Indonesia’s coal sector at a crossroads as output set to fall

Indonesia’s coal production reached another record high last year, rising from 775 million tonnes in 2023 to 836 million tonnes in 2024. This also exceeded the government’s target of 710 million tonnes . 

Significant coal expansion in Indonesia is possible due to a more relaxed regulation. The Ministry of Energy and Mineral Resources (MEMR) changed annual coal production approval to a three-year approval. With this regulation, the approved production plan reached above 900 million tonnes for 2024 until 2026, significantly bigger than production targets of 710 million tonnes for 2024 and 739.67 million tonnes for 2025.

Rising demand from both the export and domestic markets largely contributed to the coal production increase in 2024. Coal exports increased by around 36.7 million tonnes, mainly to China, ASEAN and JKT (Japan, South Korea and Taiwan). Coal export to India, however, continued to decline, falling from 109.8 million tonnes in 2022 to 107.8 million tonnes in 2024. 

Domestic demand rose by 34 million tonnes, nearly matching the increase in exports. The growth is mainly driven by electricity generation and metal processing industries, by 12.3 million tonnes and 9.4 million tonnes respectively. This increase in domestic demand was largely attributed to the addition of 432 MW grid-connected coal plants as well as 4.2 GW of captive power plants last year. 

Nevertheless, coal production may decline this year as export demand shifts. Domestic demand is expected to continue growing. However, it is unlikely to fully offset the potential drop in exports.

While coal production reached another peak last year of 836 million tonnes, the statistics for the first half of 2025 show a changing trend. Between January and June 2025, coal production fell by 33 million tonnes or 8.13% year-on-year, driven by both weaker export and domestic markets. 

Export decline is observed in both export volume and value. Coal export volume declined by 9.8%, amounting 26.2 million tonnes. With lower coal prices, export value dropped by 21.8%, equivalent to 4.2 billion USD. Consequently, the reduction in export value is likely affecting state and subnational revenue collections.

Two biggest consumers are cutting imports

China and India, two major coal consumers and producing countries, represent around 60% of Indonesian coal exports. However, both are seeking to reduce reliance on imported coal. In the first half of 2025, Indonesia’s coal exports to these two countries declined by 20% (equivalent to 20.9 million tonnes) and 9.55% (equivalent to 5.7 million tonnes) respectively. 

Export growth was observed in ASEAN, mainly driven by Malaysia and Vietnam, which each recorded an increase of 0.6 million tonnes. Additionally, coal export to Bangladesh also rose by 2.8 million tonnes. Nevertheless, these export increases are not comparable to falling exports to China and India.

Even though coal consumption is still growing, China and India have been very active in maintaining or even increasing domestic coal production. China has increased coal production and achieved another record high last year at 4.76 billion tonnes. 

India is even more aggressive as they are aiming to raise its coal output to 1.5 billion tonnes by the end of this decade. It has recently achieved 1 billion tonnes production for the first time for the fiscal year 2024 – 2025.

Solar and wind are meeting new demand and displacing coal 

Coal power generation, which contributes 63% of coal demand in China and nearly 75% of coal demand in India, has significantly declined in the first half of 2025. In contrast, solar and wind have grown significantly, meeting new power demand, displacing coal and other fossil-based generation.

China is rapidly expanding solar and wind to meet rising electricity demand. In the first half of 2025, solar and wind installations doubled compared to the previous year. Generation from solar and wind also increased by 27.2%, meeting new demand and partially displacing coal. As a result, fossil generation fell by 2%, with coal output declining by 67.3 TWh.  

A similar trend is also observed in India, where solar and wind deployment increased by 56% in H1 2025, reaching 21.9 GW. During this period, solar and wind generation increased by 26.6% (equivalent to 27.83 TWh), while coal fell by 3.1% (or 21.64 TWh). This indicates that India’s growing electricity demand is also increasingly being met by renewables while at the same time also beginning to displace coal in the power mix.

Domestic coal demand is rising in Indonesia, but growth is narrowly concentrated in the power and metals sectors. The coal demand for the power sector increased from 62 million tonnes in 2013 to 139 million tonnes in 2024, accounting for 56% of domestic demand in 2024. This is largely supported by the 35 GW program announced in 2015, although many projects have faced delays. A total of 3.2 GW of coal-fired power plants (CFPP) are set to commission this year. 

However, the government has pledged to halt the development of new grid-connected coal plants as stipulated in the Presidential Regulation No. 112 / 2022. At the same time, supplying coal for power generation is currently less attractive for coal miners due to unadjusted capped Domestic Market Obligation (DMO) prices at 70 USD per ton.  

The metals sector is now the key driver of industrial coal demand. Since 2021, nickel and other metal processing industries have surged, now making up 31% of domestic consumption, with 4.2 GW of captive coal capacity added in 2024 alone. In contrast, non-metal industries, such as cement, textile, fertiliser as well as pulp and paper, have remained stable, accounting for around 6–9% of total domestic demand. 

Short-term demand is still growing, but long-term alignment is off-track. In 2025, domestic coal demand is projected to increase by 6% or around 14 million tonnes. The increase is mainly driven by higher consumption in the metal processing industry (+7 million tonnes) and the power generation sector (+6 million tonnes). Other industries are projected to remain stable.

This projection is aligned with IEA’s coal mid-year update which projects domestic coal demand to increase by 7%, mainly driven by the power sector and smelting industries. IEA also projected increased demand for coking coal, which is likely to be met with import. Since 2020, Indonesia’s coal imports have more than doubled,  rising from 9 million tonnes to 21 million tonnes in 2024. 

Looking ahead, domestic coal consumption is projected to peak between 2030 and 2040 as stipulated in the recently released National Energy Policy and National Electricity Masterplan. Unfortunately, coal demand trajectory is not aligned with the Paris Agreement set out in the Long-term Strategy. 

With export market contraction and limited domestic demand growth, Indonesia’s coal demand is projected to only reach 756 million tonnes in 2025. Coal export is projected to decline by 46 million tonnes, while domestic demand is projected to rise by 14 million tonnes. 

This is in line with the projection from IEA where production is expected to decline by 10%, reaching 755 Mt. For 2026, IEA projected that Indonesia’s coal demand will further decrease to 721 Mt due to continued inventory pressure and reduced export demand.