International financing for decarbonisation efforts in Indonesia has expanded in recent years. The launch of the country’s Just Energy Transition Partnership (JETP) in 2022 came with pledges worth USD 20 billion, drawn from a group of developed countries. That figure has slowly risen, even as the United States has backed out of JETP funding.
Editor’s note:
This is the third 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 and two here.
But funding directed specifically at transitioning from captive coal power remains limited. Much of the challenge is due to the widespread industrial use of this power option in Indonesia, which entails building off-grid, dedicated power stations fuelled by coal. They represent a major obstacle to decarbonising Indonesia’s energy-intensive industries.
The issue is not simply the availability of funding but also the policies, financing mechanisms and investment opportunities needed to channel capital into viable decarbonisation projects.
Apart from international funding, blended finance has emerged as one potential solution for funding the transition away from captive coal.
Such finance combines public or concessional funding with commercial capital to reduce investment risks, making projects more attractive to private investors. In practice, public funds may provide guarantees, lower-cost loans or other forms of support. This enables private capital to flow into projects that might otherwise be considered too risky or financially unviable.
But according to experts consulted by Dialogue Earth, many obstacles remain in attracting blended finance in Indonesia, due to funding, policy and project challenges.
The large financing gap
To identify the most effective ways of financing Indonesia’s industrial decarbonisation, experts told Dialogue Earth that understanding the scale of the country’s financing gap is a crucial first step.
The captive power sector will require an estimated USD 31 billion in investments between 2025 and 2030 to transition to cleaner sources, notes a 2025 report published by Indonesia’s JETP. Zooming out to 2025-2050, that figure climbs to USD 92 billion.
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, dedicated to South Africa, was announced at the UNFCCC’s COP26 in 2021. Since then, Indonesia, Vietnam and Senegal have also established Just Energy Transition Partnerships.
The nickel industry represents the largest investment requirement, with an average of USD 2.5 billion annually. This accounts for nearly half of total capital spending until the end of the decade.
The aluminium sector is second, requiring more than USD 1 billion per year on average this decade. It accounts for 14% of cumulative investment requirements. Pulp and paper, mining and steel make up the remainder.
However, as of February 2026, JETP’s pledged commitment stood at USD 21.8 billion, with most financing to date focused on the grid power sector. This figure represents an increase of USD 1.8 billion (8%) since the partnership began in 2022.
Indonesia’s JETP did not mention restrictions on captive coal upon its launch. Later roadmaps, such as the 2025 report, have addressed the emissions source but overlooked coal plants that power national strategic projects. Such projects are exempt from the regulatory restrictions that forbid new coal power plants in Indonesia, noted a January 2026 report co-authored by the Centre for Research on Energy and Clean Air, and Global Energy Monitor: “By excluding these plants”, states the report, “the true scale of power demand is underestimated.”
Even with this exclusion, JETP acknowledges its existing commitments will not be sufficient: “As the JETP funds represent only a fraction of the total investment needs, realising the outlook depends on mobilising much greater funding from diverse sources of capital,” it stated in the 2025 report.
To date, there is no publicly disclosed estimate of how much state funding will be allocated to the transition from captive coal. As a result, it remains unclear how much funding will need to come from private investors or other financing mechanisms.
What financing options are available?
Several international institutions are currently supporting Indonesia’s energy transition and industrial decarbonisation. They include the Asian Development Bank (ADB) and International Finance Corporation (IFC), backing projects ranging from renewable energy deployment to agroforestry loans.
Domestic sources of capital are also emerging. One example is Danantara Indonesia, a sovereign wealth fund launched in 2025. It manages state-owned enterprise assets and invests in strategic projects aimed at supporting long-term economic growth.
Danantara has partnered with Indonesia’s state-owned electricity utility, PLN, the Japan Bank for International Cooperation (JBIC), and Chinese battery materials producer GEM, on initiatives related to renewable energy, sustainable infrastructure and industrial development.
While these initiatives are not specifically aimed at retiring captive coal plants, Danantara has described renewable energy as one of its “priority investment sectors”.
On blended finance, Tiza Mafira, director of the non-profit Climate Policy Initiative, has identified several obstacles. These include limited public financing and a shortage of investment-ready projects.
With regards to public financing, she noted that commercially unattractive projects do not receive enough public funding support. Public money, such as grants, is limited.
Mafira shared the example of ADB’s project to support the early retirement of the Cirebon-1 coal power plant in West Java. The project’s blended finance approach, made via ADB’s Energy Transition Mechanism (ETM), is an example of a model that combines concessional and commercial capital to support these early retirements.
As the first transaction under ADB’s ETM, the project was intended to demonstrate a replicable financing model for accelerating coal retirement and mobilising private capital for the energy transition. Under a 2023 framework agreement, the plant was expected to retire almost seven years earlier than its original power purchase agreement. But the government back-pedalled two years later: it argued Cirebon-1’s remaining lifespan was too long, and said retiring older coal plants instead would have more of an impact.
Mafira argued that the Indonesian government must create a more conducive investment climate to encourage similar initiatives.
Barriers remain
One of the main barriers to financing industrial decarbonisation is the technical complexity of transition projects, according to Mafira. Factors such as location, heat requirements and access to renewable energy resources are key considerations for investors.
Mafira said captive coal transition financing may be more straightforward for projects with fewer on-the-ground challenges. She gave the example of textiles, where financing is primarily based on electricity savings when switching to renewable energy. Projects with large areas of unused land are also straightforward candidates for financing, because solar panels can be easily installed.
“They only need to present their business model to the bank, then present their revenue scheme to the bank, and that is it,” Mafira pointed out.
If the government has determined what the industrial decarbonisation roadmap will look like and what incentives will be provided, foreign institutions will be much more confident about investingAdinova Fauri, researcher, Center for Strategic and International Studies
But many mining operations and economic zones are located on islands with limited space that lack the capacity for renewable energy or grid connectivity. Such infrastructure is typically built on Indonesia’s larger islands. “In those cases, the options are more limited. The financing will definitely be more expensive as well because the area is very remote,” she noted.
Ultimately, Mafira added, once the technical aspects of a project are presented clearly, “financing typically follows, as long as investors are confident the project can be executed successfully”.
Adinova Fauri, a researcher at the Center for Strategic and International Studies, said attracting foreign investment ultimately depends on clear policy direction and credible decarbonisation plans.
“Many foreign institutions are interested in financing this transition, but there needs to be legal and policy certainty from the government,” Fauri told Dialogue Earth. “If the government has determined what the industrial decarbonisation roadmap will look like and what incentives will be provided, foreign institutions will be much more confident about investing in this area.”
A 2025 Climate Policy Initiative report identified several barriers to climate investment in Indonesia. These included continued state spending on fossil fuel subsidies and regulatory uncertainty. It also noted the mismatch between the long-term financing needs of decarbonisation projects and the shorter-term funding horizons of many financial institutions.
To address these challenges, the report recommended strengthening Indonesia’s sustainable finance taxonomy, developing a transition finance framework, expanding the use of sustainability-linked loans and carbon finance, and improving climate-related disclosures to increase transparency and investor confidence. But Mafira said no country can yet serve as a direct model for Indonesia when it comes to captive power, due to its “quite specific characteristics, in terms of its industrial climate, national landscape and politics”.
However, she noted that many global institutions are interested in financing Indonesia’s decarbonisation, “as long as the investment climate is made genuinely attractive”.
“There is no shortage of capital,” she said. “The challenge now is to ensure there are enough strong investment vehicles and platforms to absorb it, so that available funding can flow into projects at scale.”
