Indonesia’s commitment to the energy transition and move away from fossil fuels is being undermined by a critical loophole. The quiet surge of captive coal – private, off-grid plants dedicated to powering industrial facilities – threatens not just the country’s environmental targets, but also its market competitiveness.
Editor’s note:
This is the last article in a five-part series on Indonesia’s 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 parts one, two, three and four here.
Much of this captive coal goes towards powering its nickel industry. Indonesia is the world’s top exporter of nickel, and holds almost half of the world’s reserves.
It is this very status that positions Indonesia as a potential leader in transitioning away from coal: “That gives it leverage to set standards rather than follow them,” said Randi Bachtiar, an energy finance specialist at the Institute for Energy Economics and Financial Analysis (IEEFA).
Indonesia could capitalise on green premiums to shape the industrial coal transition, he explained. “Transparent supply-chain MRV [monitoring, reporting and verification] could let Indonesian nickel, aluminium and steel command a premium,” he said.
It could also look into transition credits – a proposed type of carbon credit that monetises emissions avoided through early closures of coal power plants and their replacement by clean energy, he noted. “High-integrity carbon credits tied to switching captive plants from coal could improve early-replacement economics, an approach still in design, but promising.”
While the country has some way to go to reach this stage, experts Dialogue Earth spoke to point to several factors, both global and domestic, that could accelerate the pace.
A conflicting commitment
Between July 2024 and July 2025, Indonesia added 4.5 gigawatts (GW) of operational captive coal capacity, and had nearly 8 GW of announced capacity in the pipeline, according to a report by the Global Energy Monitor (GEM) and the Centre for Research on Energy and Clean Air (CREA) published earlier this year. As of July 2025, Indonesia’s total captive coal capacity was already at 19.3 GW, it noted.
The combined capacity of Indonesia’s prospective, operational and under-construction captive coal projects totalled nearly 31 GW, the report revealed. This figure outnumbers Australia’s current coal fleet (22.8 GW), and nearly ties with Germany’s 2024 coal capacity (32.3 GW).
“New additions of captive coal are found in Central Sulawesi and North Maluku and are all linked to the nickel industry,” the report said, indicating the industry’s heavy reliance on captive coal. This continued dependence presents a paradox for Indonesia’s aim of reaching net-zero emissions by 2060.
A 2022 presidential regulation prohibited new coal power plants with a few exceptions. It excluded coal projects that were already announced in state-owned utility PLN’s 10-year business plan for the 2021-2030 period. Also omitted were national strategic projects that contribute to value-added processing of natural resources such as nickel.
While nickel is touted as a key component of the energy transition due to its use in EV batteries, “not all of [Indonesia’s] nickel actually goes to electrification”, said Katherine Hasan, an analyst at CREA. “A lot of the downstreaming capacity that the country has built is actually for stainless steel.”
A recent CREA report noted that 83% of Indonesia’s 2025 nickel production went to stainless steel, with a mere 17% used for EV batteries.
Competitive liability
Most captive power continues to rely on coal as it is perceived to be the cheapest and most dependable option for operations with limited grid access and high demand for stable electricity, according to the Indonesian Just Energy Transition Partnership (JETP)’s 2025 Progress 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 the International Partners Group (IPG). This group initially comprised 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.
However, this reliance leads to inefficiencies, higher emissions and regulatory challenges. As buyers shift to greener supply chains, it also exposes Indonesian products to market and financing risks, the report noted.
“Nickel’s heavy coal reliance is becoming a competitive liability as battery and EV buyers scrutinise embedded carbon,” said Bachtiar, referring to the emissions generated during the production and transportation of an item before consumer use.
A 2024 report by IEEFA analysed Indonesia’s aims to dominate the global EV battery industry. It pointed out that in the coming year, financial regulators worldwide will “demand emission disclosures from businesses, including those from the inputs to their products”.
