Summary of key pathways to reduce power sector emissions in Indonesia
Fossil fuel transition: Indonesia remains highly dependent on coal, both for power generation and as economic activity, with captive coal capacity continuing to expand alongside industrial demand. Hence, reducing reliance on a coal-based economy is critical to create a level playing field for clean energy while avoiding long-term carbon lock-in. Clean energy deployment: Clean energy deployment remains limited in Indonesia, despite the country’s substantial resource potential. Building momentum on new clean energy projects—especially renewables like solar and wind—is essential to rapidly substitute coal-based power, and needs to be enabled by appropriate policies, market design, and financial derisking. Grid expansion and modernization: Grid expansion has lagged behind electricity demand, while renewable resources and major demand centers are geographically mismatched. Integrating variable renewable energy will require proactive expansion and modernization of the grid infrastructure to maintain reliability and meet growing electricity demand sustainably. We prioritize all of the above pathways, given their interdependent and mutually reinforcing role in enabling power sector decarbonization in Indonesia. We think Indonesia’s energy transition should be framed as an economic development opportunity, with power-sector decarbonization serving as a pathway to industrial competitiveness, energy security, and long-term economic growth.
Fossil Fuel Transition As a result of existing political economy challenges, sticky incumbent policies, and new energy demand drivers, coal remains deeply embedded in Indonesia's energy system and continues to expand despite the country's long-term decarbonization ambitions. Coal accounted for about 54 GW of the 100 GW of total electricity generation capacity in Indonesia. Of this 54 GW, roughly 41 GW comprises on-grid coal-fired power plants (CFPPs) operated by PLN, while the remainder consists of off-grid captive CFPPs.13 PLN’s 10-year electricity plan reflects continued investment in grid-connected coal power with about 6 GW additions planned by 2034. More recently, Indonesia has seen rapid expansion in off-grid captive CFPPs with capacity doubling in just the last two years and an additional 20 GW expected to be added by 2031.14 The latest national energy plan reflects this continued reliance on coal with planned capacity expansions until 2034 and growth in coal-related emissions until 2038.15 In the proposed net zero scenario, 26% of the energy mix still consists of coal and gas, with abatement expected from carbon capture and utilization technologies despite their low technology readiness levels.16 As electricity demand grows, coal investments risk locking in fossil fuel dependence and slowing the transition to cleaner sources of generation.
Economic dependence on coal: Indonesia is the largest exporter of thermal coal, with robust infrastructure and a supply chain to support continued mining operations and high domestic coal reserves that are expected to last more than 40 years.17 The coal mining industry contributes to around 4% of Indonesia’s national gross domestic product (GDP) and around 11% of export earnings.18 Additionally, coal mining offers significant royalty revenues and tax support for local and national government budgets.19 Provinces of East Kalimantan, South Sumatra, and South Kalimantan contributed a combined 80% of the national coal output, with coal playing a critical role in regional economic development and employment opportunities.20 As the largest exporter of refined nickel, Indonesia is expecting significant industrial growth due to the boom in global nickel demand.21 In recent years, energy demand from nickel mining and smelting operations has driven rapid and ongoing expansion of captive CFPPs.22 Given the classification of the nickel industry-related projects as projects of national strategic importance, these CFPPs fall outside Indonesia's coal moratoriums.23 Similarly, the government plans to pursue coal downstreaming applications—particularly coal-to-methanol projects—which it has also classified as projects of national strategic importance, extending Indonesia’s reliance on coal beyond the power sector.24 Danantara, Indonesia’s sovereign wealth fund, is directly involved in advancing these projects, creating the risk of coal demand persisting or shifting to new uses even as CFPP capacity declines.25
Policies and regulations: Overall, the Indonesian government disproportionately favors subsidies for fossil fuels over clean energy sources, allocating about 66% of energy subsidies to fossil fuels.26 Historically, several market interventions and incentives—including loan guarantees, tax exemptions, tariff waivers, preferential tax rates, rebates and allowances, price caps, market obligations, and support for research and development—have enabled the expansion of coal mining and power generation activities over the last decade.27 The Domestic Market Obligation (DMO)—which mandates a minimum 25% of the coal output allocation for domestic consumption—and Domestic Price Obligation (DPO)—a cap of $70 per metric ton on the price of domestic coal, well below global market rates—are the most significant market instruments that make CFPPs attractive investments for PLN and independent power producers (IPPs).28 Both of these policies artificially suppress the cost of coal-power generation by lowering procurement costs and offering predictable revenues to CFPPs through assured sales to PLN. Another hindrance to coal retirement or transition to clean energy is the Corruption Eradication Law, which criminalizes activities that cause “state financial or economic losses.” Since PLN’s CFPPs can be classified as state-owned assets, PLN officials risk dismissal or imprisonment for their involvement in renewable energy procurement or early retirement of owned CFPPs.29
