Indonesia Faces Funding Gaps in Transition from Coal to Clean Energy

Indonesia’s efforts to shift its energy sector away from heavily relied-upon coal power confront significant financial hurdles. Despite international commitments, including a US$20 billion pledge through the Just Energy Transition Partnership (JETP) launched in 2022, actual funding remains limited and increasingly uncertain, especially after the withdrawal of U.S. support.

The country's reliance on off-grid, coal-powered facilities—known as captive power plants—poses one of the toughest challenges in decarbonisation. These facilities are integral to various industrial sectors but are also substantial sources of carbon emissions. While global financing has expanded for broader clean energy initiatives, dedicated funds for replacing captive coal assets are insufficient.

The scope of financing needed is staggering. Between 2025 and 2030, an estimated US$31 billion will be required just to transition the captive power segment, with total needs reaching US$92 billion through 2050. The nickel industry represents nearly half of this, demanding an annual investment of US$2.5 billion, followed closely by the aluminium sector.

As of early 2026, commitments under the JETP have increased modestly to US$21.8 billion, primarily directed towards grid power development. However, this progress does not yet extend meaningfully to captive coal facilities, largely because their emissions contributions are underreported within strategic projects. This underestimation complicates the mobilization of targeted financing.

International financial institutions such as the Asian Development Bank and the International Finance Corporation are involved in supporting Indonesia’s energy plans, focusing on renewable energy deployment and sustainable infrastructure. Meanwhile, domestic initiatives like the Danantara Indonesia sovereign wealth fund have started to channel private and public capital into strategic sectors but have yet to specifically target coal plant retirement.

Blended finance—combining concessional and commercial investments—remains a promising strategy to bridge the funding gap. Experts emphasize that, beyond the availability of capital, there is a need for robust investment platforms and viable projects to attract private backing. Projects like the ADB’s Energy Transition Mechanism for the early retirement of coal plants exemplify this approach.

Ultimately, Indonesia’s path toward a sustainable energy future depends on mobilizing both international commitments and developing innovative, scalable financing mechanisms. Building a resilient investment environment will be essential to overcoming the systemic challenges in retiring coal assets and deploying cleaner alternatives at scale.