The ambition of Indonesia, the world’s top producer of nickel, to dominate nickel and electric vehicle (EV) battery supply chains may seem a pure boon to the clean energy transition. In fact it could undermine global decarbonisation efforts because so much of the country’s industrial facilities still rely on “captive” coal-fired power plants which supply electricity to them directly.
Coal accounts for nearly 20 gigawatts (GW) of Indonesia’s 26 GW of installed captive power as of 2024, according to a Just Energy Transition Partnership report.
These finance agreements support developing countries in transitioning to cleaner energy sources and are primarily shaped to be as equitable as possible.
The funding is provided by a group of countries initially comprised of Canada, Denmark, France, Germany, Italy, Japan, Norway, the Netherlands, the United Kingdom and the US.
The first JETP was announced at COP26 in 2021 and was dedicated to South Africa. Since then, Indonesia, Vietnam and Senegal have also established Just Energy Transition Partnerships.
The largest user of captive power is the nickel sector, with installed capacity reaching 13.9 GW in 2024, followed by the pulp and paper industry (3.2 GW) and industrial estates that supply power and other utilities to multiple factories (2.4 GW).
Editor’s note:
This is the second in a five-part series on Indonesia’s expanding “captive” coal – private, off-grid coal plants that are being built to power industrial operations.
Largely invisible in national energy transition plans, captive coal is justified by the country’s export strategy.
Our series investigates the loopholes that have kept coal expanding, who is benefitting, and what it means for a country caught between climate commitments and industrial ambition.
Read the first part here.
The energy-intensive nature of smelting accounts for nickel’s dominance of captive power use, says Haykal Hubeis, secretary general of the Indonesian Smelter and Refining Enterprises Association (AP3I). Smelting requires continuous high-temperature operations and stable baseload power.
Haykal said that transitioning away from coal remains difficult because many nickel-processing hubs are in remote areas with limited grid connectivity and insufficient renewable energy infrastructure.
“Unfortunately, coal remains the only energy source currently capable of reliably powering the nickel industry from both a technical and cost perspective,” he told Dialogue Earth.
A paradox of decarbonisation
Indonesia issued a presidential regulation in 2022 to accelerate renewable energy development and ban new coal-fired power plants. However, it exempted captive coal plants linked to national strategic projects.
The downstreaming of nickel – that is, the push to process (rather than export) raw nickel into higher-value products, from stainless steel to battery materials – is among the government’s flagship priorities. Environmental experts and advocates say this has created space for continued captive coal development within a policy meant to support the energy transition.
Pathways to decarbonisation
Katherine Hasan, a researcher at the Centre for Research on Energy and Clean Air (CREA), said decarbonising the sector is crucial given how much Indonesia produces and given the metal is a key ingredient for EV batteries and other aspects of the global energy transition.
“This has become a paradox for global decarbonisation efforts because Indonesian nickel still carries a significant carbon footprint,” said Katherine.
Amid these challenges, several companies have begun trying to decarbonise, including Vale Indonesia, a subsidiary of Brazilian mining giant Vale.
In a 2024 analysis by the Institute for Energy Economics and Financial Analysis (IEEFA), Vale recorded the lowest carbon intensity among Indonesia’s four major nickel producers, at 28.7 tonnes of CO2 per tonne of nickel produced.
In its 2021 sustainability report, the company attributed its lower emissions to the use of three hydropower plants for its Sorowako operations in South Sulawesi, which it says are “capable of avoiding CO2 emissions by more than 1 million tons of CO2 equivalent per year compared to coal-fired plants.”
Dwi Cahya Agung Saputra is a researcher at Jakarta-based energy think-tank the Institute for Essential Services Reform (IESR). He explained that this companies like Vale cater to markets with a growing preference for low-carbon products or “green markets”. They have access to capital, suitable technologies and geographic advantages needed to make cleaner power development more feasible, such as enough available land, he added.
Meanwhile, other producers present a more complicated picture. PT Trimegah Bangun Persada Tbk, part of the Harita Group, illustrates how emissions can vary even within the same company.
IEEFA’s analysis shows that its ferronickel production remained highly emissions-intensive, while its battery-material production had a much lower carbon footprint, reflecting different energy requirements.
The contrast shows why analysts say decarbonisation pathways in Indonesia’s nickel sector cannot be treated uniformly across companies, products or technologies.