Political economy of Indonesia: Indonesia’s political system is characterized by close ties between politicians and domestic businesses. Thus, shifts from coal are complicated by vested interests of political figures in coal businesses, creating institutional impediments to translation of commitments and presidential pledges to policies.30
Interventions: Addressing these multidimensional challenges requires understanding the needs and motivations of stakeholder groups most impacted by coal transition. Proactive, nonconfrontational engagements demonstrating the critical relevance of economic alternatives can help reduce resistance to transition and build buy-in for alternatives to the coal-based economy. Insider advocacy with politicians can help showcase the social and economic costs of coal in the medium-to-long term and implications for Indonesia’s energy security and economic competitiveness.31
Similarly, a window of opportunity is open to engage with coal businesses and support them with transition planning and diversification as they face declining coal demand in key markets, shifting investor preferences, and concentration risks.32 In communities and provinces with high coal dependence, piloting economic diversification opportunities early on can help secure social license for transition. While engagement with key politicians and ministries may help build support to reduce market distortions created by DMO and DPO, additional technoeconomic analysis and evidence-backed narratives will be required to demonstrate the social and economic costs associated with continued reliance on a coal-based economy.
Specifically, we think advocacy should target policies such as DPO to reflect market coal prices, reform the Corruption Eradication Law to remove barriers to early retirement of CFPPs, create legal frameworks for retirement and repurposing of CFPPs, and strengthen the carbon tax and emissions trading scheme, among others. Advocacy to advance the phase-down of CFPPs should be supported by evidence generation around technoeconomic and operational feasibility of repurposing options as well as potential financing mechanisms.33
Clean Energy Deployment Indonesia will need to substantially scale clean electricity generation to meet its rising energy needs while staying on a net-zero trajectory. Based on Indonesia’s National Electricity Plan (RUKN), clean energy capacity must increase from around 13 GW in 2024 to 326 GW by 2060 to stay on a net-zero trajectory, implying a 25-fold expansion over 35 years. More than 50% of this capacity addition needs to come from VRE sources, including solar and wind, which currently stand at less than 1 GW of combined capacity. Among clean energy sources, the theoretical potential of solar is highest, followed by wind, hydropower, geothermal, and ocean energy.34 Despite a significant resource base and the important role of renewables in decarbonizing the power sector, deployment—particularly solar and wind—has remained limited due to policy, regulatory, financial, and infrastructure barriers that reduce the attractiveness of renewable energy relative to fossil-fuel generation.35
Policy and regulatory barriers: Clean energy deployment in Indonesia remains constrained by a range of policy and regulatory barriers that increase project risk and reduce profitability relative to fossil-fuel generation. The impact of DMO and DPO is most significant in weakening the economic case for renewable energy investment.36 At the same time, regulatory frameworks to support development of clean energy projects are either missing or difficult to navigate, leading to complex procurement processes and opaque land acquisition and permitting requirements increasing development costs and delaying project execution. For example, procurement frameworks often lead to uneven risk allocation in power purchase agreements (PPAs), shifting commercial and regulatory risks onto developers, reducing project bankability.37 The absence of power wheeling mechanisms prevents IPPs from directly supplying customers who are willing to pay for clean electricity, constraining both demand growth and investment.38
Despite the existing multi-layered regulatory framework for energy and electricity planning shown in Figure 1 , political and economic considerations often lead to shifts in targets, resulting in conflicting targets across policies and weakening coherence in long-term planning and implementation.39
Figure 1: Indonesia’s regulatory framework for energy and electricity planning[40]
Frequent legislative changes and weak coordination across government institutions and planning processes increase uncertainty for investors. Figure 2 demonstrates the complexity in the electricity planning processes and critical role of alignment across various stakeholder groups to ensure policy coherence. Finally, renewable energy targets are not consistently reflected in power sector investment plans, resulting in mixed signals about Indonesia’s commitment to renewable energy deployment and the long-term direction of the energy transition.41
Figure 2: Key stakeholders involved in Indonesia’s energy and electricity policymaking decisions[42]
Financial barriers: Many financing challenges stem from the policy and regulatory barriers described above, which increase project risk and development costs. While there is growing investor interest in Indonesia's renewable energy sector, fossil-fuel projects continue to attract a larger share of capital.43 Additional factors constraining investments in clean energy include limited familiarity with renewable energy projects among domestic financial institutions, perceived technology and off-taker risks, and an underdeveloped market for renewable energy finance.
