Indonesia phasing out coal by 2040 requires ramping up renewables

Indonesia eyes coal phase out by 2040

By increasing renewables share to 65% in the power mix by 2040, and retiring 3 GW of coal annually, Indonesia may reach the target.

The coal retirement target by 2040 set by President Prabowo at the G20 is laudable. It signals that Southeast Asia’s largest coal consumer will turbocharge renewables production and shift policies in favour of renewables. But without systemic change, particularly in the power sector, Indonesia will not achieve the decarbonisation of its economy. The next step is for Indonesia to assess the renewable energy requirements needed to meet demand growth by 2040. 

The country recently brought forward its target to cut carbon emissions and reach net-zero by 2050 (previously set for 2060). But the historical reliance on fossil power, along with a domestic coal price mandate, has left the state utility company urgently seeking funding to retire coal power plants and finance their replacement with cleaner alternatives such as geothermal, hydro, solar and bio energy.

To meet the target, Indonesia needs to plan a large buildout of renewable energy generation, with solar (combined with battery) being the most feasible technology, while bioenergy is the most expensive.

Indonesia needs to turbocharge renewables ambitions

With electricity demand projected to grow by around 5% annually in the coming years, Indonesia needs clean energy to meet the demands of its industrial and commercial sectors. Expanding solar energy, combined with battery storage to maximise harnessing can present significant opportunities, particularly since the State Electricity Company PLN plans to accommodate more variable renewable energy penetration through smart grid infrastructure and flexible generation.

The Draft Electricity Supply Business Plan (RUPTL) for 2024-2033 projects 22 GW of gas additions and 5 GW of nuclear capacity, indicating alternatives to coal. Additionally, Indonesia’s Just Energy Transition Partnership (JETP) and the CIPP 2023 targets further emphasise the role of renewables, with an increased focus on solar, wind, geothermal, bioenergy and hydro for 2040. These targets mean Indonesia can meet the projected electricity demand of 806 TWh in 2040, if renewable energy share reaches 65%. Solar would account for 20%, wind for 11%, and other renewables—such as nuclear, geothermal, bioenergy and hydro—would make up 34%. The calculation includes a 68 GWh of battery capacity in stationary applications to stabilise solar energy output, based on key parameters including efficiency, capacity utilisation factor for solar plants and hours of storage. 

Retiring 3 GW of coal annually presents opportunities to fully phase it out by 2040

According to the Special Envoy to the COP29, Indonesia aims to add 75 GW of renewables capacity by 2040. Achieving this, alongside a full coal retirement by the same year, would require gas capacity to increase nearly fivefold—from the current 21 GW to 108 GW. However, this would not only be risky but also counterproductive, as investment in gas power is less viable than solar PV in emerging and developing economies. Public revenue investment in gas and expansion of fossil fuel infrastructure would also be inconsistent with a future that demands a shift away from fossil fuels. 

The clear pathway forward is to add 8 GW of renewable capacity each year while reducing coal usage by 3 GW annually for on-grid power systems, aiming for a complete coal phase-out by 2040. Moreover, integrating 4 GWh of battery storage annually until 2040 would enable Indonesia to maximise its solar use, as peak demand occurs during non-solar hours.  This pathway aligns with the renewable energy goals outlined in the JETP CIPP document and the government’s projected additions of 103 GW of power capacity by 2040.

To accelerate this shift, the following key recommendations are proposed:

1. Greater private sector engagement: Strengthening the role of private players in the electricity market could unlock substantial financing for Indonesia’s clean energy transition. Southeast Asian countries like Viet Nam, Malaysia and Thailand have already introduced policies supporting direct power purchases of renewable energy by companies, boosting the competitiveness of renewables against fossil fuels. For Indonesia, private sector involvement can be expanded by regulating clean electricity for captive installations serving industrial clients and implementing policies to address real and perceived project risks, including off-taker risks and uncertainties surrounding electricity sector reform. 
2. Incorporate energy storage to maximise solar use: Implementing storage solutions is essential to enhance solar energy utilisation, address intermittency and ensure a reliable renewable power supply. Currently, the government does not have a specific framework for implementing battery storage, except for its inclusion in the new tariff structure under Presidential Regulation 112, which caps a battery storage charge at 60% of the base tariff. 
3. Provide a comprehensive regulatory framework to select coal power plants that will be early retired: More detailed information on which power plants are to be phased out, under which categories, and when is crucial for a comprehensive plan. Following the government’s announcement to retire 13 coal power plants early, apart from the Cirebon facility, most identified plants have been in operation for 28 to 40 years. These include facilities in Suralaya, Paiton and Ombilin. 
4. Develop economic diversification plans for provinces where coal power plants are located: Create economic diversification strategies for regions dependent on coal-fired power plants, fostering new industries and job opportunities to mitigate the social impacts of the transition. Energy decision-making in these coal dependent provinces should involve active participation from national and local governments, along with community representatives, to ensure a just and inclusive energy transition.
5. Increase grid connectivity for resource sharing: Improve grid infrastructure to facilitate the sharing of renewable resources across regions, optimising energy distribution and enhancing system flexibility.
6. Improve downward coal flexibility: Redesign the contractual obligations between PLN and power producers to enable a faster reduction in coal power plant operations, providing greater flexibility to integrate more renewables. Adjusting the price cap and domestic market obligation for coal power plants will allow budget reallocation to incentivise renewables and increase their competitiveness.
7. Secure financing for coal phase-out: To retire existing power plants early, financial support specifically designed to support this plan should be made available. This requires collaboration between the government, power plant owners, financiers and international actors to develop viable solutions. 
8. Include captive coal in the phase-out plan: Ensure the coal retirement strategy covers captive coal use to enable a broader and more comprehensive transition to clean energy. CREA and GEM estimate that captive coal power capacity would reach 26.2 GW by 2026, accounting for more than half of the total on-grid coal capacity in 2023. 

Phasing out coal by 2040 would position Indonesia to meet the global 1.5C climate target, marking a significant step towards a sustainable and low-carbon future. By embracing this transition, Indonesia not only contributes to global climate goals but also sets the stage for a more resilient and diversified energy system, fostering long-term economic growth and environmental stability.

In addition, deploying more renewables would enable Indonesia to benefit from job opportunities in the renewable energy sector, attract more green investments, and gain access to cheaper, cleaner and more sustainable sources of power.

Supporting materials

Methodology

The generation share and capacity figures for the same period are estimated using linear interpolation between existing generation share and installed capacity values for 2023, along with an annual electricity demand growth of 5% from 2024 to 2040. The details are as follows:

• Gas projection values of 22 GW based on PLN’s Draft RUPTL 2024-2033
• Nuclear projection values of 5 GW by 2040
• Renewable energy and battery target values according to JETP’s 2023 projection for 2040
• New power capacity additions of 103 GW by 2040

Battery capacity for solar projects is calculated using key parameters, such as battery system efficiency (accounting for energy losses during charging and discharging), the capacity utilisation factor (CUF) for solar plants (assumed to be 22% of full capacity utilised daily), and the duration for which the battery can supply electricity at full capacity. The battery capacity in gigawatt-hours (GWh) is derived by multiplying the battery capacity in gigawatts (GW) by the assumed storage duration of 4 hours. 

Renewable energy generation is estimated using capacity factors from the power sector’s technology catalogue.

Acknowledgements

Header photo

A line of wind turbines at the Sidrap Wind Farm site in Sidenreng Rappang, South Sulawesi, Indonesia

Credit: Yermia Riezky Santiago / Alamy Stock Photo