Indonesia’s Green Industrialisation Plans Have a Brown Problem

Despite emission targets, climate commitments and a strong increase in renewable generation, Indonesia is still seeing rising carbon emissions. This is due largely to new “green” industries co‑existing with a surge in off‑grid coal use. Coal-fired plants are being built to power the nickel processing activities to make “green” batteries. This comes at a time when the quantum of renewable energy generation has grown and surpassed government targets. This, however, has become a double-edged sword: the rise in green electricity is coupled to brown industrial energy, which remains at high levels. Indonesia needs a mid‑course correction to plan and regulate industrial investment. It also needs finance to co-locate with and draw on clean energy rather than captive coal.

Renewable energy sources constituted 17.9 per cent of the country’s power generation in April 2026, surpassing the government’s full-year target of 16.4 per cent. This represents a marked improvement from 14.7 per cent in 2024 and 15.8 per cent in 2025. However, Indonesia’s power generation remains highly dependent on coal. The share of coal in the country’s energy mix has been growing between 2014 and 2020, eventually stagnating at around 61 per cent in recent years. Renewable energy sources have mainly displaced oil and gas (Figure 1).

Although the share of coal in power generation has stagnated, there is a significant increase in nickel-driven captive coal power. This refers to coal-fired plants built exclusively to supply electricity for processing nickel ore, which in turn is used to build “green” batteries. The capacity of such plans was estimated to have more than doubled from 2023 to 2025. Crucially, the nickel-processing hubs, which are pivotal to Indonesia’s industrialisation and EV-battery ambitions, are not primarily powered by growing sources of grid-connected renewables. Many of Indonesia’s flagship green industries are being fuelled by captive coal-fired power plants. This includes sectors such as nickel smelting, high-pressure acid leaching (HPAL) processing and stainless‑steel production. By 2025, it was estimated that the addition of captive coal plants under development would triple Indonesia’s 2023 total captive coal capacity to over 31 GW.

The result is a rising trajectory of greenhouse gas emissions despite the uptake of renewables (see Figure 2). In 2024, the manufacturing industry accounted for Indonesia’s largest source of greenhouse gas emissions at 37.6 per cent, followed by electricity and gas supply at 27.8 per cent. While renewable energy has primarily displaced diesel generation and other fossil fuels, coal continues to power the manufacturing sectors and dominate the power generation mix. If this trend continues, the government-touted green transition will have a limited impact on the activities driving Indonesia’s carbon footprint.

To make the energy transition materially impactful, Indonesia needs to redesign its approach so that clean energy and advanced abatement technologies are directly connected to industrial demand centres.

First, future industrial parks and downstream projects should be planned around access to renewable energy. Indonesia has more than 3,000 GW of renewable energy potential, consisting mainly of solar, hydro, geothermal and wind. These sources are scattered all over the archipelago. New industrial parks should be located near sources of renewable energy and connected to transmission networks capable of operating at industrial loads. This would make it easier to power heavy industry with clean electricity from the outset.

There are some concrete examples. For instance, PT Vale utilises three hydroelectric power plants with a total capacity of 365 MW to supply energy to its nickel processing facilities. PT Amman Mineral Nusa Tenggara has integrated solar power plants into its mining site in West Sumbawa. These cases show that industrial plants can tap into renewable energy sources instead of relying on captive coal plants. Current plans to incentivise green transition in industrial parks would help to offset the costs.

Second, existing industrial clusters should be connected to the main power grids, which will include green sources of energy. These clusters should also utilise advanced technologies such as carbon capture and storage (CCS) and carbon capture, utilisation and storage (CCUS). These technologies can play an important role in decarbonising heavy manufacturing and chemical processes, where changing to renewables is a costly and lengthy process. Indonesia should leverage technology and project experience from countries with more mature CCS and CCUS deployment, such as Japan and South Korea. For example, Japan’s Chubu Electric Power, in partnership with BP, is developing a combined Enhanced Gas Recovery (EGR) plant with CCUS value chains in Tangguh, West Papua. It is expected to come onstream by 2028. When operational, it will be the first cross-border carbon hub connecting Japan and Indonesia. These initiatives primarily aim to utilise Indonesia’s depleted oil and gas fields to store carbon emissions, supported by transboundary regulatory frameworks and bilateral crediting agreements.

Third, regulatory and contractual reforms are needed to create practical linkages between renewables and industry. One option would be to enable long‑term corporate power purchase agreements (PPAs) that allow smelters and industrial parks to buy power directly from companies supplying renewable energy. Another option would be to clarify wheeling or power distribution rules so that clean electricity can be transmitted across grids to industrial parks. The exemptions that currently allow new captive coal plants for “national strategic projects” should also be progressively tightened. New captive coal plants should have a decarbonising roadmap and adopt clean coal technology before they are commissioned.

Together, the three options would help move Indonesia away from a position where green energy is built on a brown energy base. They will help to put the country on a roadmap to greener industrialisation.

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