Access to financing is particularly challenging for local developers and for non-utility-scale deployment models such as rooftop solar, community solar, and battery energy storage systems.44 These projects often lack the scale, track record, or contractual arrangements needed to secure affordable financing. At the same time, public funding and international climate finance crucial to derisk emerging technologies and business models are insufficient relative to investment needs, limiting the pace of renewable energy deployment.45
Interventions: Creating an enabling environment for clean energy deployment would require policy advocacy centered around the critical role of clean energy to achieve Indonesia’s growth and development aspirations. The economic and developmental case—including co-benefits offered by renewables such as job creation, energy access, improved air quality and associated public health outcomes, and industrial competitiveness—needs to be clearly demonstrated to key decision-makers across ministries. Effective advocacy narratives should build on existing coal phase-down efforts while advancing the case for clean energy as a driver of economic opportunity. Such narratives should draw on rigorous cost-benefit analysis across multiple scenarios, illustrating not only the costs avoided through the clean energy transition, but the broader economic gains unlocked by its deployment. Grounding advocacy in evidence-based analysis would strengthen buy-in for clean energy projects and support informed decision-making.
Specifically, we think advocacy should target policies that enable renewable procurement and deployment through power wheeling, standardized and bankable PPA frameworks, legal frameworks for firm energy sources like geothermal and nuclear, non-utility-scale deployment models, and transparent renewable energy auction mechanisms.
Simultaneously, reducing the risk perception of renewable energy projects is critical to building early momentum despite the existing policy environment. Supporting research and pilot initiatives can help generate evidence around risk profiles and viability of various clean energy deployment and business models, including rooftop solar, community solar, and floating solar, which is valuable for investors and developers exploring clean energy projects. Such efforts would lay the groundwork for rapid scale-up, positioning clean energy for accelerated deployment as policy support continues to expand.
Grid Expansion and Modernization Scaling Indonesia's renewable energy generation will require a parallel and equally ambitious expansion of its transmission and distribution infrastructure. Historically, investments in grid expansion have been insufficient, with growth in transmission infrastructure severely lagging behind electricity demand growth.46 PLN's Electricity Supply Business Plan (RUPTL) seeks to address these challenges through substantial investments in transmission expansion, inter-island interconnections, and development of a national ‘Super Grid’ that connects generation with demand centers.47 With an estimated $24 billion needed in transmission investments over 10 years, neither PLN nor private capital is currently positioned to deliver investment at the required scale.48 Three interlocking challenges make grid infrastructure structurally difficult to finance in Indonesia.
Geographic fragmentation and resource-demand mismatch: Indonesia's power system is highly fragmented, consisting of multiple isolated and weakly interconnected grids spread across its archipelagic geography. Indonesia's strongest renewable resources are concentrated in regions such as Sumatra, Kalimantan, Sulawesi, and eastern Indonesia, while major demand growth is driven by industrial estates, urban centers, and economic zones located elsewhere.49 The mismatch between resource availability and grid connectivity increases the risk perception of renewable energy projects due to greater uncertainty around grid access, curtailment risk, and project economics. Limited inter-island interconnection capacity forces continued reliance on captive power and diesel generation, increasing system costs.