The shift to a green supply chain has already been affecting companies, with the IEEFA report citing two instances. In February 2023, global banks including Standard Chartered and DBS reportedly distanced themselves from an aluminium smelter project by Indonesian coal giant Adaro (now called AlamTri), despite having previously lent to the group before. Similarly, in April 2024, South Korean automaker Hyundai ended an aluminium purchase agreement with the company due to pressure from climate justice K-pop fandom group Kpop4Planet.
“Businesses… don’t want to be exposed to [reputational] risks like this,” said Hasan, alluding to how Indonesia could increasingly be ruled out as a nickel supplier due to the externalities surrounding its supply chain.
‘Not everything should be powered by coal’
If Indonesia wants to credibly claim leadership in transitioning away from captive coal, one of the first things it should do is limit domestic coal use, said Dinita Setyawati, senior energy analyst for Asia at energy think-tank Ember.
She added that the government could impose stricter measures when it comes to captive coal, such as setting a quota on the number of captive coal power plants and introducing emissions limits.
Ahmad Ashov Birry, programme director at Indonesian sustainable energy non-profit Trend Asia, highlighted the need to incorporate renewable energy into industrial facilities. Even if there was a need to use coal, the capacity should not be as large as it currently is, whether installed or planned, he said.
“Not everything should be powered by coal. Renewable energy can be in the mix… It still can be a hybrid. There are alternatives,” he told Dialogue Earth.
Finding funding
Indonesia launched JETP in November 2022 with an initial pledge of USD 20 billion in public and private financing to support a just energy transition in the country.
However, by December 2025, only USD 3.1 billion had been mobilised, with another USD 5.5 billion under negotiation for future projects, said Coordinating Minister for Economic Affairs Airlangga Hartarto at a press conference that month. In the 2025 JETP Progress Report, early retirement of coal power plants was moved to a lower priority position than in the 2023 plan, with legal, financial and technical difficulties cited.
Bachtiar noted that the financing architecture for renewables development is in place. “But delivery has lagged [behind] the ambition.”
He highlighted Indonesia’s sovereign wealth fund Danantara in particular as being potentially “genuinely transformative” for Indonesia’s energy transition. This is due to the fund’s scale, with assets reportedly worth around USD 900 billion, and also as it consolidates the state-owned enterprises at the heart of the country’s energy system: PLN for electricity, and Pertamina for oil and gas.
“Danantara is well positioned to channel investment into renewable energy, responding to the growing demand from the industries which face increasing pressure to decarbonise,” he said.
Experts who spoke to Dialogue Earth agreed that for Indonesia to lead the transition away from captive coal, the government should prioritise ending captive coal’s expansion and making way for renewables.
Bachtiar highlighted the 2022 presidential regulation, which also includes measures to expedite the development of renewable energy power plants, as being a key part of this process. The regulation is currently being revised by the government.
He said the regulation’s implementing rules should be finalised so that some of its stipulations can be enforced. One is the requirement for any new developments exempted from the coal plant ban to commit to a minimum 35% reduction of emissions.
Finalising the revisions would also streamline renewables pricing and procurement, he said. The new pricing mechanism includes establishing a floor and ceiling price for renewable energy electricity tariffs, according to CNBC Indonesia. Moreover, the new regulation will serve as a legal framework for pricing various types of renewables, including nuclear and hydrogen, that were previously not specifically addressed, a senior government official told the outlet.
The revisions would also shorten negotiations on renewables projects laid out in the PLN’s 10-year business plan (RUPTL), which he said have been drawn out, leading to project delays. According to the latest RUPTL, the government aims to have over 75% of its new power generation capacity be from renewable sources by 2034.
Indonesia would also need to redesign its renewables financing architecture, Bachtiar said. It can do this by channelling capital from Danantara towards renewables and transmission, and making concessional terms and grants accessible for JETP, which currently leans heavily on commercial-rate loans.
“As the largest JETP recipient, Indonesia is effectively a live test of whether the JETP model works in the Global South, so the lessons it generates, and the standards it sets for green smelting will travel well beyond its borders,” he added.
