The “ambitious” 2040 coal phase-out target “seems unlikely to be fully realised within our current forecast period”, says BMI, given Indonesia’s reliance on coal.

Indonesia may have unveiled “ambitious” plans to reach net zero by 2050 and phase out coal-fired power generation by 2040, but realising these plans “remains challenging”, says BMI, a unit of Fitch Solutions. 

The Indonesian government announced on Nov 20 that it will bring forward its plan to phase out coal to 2040 from 2056 previously, and also develop over 75 gigawatts (GW) of renewable energy by then.

Indonesia also unveiled a new US$235 billion ($316.61 billion) scheme to add 100GW of additional capacity, including 75GW of non-carbon-emitting sources. 

Indonesian President Prabowo Subianto told a G20 forum: “We have other sources of renewables and that's why we are very optimistic that we can achieve net zero before 2050… We are also situated along the equator, therefore we have more than plenty of sunlight to fuel solar-based energy.”

The country’s current installed power capacity exceeds 90GW, with more than half coming from coal and less than 15% from renewable sources.

Indonesia’s total carbon emissions and growth rate in million metric tonnes (MMtonnes)

Additionally, UK Prime Minister Keir Starmer and Indonesian President Prabowo Subianto announced on Nov 21 a new partnership around energy transition and climate action. The partnership aims to support Indonesia's net-zero target by 2060 through the Just Energy Transition Partnership (JETP), focusing on carbon finance market development and sustainable infrastructure. 

However, rising consumption in Indonesia, driven by rapid economic growth and industrialisation, means greater demand for energy — coal and natural gas included, according to a Nov 22 note by BMI.

Hence, while the recent announcements provide a framework for future developments, the “ambitious” 2040 coal phase-out target “seems unlikely to be fully realised within our current forecast period”, adds BMI, given Indonesia’s current reliance on coal and slow progress in developing alternative baseload electricity sources. 

Indonesia’s energy consumption by type in exajoules (EJ)

BMI says it will update its forecasts “as more concrete actions are taken”. “Towards the tail-end of the forecast period and beyond, we note that risks to new coal capacity and generation could be to the downside, as the government begins to consider the decarbonisation of its energy sector and coal financing faces strong headwinds globally.”

The Indonesian government’s efforts to secure funding through JETP and other international partnerships will be crucial in determining the pace and success of the energy transition, says BMI.

As of September, Indonesia still has not received the promised US$20 billion from developed nations under the G7’s JETP scheme to retire coal plants early. The market sought lower interest rates for funding these initiatives, but only US$154 million was identified as grant funding.

“In the near term, we expect continued discussions and potential policy adjustments as Indonesia navigates the complexities of transitioning to a more sustainable energy system,” says BMI. 

The commitment to developing 75GW of renewable capacity by 2040, including geothermal, hydropower and nuclear energy, will be a key area to watch, according to BMI. 

In addition, the development of a green smart grid by Perusahaan Listrik Negara (PLN) to enhance energy security and increase wind and solar capacity will be “critical” in supporting renewable energy goals, adds the research firm.

Charts: BMI