The existing transmission network was largely designed around centralized coal-fired generation serving relatively isolated regional grids.50 The transition toward a power system with higher VRE shares, industrial electrification, battery storage, and potentially regional power trade requires a fundamentally different network architecture, including stronger inter-island connections, greater system flexibility, higher levels of digitalization, and a more integrated national grid. Significant modernization gaps persist as smart-grid infrastructure remains underdeveloped, with limited energy storage, advanced metering, automated fault detection, and real-time load management capabilities. Grid codes and market frameworks designed for firm energy generation are insufficient to integrate renewable energy variability, forecasting, or flexible dispatch.51 Together, these constraints reduce system efficiency and limit the grid's ability to accommodate a more distributed, renewable-intensive power system, creating a high baseline risk perception that compounds the financial and structural barriers described below.
Transmission financing constraints: PLN’s annual investments in recent years fall short of investment requirements based on RUPTL. As a vertically integrated utility, PLN operates across generation, fuel procurement, transmission, distribution, and retail electricity supply. Transmission assets remain embedded within PLN's consolidated balance sheet, which fails to reflect the lower risk profile of transmission investments and prevents investors from evaluating them as a distinct low-risk infrastructure asset class.52 Instead, transmission investments are primarily financed through PLN's corporate balance sheet, including retained earnings, bank lending, multilateral financing, and sovereign-supported borrowing, rather than through dedicated project-finance structures that can access a broader pool of institutional and private capital.53
Moreover, transmission costs are bundled within overall electricity tariffs and PLN's broader cost structure, making cash flows less transparent and difficult to ring-fence. Tariff setting is also influenced by affordability and political considerations, with subsidies and compensation mechanisms frequently used to bridge the gap between regulated tariffs and PLN's underlying costs.54 Together, these factors reduce revenue transparency, complicate risk allocation, and weaken the bankability of transmission assets for private and institutional investors.
PLN's structural constraints: As a state-owned enterprise, PLN is mandated to provide affordable electricity to consumers, limiting revenue from the sale of electricity. Under the DMO, coal producers are obligated to supply coal to PLN at a regulated price, and PLN is obligated to purchase it, ensuring use of relatively cheap domestic coal for power generation. Separately, PLN purchases electricity from IPPs through long-term PPAs, which can lock in coal-based generation for decades. A surplus in the Java-Bali grid has forced PLN to continue to pay IPPs for contracted power under existing long-term contracts despite lower consumption, straining PLN's financials and diminishing capacity to invest in clean energy as well as transmission projects.55 The underutilization of existing CFPP capacity in the region further disincentivizes investments in new clean energy projects.56
Critically, PLN's financial distress is a result of policies, market obligations, and procurement structures that favor coal. These mechanisms drive continued dependence on coal and constrain PLN from investing in the grid, thereby exacerbating challenges to power sector decarbonization within Indonesia's politically constrained energy transition.
Interventions: Indonesia's grid investment challenge is triply constrained by (i) a geographical mismatch between renewable resources and demand centers that makes inter-island transmission expensive and complex, (ii) PLN's deteriorating financial position driven by policies that favor coal procurement limiting its capacity to self-finance grid expansion, and (iii) a financing architecture that makes transmission structurally unattractive to private and institutional capital. We think policy advocacy efforts described in earlier sections, if successful, would ease PLN's financial constraints by reducing coal procurement obligations but will likely be insufficient to unlock the scale of financing needed for grid modernization and building inter-island transmission. Improving the attractiveness of transmission as an asset class is therefore crucial to support in parallel.
We think evidence generation efforts are in early stages of assessing potential financing models like joint ventures, public-private partnerships (PPPs), infrastructure investment trusts (InvITs), collective investment schemes for infrastructure, and ring-fenced transmission subholdings to shift transmission financing from PLN's corporate balance sheet toward project finance structures.57 Continued research and modeling efforts alongside engagement with PLN and relevant ministries will be crucial to build the regulatory and institutional support for adoption of these financing structures.
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13 “As of 2024, the country operates approximately 54 GW of CFPP capacity, making coal the largest source of electricity. PLN manages around 41 GW of this, with 21 GW from its own fleet and 20 GW operated by IPPs under contractual scheme.” IEEFA, 2025 ; Captive CFPPs refers to on-site or localized coal-fired power generation facilities built by a specific industrial or commercial customer—such as a mine, smelter, or manufacturing plant—to meet its own electricity needs instead of buying power from the grid.
