Transforming Indonesia's coal dependence into clean energy growth - Institute for Energy Economics and Financial Analysis (IEEFA)
Published April 12, 2026
Transforming Indonesia's Coal Dependence into Clean Energy Growth
The Institute for Energy Economics and Financial Analysis (IEEFA) has released a report highlighting the pivotal shift Indonesia is experiencing as it transitions from a reliance on coal to a focus on clean energy sources. This transformation is critical not only for Indonesia's energy landscape but also for its commitment to reducing greenhouse gas emissions and fostering sustainable economic growth.
Indonesia, the world's largest exporter of thermal coal, has long depended on coal as a primary energy source. The country generated approximately 60% of its electricity from coal in 2021, a figure that underscores its heavy reliance on fossil fuels. However, the increasing global pressure to address climate change and the rising costs associated with coal production are prompting a significant reevaluation of this energy model.
Current Energy Landscape in Indonesia
As of 2021, Indonesia's energy mix was heavily skewed towards coal, with the fossil fuel accounting for a substantial portion of the country's electricity generation. The government has recognized the urgent need to diversify its energy sources, especially in light of international commitments to reduce carbon emissions. The country's National Energy Policy aims to achieve a target of 23% renewable energy in the national energy mix by 2025.
Despite these ambitious goals, challenges remain. The coal industry has historically been a significant contributor to Indonesia's economy, providing jobs and generating revenue. In 2020, the coal sector contributed approximately $7 billion to the national budget. This economic dependency complicates the transition to renewable energy, as stakeholders must balance economic interests with environmental imperatives.
Renewable Energy Potential
Indonesia is endowed with abundant renewable energy resources, particularly solar, wind, and geothermal energy. The country has an estimated potential of 3.2 gigawatts (GW) of geothermal energy, making it the second-largest geothermal producer in the world. Additionally, Indonesia's tropical climate provides ideal conditions for solar energy production, with a potential capacity of around 207 GW. Wind energy also presents a viable option, particularly in regions such as Sulawesi and Nusa Tenggara.
To harness these resources effectively, the Indonesian government has implemented various policies and incentives aimed at promoting renewable energy investments. The introduction of feed-in tariffs and power purchase agreements has encouraged private sector participation in the renewable energy market. These initiatives are crucial for attracting the necessary capital to develop renewable energy projects and reduce reliance on coal.
International Support and Collaboration
International partnerships play a vital role in Indonesia's clean energy transition. The country has engaged with various global organizations and countries to secure funding and technical assistance for renewable energy projects. Notably, the Just Energy Transition Partnership (JETP) was established to facilitate Indonesia's transition away from coal while ensuring a just and equitable shift for affected communities.
In addition to financial support, international collaboration provides Indonesia with access to advanced technologies and best practices in renewable energy development. This exchange of knowledge is essential for building local capacity and ensuring the long-term sustainability of renewable energy initiatives.
Policy Framework and Regulatory Environment
The Indonesian government has taken significant steps to create a conducive policy environment for renewable energy development. The enactment of the Renewable Energy Law in 2014 marked a critical milestone in the country's energy transition. This legislation established a legal framework for renewable energy investments and aimed to streamline regulatory processes.
Furthermore, the government has set specific targets for renewable energy generation, including a commitment to generate 23% of its electricity from renewable sources by 2025 and 31% by 2030. These targets align with Indonesia's Nationally Determined Contributions (NDCs) under the Paris Agreement, which outline the country's commitment to reducing greenhouse gas emissions by 29% by 2030, with an unconditional target of 41% reduction with international assistance.
Challenges to Overcome
Despite the progress made, several challenges hinder Indonesia's transition to clean energy. The entrenched interests of the coal industry pose significant obstacles, as many stakeholders are resistant to change. Additionally, the lack of infrastructure for renewable energy projects, such as grid connectivity and energy storage solutions, complicates the deployment of renewable technologies.
Moreover, the financing of renewable energy projects remains a critical barrier. While international funding is available, securing investments for large-scale renewable projects can be challenging due to perceived risks and uncertainties in the regulatory environment. The government must continue to enhance its policies and create a stable investment climate to attract both domestic and foreign investors.
The Role of Local Communities
Local communities play a crucial role in the success of Indonesia's clean energy transition. Engaging communities in the planning and implementation of renewable energy projects ensures that their needs and concerns are addressed. This participatory approach fosters local ownership and acceptance of renewable energy initiatives, which is essential for their long-term viability.
Furthermore, empowering local communities through education and training programs can enhance their capacity to participate in the renewable energy sector. By equipping individuals with the necessary skills, Indonesia can create a workforce that is prepared for the jobs of the future in the clean energy economy.
Conclusion
Indonesia's journey from coal dependence to clean energy growth presents both challenges and opportunities. The nation's abundant renewable energy resources, coupled with supportive policies and international collaboration, position Indonesia to make significant strides in its energy transition. However, overcoming the challenges associated with entrenched interests, financing, and community engagement will be essential for realizing a sustainable and equitable energy future.
As Indonesia continues to navigate this transformation, the commitment to renewable energy will not only contribute to global climate goals but also pave the way for sustainable economic development and energy security for future generations.