“There is no one-size-fits-all solution. Indonesia is highly complex, and decarbonisation efforts must be tailored to each company,” Saputra told Dialogue Earth.
In June 2025, the government launched the National Nickel Industry Decarbonization Roadmap. This targets a 81% fall in the sector’s greenhouse gas emissions by 2045. It plans to achieve that mainly by accelerating renewable power deployment, in order to move away from captive coal power. A smaller role is slated for green hydrogen and biomass, and expanded natural gas infrastructure.
The government is also in the process of drafting a broader roadmap for decarbonising nine key industrial sectors – namely cement, fertiliser, metal, paper, textiles, chemicals, automotive, food and beverage, and glass and ceramics.
Regarding the nickel roadmap, Saputra said IESR has identified several gaps. The plan doesn’t recognise the need for a paradigm shift in how renewable energy is integrated into nickel production, he said. For example, choosing suitable locations for smelter development based on renewable energy potential on-site, instead of proximity to mineral deposits.
Furthermore, he said the roadmap does not provide a detailed assessment of regional renewable energy potential or how it could be utilised, making it harder to translate this shift into future smelter planning.
In February, IESR developed a framework to help policymakers design targeted interventions for decarbonisation within the nickel sector and other energy-intensive industries, especially those that use captive power plants.
The report categorises the industries into six archetypes, each requiring a different decarbonisation pathway.
“Pragmatic switchers” are heavy industries with legacy captive fossil plants near the state-owned PLN grid. These can reduce emissions by connecting to grid electricity.
“Industrial estate tenants” are high-energy users within private industrial parks constrained by the park’s grid and rules. These would need to negotiate with estate utilities to build renewable capacity.
“Remote microgrid pioneers” are located in extremely isolated areas with no access to the PLN grid. They would need isolated hybrid systems combining solar and battery storage.
As for “bio-resource integrators” – which generate significant organic waste byproducts – they could convert organic waste into baseload power and thermal energy, reducing fossil-fuel consumption and waste-related emissions.
Dwi said that these proposed pathways would only work if the government creates a supportive regulatory environment and legal framework. He believes this should include: a transparent “toll fee” scheme where companies pay a fee to PLN to transmit renewable electricity to their facilities through the grid; tax incentives and loan guarantees for microgrids in remote areas; and low-interest financing for high-cost renewable energy projects.
In addition, the IESR has launched an interactive map of Indonesia detailing its potential for solar, wind, hydro, biomass, and pumped hydro energy storage. They have estimated total renewable capacity at 7,879 GW, and pumped hydro capacity at 7,309 GWh.
Katherine said numerous think-tanks have already proposed decarbonisation pathways. The the next step now lies with the government, either to adopt these recommendations or establish a more concrete and coherent decarbonisation strategy, she added.
Global pressure grows
Globally, policy instruments such as the European Union’s carbon levy, called its Carbon Border Adjustment Mechanism (CBAM), and Battery Passport would apply stricter environmental standards on nickel products and other industrial products to reduce emissions and improve supply-chain transparency.
If Indonesia is serious about becoming a global EV battery hub, Katherine said, the government needs to act quickly to remain competitive in the global markets.
Based on CREA’s research in 2026, Indonesia’s high emissions intensity is increasingly undermining the competitiveness of its nickel products, especially in western markets. Despite supposedly being driven by the EV transition, only 17% of Indonesia’s nickel production in 2025 entered the EV battery supply chain. While 83% was absorbed by the stainless steel industry as the dominant end-use market for nickel.
Harry Warganegara, executive director of the Indonesian Iron and Steel Industry Association (IISIA), said CBAM should serve as a wake-up call for the industry to accelerate decarbonisation. “Global buyers will increasingly demand emissions data, certifications and proof that steel is produced under stronger environmental standards,” Harry told Dialogue Earth.
Adinova Fauri, a researcher at the Centre for Strategic and International Studies (CSIS), an Indonesian think-tank, said that pressure from CBAM and similar policies has yet to significantly push Indonesian industries toward decarbonisation.
One reason, he said, is that China remains the largest trading partner for many of Indonesia’s energy-intensive sectors, but has not applied the same level of environmental pressure as other major markets.
Adinova told Dialogue Earth that Indonesia cannot afford to be complacent as more countries are likely to adopt similar carbon-related trade measures. “Indonesia must prepare so that when these mechanisms become the new norm, its industries are ready to compete,” he said.