14 “The electricity master plan reveals Indonesia's intent to increase its coal capacity by 26.8 GW in seven years. Captive coal is the main driver of this coal expansion, representing over 20 GW of new coal capacity. Consequently, coal generation is expected to surge and reach its peak in 2037, with a 62.7% higher generation than current level.” Ember, 2025
15 “The SNDC draft, submitted to UNFCCC on October 27, 2025, sets Indonesia’s renewable energy mix target of 19%–23% by 2030—falling short of the global benchmark to reach 79% by the same year—and projects the energy sector’s emissions peak by 2035-2038.” IESR, 2026
16 Share of coal and gas in 2026 based on RUKN 2060 Generation Mix (p.22). “In the RUKN 2025-2060, achieving net zero emissions by 2060 is presented as theoretically possible, yet more than half of the 2060 electricity mix still depends on “new energy” (nuclear, hydrogen, and ammonia) along with fossil-fuel plants equipped with carbon capture and storage (CCS) [...] CCS projects worldwide have so far delivered limited results, with no large-scale example proving commercially viable at the scale required for deep decarbonization.” IESR, 2026
17 “As the world’s largest thermal coal exporter, the country has long leaned on the commodity as a cornerstone of its economy. In 2024, it produced a record 836 million tonnes, nearly 18% above the government’s target. [...] The MEMR estimates that Indonesia’s coal reserves will last for about 41 years, indicating at least medium-term supply security.” ESI, 2025
18 “In 2022, the coal sector contributed approximately 3.6% to the national GDP [...] Coal accounted for 11.4% of the total export value of goods in 2022, helping the country to achieve a balanced trade sum between imports and exports in the last decade.” Wuppertal Institute, 2025
19 “The sector contributed more than half, or 50.9%, of total national revenue generated by natural
resources, significantly boosting Dana Bagi Hasil (DBH), the revenue-sharing mechanism
between the central and regional governments. DBH funds shared by the central authorities
with the regions reaching IDR99.4 trillion [$5.3 billion] in 2023, up from IDR68.7 trillion [$3.8 billion] in 2022.” ESI, 2025
20 “In East Kalimantan, Indonesia’s largest coal-producing province, coal mining accounted for 11% of total employment in 2020, and in South Sumatra & North Kalimantan, it contributed 3% & 4%, respectively [...] In East Kalimantan, coal mining represents 30-35% of regional GDP.” ESI, 2025 ; “The three major coal-producing provinces in Indonesia are East Kalimantan, South Sumatra
and South Kalimantan. Their combined output is around 80% of the national production.” Wuppertal Institute, 2025
21 “Home to the world's largest nickel reserves, Indonesia produced nearly two-thirds of global raw nickel (mine production) in 2024, exceeding the combined output of all other producers. [...]At the same time, demand for nickel is expected to grow significantly. Under the International Energy Agency's net-zero scenario, global nickel supply would need to roughly double by 2050, driven mainly by low-carbon technologies such as electric vehicle (EV) batteries.” WRI, 2026
22 “Driven by energy-intensive demand from nickel processing, Indonesia’s captive coal capacity already exceeds 15 GW in 2024. If current trends continue, capacity could more than double to over 32 GW by 2031 — nearly the size of Germany’s coal power fleet.” Ember, 2025 ; “Breaking down the current distribution by industrial sector, the nickel industry remains the primary captive coal user, with 15.4 GW in operation and 2.5 GW in construction.” CREA, 2026
23 “Despite the fact that a coal moratorium has been practically enforced under Presidential Regulation No. 112 Year 2022, Indonesia continues to integrate new coal power generation into the national power systems — both on-grid and off -grid. This has been made possible through specific exemptions for coal projects already included in PLN’s 10-year business plan RUPTL 2025-2034, as well as for captive power plants dedicated to “national strategic projects” that contribute to value-added processing. Furthermore, Indonesia’s National Electricity General Plan, RUKN 2024-2060, outlines the continued expansion of coal capacity by 26.8 GW over the next seven years, driven largely by over 20 GW of industrial captive power projected to peak in 2037 (Ember, 2025).” CREA, 2026
24 “The Indonesian government has designated the project as a National Strategic Project, enabling faster regulatory approvals and smoother implementation while aiming to establish a commercially viable coal conversion business.” ChemAnalyst, 2026
