-out target, it risks causing 27,000 additional deaths and USD 20 billion in public health costs.

Renewables as the Better Alternative

CREA and GEM are clear that Indonesia can become a global leader in industrial decarbonisation by capitalising on climate partnerships like the JETP and exploiting its abundant clean energy potential.

Notably, the researchers estimate that a renewables-led scenario offers more significant financial benefits than relying on coal. Cited analysis shows that by 2025, the levelised cost of electricity (LCOE) for solar and storage with preferential financing will be USD 0.01 per kWh cheaper than coal. Over the next decade, the difference will grow to USD 0.03 per kWh.

“Setting a clear and ambitious schedule for early captive coal-fired power plant retirement and renewables integration would not only support the government’s climate targets but also help to attract the clean energy investments Indonesia needs to secure a strategic position in the global RE supply chain,” Hasan said.

Ember: Indonesia’s 2040 Coal Phase-out Target Requires Ramping Up Renewables

At the end of November, President Prabowo Subianto said that Indonesia plans to retire all coal-fired power plants by 2040, advancing an earlier target of 2056. The energy from the decommissioned coal power plants will be replaced by deploying over 75 GW of renewable energy in the next 15 years. As a result, the president expressed optimism that the country can reach net-zero emissions before 2050 – a decade before the current target, 2060.

According to an Ember analysis, to phase out coal power by 2040, Indonesia will have to increase the share of renewables in the power mix to 65%. In addition, it will need to retire 3 GW of coal capacity annually.

The analysts note that solar power and battery storage are the most feasible technologies for achieving Indonesia’s target. At the same time, bioenergy would prove the most expensive.

During the November G20 meeting, President Subianto acknowledged that Indonesia had “more than plenty of sunlight to fuel solar-based energy”.

The Institute for Energy Services Reform estimates Indonesia’s nationwide solar power potential at nearly 6,750 GW. However, as of 2023, solar held a negligible 0.2% (0.57 GW) in the energy mix. According to Ember, for the country to achieve its targets, solar power generation should reach 20% by 2040. Wind power would hold another 11%, while other renewables such as nuclear, geothermal, bioenergy and hydro would make up 34%. 

In addition to reducing coal use by 3 GW annually, achieving a complete coal phase-out by 2040 would require Indonesia to add 8 GW of renewable capacity and 4 GWh of battery storage each year. According to Ember, this pathway also aligns with the renewable energy goals outlined in the JETP CIPP document. Furthermore, the analysts warn that investments in gas in the meantime would be less viable than solar PV.

“Indonesia stands at a tipping point to end coal by 2040. The country has a powerful advantage, including abundant resources for producing battery components for storage capacity. This presents a significant opportunity to integrate solar energy with batteries, facilitating the transition to a green economy,” explains Dr. Dinita Setyawati, ‍senior electricity policy analyst for Southeast Asia at Ember.

The 2040 Target is Possible But Requires Strong Policy Action

According to Ember’s report, crucial for the outlined energy transition process would be measures such as greater private sector engagement, improving grid infrastructure, providing a comprehensive regulatory framework for selecting coal power plants for early retirement and developing economic diversification plans for supporting coal plant-reliant provinces. Last but not least, captive coal power should be included in the phase-out plans – a measure that CREA and GEM also advocate if the country is to ensure a fair and just energy transition.

Furthermore, the two organisations also highlight the importance of addressing coal’s role beyond the power sector. This will also boost Indonesia’s efforts to emerge as a global leader in the clean energy supply chain and decarbonise energy-intensive industries.

If Indonesia manages to phase out coal by 2040, it will position itself on a 1.5°C-aligned trajectory. As a result, the country will not only boost global climate action but also ensure a more resilient and diversified energy system, fostering long-term economic growth based on new job opportunities, green investments and cheaper, cleaner and more secure energy.