25 “Indonesia seeks to boost coal gasification projects using funding from its newly launched sovereign wealth fund Danantara Indonesia, the country's energy minister said [...] The coal gasification projects are part of the 21 natural resource processing projects worth $40 billion that the government seeks to accelerate.” Reuters, 2025
26 “The government allocates about two-thirds of total subsidies to energy primarily for fossil fuels, which are projected to reach IDR 1,023 trillion [$57 billion] by 2026—accumulated in just five years. These subsidies have placed a growing burden on the national budget and continue to reinforce Indonesia’s dependence on fossil fuels. Without comparable incentives for renewables, scaling up renewable energy will remain challenging in a market that favors fossil fuels.” IESR, 2026
27 Summary of subsidies and support for coal industry in the section “(Socio-)Economic Costs” and “Table 5. Estimates of Subsidies to Coal from 2014 to 2017.” Wuppertal Institute, 2025
28 “To ensure affordable domestic supply, the MEMR mandates producers to allocate 25% of their output to the local market under a DMO policy. The DPO sets maximum regulated prices of USD70 per tonne for domestic electricity generation and USD90/tonne for certain industries.” ESI, 2025 ; Independent Power Producer is a private entity that owns and operates electricity generation facilities under long-term Power Purchase Agreements (PPAs) to sell power to PLN.
29 “As PLN’s CFPP are state-owned, early retirement could incur losses to the state. Thus, respondents claimed that PLN officials who approve the early retirement of a state-owned CFPP could be dismissed or even imprisoned by the Indonesian Supreme Audit Institution or the Corruption Eradication Commission for mishandling state-owned assets.” Rauch, 2024
30 “Since Indonesia became a democracy, business elites have increasingly moved into formal political office, transforming state–business relations from hierarchical patronage to a more fused
configuration of public authority and private capital. [...] Under these conditions, resistance to decarbonization often reflects not external pressure from firms, but the internalization of business interests within state institutions themselves. The alignment between economic elites and political officeholders enables carbon-intensive development strategies to be framed as imperatives of growth, affordability, and energy security, thereby reinforcing regime resistance from within the central state apparatus.” Apriliyanti et al., 2026
31 Quantifying the external costs of coal—including the public health burden from air pollution—can help demonstrate the true economic cost of Indonesia's reliance on coal.
32 “Indonesia’s coal production is forecast to continue its gradual downward trend through 2035, driven by ongoing mine depletion, tightening environmental regulations and structural shift towards renewable energy domestically and across key export markets.” Mining-Technology, 2025 ; “ Many coal producers in Indonesia derive nearly all their revenue from fossil fuels, with limited diversification [...] A large portion of production comes from a single mine. Many of the companies rely on one primary mine for 89-90% of their total output.” ESI, 2025
33 Repurposing options may include battery energy storage systems, thermal energy storage, hydrogen or ammonia production, agrivoltaics, and other uses. The Climate Investment Funds categorizes coal plant repurposing concepts into five broad end uses: electricity generation, energy storage, hydrogen and ammonia production, carbon sinks, and non-energy, non-carbon uses. Climate Investment Funds, 2023
34 “RUKN 2025-2060 establishes comprehensive roadmap targeting 73.6% renewable energy mix (326 GW capacity) by 2060 from total 443 GW generation capacity, supporting Indonesia's Net Zero Emission commitment by 2060 or earlier [...]Technology diversification strategy acknowledges Indonesia's exceptional renewable resource endowment exceeding 3,686 GW theoretical potential spanning solar (3,295 GW), hydropower (95 GW), geothermal (29 GW), bioenergy (33 GW), wind (155 GW), and ocean energy (60 GW).” Supra-International, 2025
35 “The renewable installed capacity has only grown by 854.57 MW annually over the past few years, far below the fossil fuel which has increased by 4.58 GW. This slow growth of renewable plants highlights the need for enhanced regulation, infrastructure, and financial mechanisms to increase the deployment of these RE potentials.” IESR, 2025
36 “Indonesia faces a significant challenge in attracting green investment because its electricity tariffs are relatively cheap, making them some of the lowest in the Asia-Pacific region [...] The generation costs associated with renewable energy projects are typically higher than the subsidised power tariffs established by the government. The low electricity tariffs in Indonesia have impeded PLN and IPPs to invest in renewable energy projects.” Prakoso et al., 2025
37 “PLN’s procurement processes tend to be plagued by poor communication with the market, short bidding timelines, and low-quality documentation. Developers must deal with insufficient documentation, the lack of credibility of tender documents, and the short period between tender announcements and bid submissions, resulting in additional costs, low levels of competition, and ‘speculative bids.’ [...] Currently, RE is not considered a national priority program, i.e., one where the government assists developers to secure land. This is very different from some countries that provide land for RE projects, generating low prices. [...] Developers also encounter complexity when obtaining permits, often involving numerous stakeholders and various regional-level processes. The issues related to land and permits are frequent causes of project delays and increased costs.” Halimatussadiah et al., 2024
38 Power wheeling allows industrial and commercial customers to procure clean energy directly from an independent power producer, bypassing the utility as energy supplier while still utilizing the grid for transmission purposes and paying 'wheeling charges' to the utility.
39 “The revised KEN sets an emissions peak by 2035 and targets clean energy development comprising 70–72% of the energy mix by 2060 [...] This trajectory diverges from the RPJPN, which envisions a 70% renewable share by 2045 as part of the Golden Indonesia 2045 agenda. These inconsistencies stem from shifting policy priorities and institutional constraints, as KEN targets are often revised to align with political and economic considerations.” IESR, 2025
40 Adapted from diagram on p. 62 describing the regulatory framework. IESR, 2025
41 “Renewable energy targets are not always harmonised with power sector investment plans, and coordination across multiple, sometimes overlapping, frameworks remains difficult. Fossil fuel
subsidies further distort market signals, reducing the appeal of renewables for private investors.” GTR, 2026 ; “Indonesia has undergone significant legislative changes in the renewable energy sector. [...] The ongoing alterations to laws and regulations have created uncertainty for prospective investors in the business.” Halimatussadiah et al., 2024
42 Adapted from Figure 19, “Overview of the Energy Market in Indonesia,” in the Climate Investment Funds report, with additional input from the IESR team. CIF, 2023
43 “The renewable energy sector in Indonesia has significant challenges in securing local financing. The nation's financial institutions lack adequate experience and comprehension in precisely assessing renewable energy projects, leading to a sense of heightened risks and a deficit of confidence in the viability of such initiatives.” Prakoso et al., 2025
44 “Banks generally favor large-scale projects that offer greater cost efficiency, as small-scale
projects often entail similar administrative costs but yield lower returns. They also prioritize sponsors with strong credit histories to minimize credit risks.” IESR, 2025 ; “...with local developers generally finding it harder to access competitively priced capital. The disparity is the result of the local industry’s general difficulties in accessing international funding and the lack of experience with local RE project finance.” Halimatussadiah et al., 2024
45 “Private financiers from Indonesia’s four largest commercial banks are showing growing interest in renewable energy projects, with financing rising by 23% in Q1 2025 reaching IDR 36 trillion. However, this figure remains small compared to the mining and quarrying sector, which continues to expand rapidly, reaching IDR 267 trillion by mid-2025. This indicates that extractive industries still dominate Indonesia’s financing landscape. [...] From the financing aspect, international financial support, particularly aid and grants, remains limited. The stagnation of JETP financing, exacerbated by the U.S. withdrawal, has disrupted the flow of international funds. [...] At the national level, government budget allocations for renewables declined compared with the previous year [2024], signaling weak support for clean energy deployment.” IESR, 2026
46 “Between 2020 and 2024, Indonesia’s power infrastructure expanded, but still fell short of meeting rising electricity demand. Transmission and distribution (T&D) lines grew at annual rates of 10.1% and 1.5%, or 6,242 ckm and 17,269 ckm per year, while substation capacity increased by 3.1% for main substations & 2.9% for distribution substations. Electricity consumption rose faster, with CAGRs of 10.3%, 3.4%, and 6.3% at the high-, medium-, and low-voltage levels.” IESR, 2026
47 “..the 2025-2034 RUPTL puts a particular emphasis on plans to develop a "Green Enabling Super Grid." [...] The objective of this initiative is to overcome the mismatch between the potential of NRE - largely concentrated in regions such as Sumatra, Kalimantan, Sulawesi, and Nusa Tenggara - and the centres of demand in Java, Madura and Bali. This Super Grid will be supported by smart grid technologies and flexible generation capabilities, with the goals of enhancing system efficiency, reliability, sustainability, and cross-island interconnectivity.” Ashurst, 2025
48 “Indonesia's Electricity Supply Business Plan (RUPTL) 2025–2034 requires an average annual transmission investment of USD2.4 billion to support large-scale renewable energy deployment, industrial electrification, and inter-island grid integration. Realized investment has averaged only USD1.4 billion annually since 2019.” IEEFA, 2026
49 “Java and Sumatra dominate the transmission network, whereas regions such as Kalimantan, Sulawesi, and eastern Indonesia continue to suffer from inadequate infrastructure. These gaps hinder the optimal integration of renewable energy from resource-rich areas like East Kalimantan and East Nusa Tenggara, which have substantial solar and wind potential but lack sufficient grid connectivity. [...] While demand is concentrated in Java and Bali, the most abundant renewable energy resources are located outside these regions. Industrial parks, mainly located in Sulawesi and Kalimantan, are generating substantial baseload electricity demand in regions with historically limited grid infrastructure.” Tenggara Strategics, 2025
50 “Indonesia’s electricity grid was built around centralised coal-fired power plants on its major islands – a configuration not designed for integrating variable renewable energy (VRE) or
managing power flows across the archipelago’s fragmented grids.” GTR, 2026
51 Based on the section “Five weaknesses define Indonesia’s current power system constraints”. GTR, 2026
52 “Under PLN’s vertically integrated structure, transmission investment competes internally with generation development, fuel procurement, distribution expansion, and several policy-driven obligations. Although transmission is one of the lowest-risk and most economically productive segments of the power system, it is financed through the same corporate balance sheet that absorbs fuel price volatility, foreign-exchange exposure, subsidy timing risk, and long-term power purchase commitments. From a lender or investor’s perspective, this blurs the distinction between fundamentally different risk profiles within the same utility.” IEEFA, 2026
53 “Transmission finance is typically heavily reliant on corporate balance sheets, requiring adherence to specific financial ratios that can constrain funding capacity. This dependence may limit scalability and increase the financial exposure of PLN.” CPI, 2026
54 “Without a fee, transmission costs are currently bundled into overall electricity tariffs, making it harder to isolate these revenue streams to strengthen project viability.” IEA, 2023 ; “A key factor impacting financial returns is a restricted, regulated tariff based on cost recovery that limits the variability of revenue models.” CPI, 2026
55 “The Java-Bali system possesses a diminished capacity for renewable energy relative to other islands, although it fulfills almost 68% of Indonesia's present electricity consumption of 58 GW.” Prakoso et al., 2025 ; “Take-or-pay and guaranteed off-take obligations in power purchase agreements (PPAs) between PLN and IPPs reduce incentives for thermal units to be flexible and affect system efficiency.“ ADB, 2025 ; “Under the ToP, PLN is obligated to pay for electricity produced by IPPs, regardless of whether the power is used. In 2023, the total additional ToP under this condition amounted to Rp 3.9 trillion. This situation places significant financial strain on PLN.” Tenggara Strategics, 2025 ; “This trend [in investments dominated by IPPs for generation projects] is driven in part by PLN's increasing debt burden and obligations under "take or pay" contracts with IPPs, which have constrained its ability to make large capital investments.” CPI, 2025
56 “This surplus stems from outdated electrical regulations that planned power plant projects based on overestimated economic growth projections. The COVID-19 pandemic exacerbated this issue by causing a significant drop in electricity demand.” Tenggara Strategics, 2025
57 Climate Policy Initiative and Institute for Energy Economics and Financial Analysis have done some early work on identifying potential financing models for PLN. CPI, 2026 ; IEEFA, 2026
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