November 19, 2025 (IEEFA Asia): Indonesia’s heavy reliance on coal has driven its growth for decades. However, oversupply, aging infrastructure, rising operational costs, and global climate commitments are converging to make coal retirement a strategic necessity, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

Maintaining inefficient coal assets burdens the national utility, PT Perusahaan Listrik Negara (PLN), with high maintenance costs and long-term contracts with Independent Power Producers (IPPs).

Although coal has traditionally been seen as cost-effective, its generation cost has surged from IDR637 per kilowatt-hour (kWh) in 2020 to IDR941/kWh in 2024, marking a 48% increase driven by obsolete infrastructure and rising operational, maintenance, and compliance expenses.

This has occurred despite the government’s policy caps on the price of coal at below-market cost. As a result, government subsidies and compensation to PLN increased by 24%, from USD9 billion in 2023 to USD11 billion in 2024 — 5% of the national budget.

“Indonesia’s Presidential Regulation No. 112/2022 and Ministry of Energy and Mineral Resources (MEMR) Regulation No. 10/2025 lay the legal and strategic foundation for early retirement of coal-fired power plants (CFPPs), yet implementation remains slow,” says Mutya Yustika, the report's author and Research & Engagement Lead, Indonesia Energy Transition for IEEFA Asia.

“Unclear retirement pathways, limited asset data, and complex Power Purchasing Agreements (PPAs) continue to delay the coal phase-out.”

Critical risks if aging CFPPs continue to operate

According to the report, there are three critical risks if PLN continues to operate obsolete CFPPs: escalating operational, maintenance, and fuel costs, persistent payments for unused electricity under PPAs, and expensive refurbishment costs.

Aging plants require frequent repairs and consume fuel less efficiently, driving up operating expenditures. Meanwhile, PLN remains obligated to pay IPPs under long-term take-or-pay agreements, even when electricity from these plants is not dispatched due to oversupply or grid constraints.

Additionally, extending the life of aging CFPPs often requires costly refurbishments, including boiler upgrades, emissions control retrofits, and structural repairs.

The IEEFA report finds that these investments may not be economically justified, particularly when compared to the cost of repurposing sites for renewable energy or retiring them altogether.

Viable business models to shift away from coal

The report examines various business models tailored to Indonesia’s unique asset landscape that could address the financial and operational complexity associated with the acceleration of CFPP retirement.

Rather than extending the life of inefficient and expensive CFPPs through retrofits such as co-firing or carbon capture, the use of asset divestment, public-private partnerships (PPPs), and blended finance structures that align incentives for public and private stakeholders are recommended.

Two models are available for CFPP retirement for PLN-owned assets.

A divestment model combined with strategic incentives offers the state utility a clean exit from coal by transferring assets to private investors. It can unlock private capital and enable strategic project bundling. However, low asset values, limited investor interest without incentives, and political sensitivities remain key challenges.

PLN could also repurpose aging coal assets through PPPs without transferring ownership or providing any significant upfront investment. The state utility can contribute existing grid assets and share risks with private partners.

For IPP-owned CFPPs, two types of blended finance models are explored: a private sector-led model and a multilateral-led model. A private sector-led model, such as the Philippines' ACEN South Luzon Thermal Energy Corporation (SLTEC), is a voluntary retirement initiative driven by a private developer, leveraging internal capital and strategic repositioning.

In a multilateral-led model like Cirebon-1, a coal retirement project is supported by international partners, combining concessional finance and policy reform.

Transition credits can also help bridge the financing gap for early coal retirements by monetizing avoided emissions. However, they require robust monitoring, reporting, and verification.

Danantara's role in coal retirement and clean energy deployment

“Danantara, Indonesia’s newly established sovereign wealth fund, can play a pivotal role in the country’s coal transition strategy, particularly given its oversight of PLN, which is the largest power utility and coal asset holder,” says Yustika.

The report highlights how Danantara could drive PLN portfolio optimization by leading CFPP retirement or repurposing through identifying eligible assets, standardizing retirement pathways, and ensuring that just transition principles, such as workforce reskilling and community support, are embedded in every phase-out plan.

The report also underlines the importance of Danantara’s role as a credible platform for blended finance, risk-sharing, and performance-based investment, which can proactively engage multilateral development banks, climate finance institutions, and global investors.

An opportunity for future-ready energy solutions

Indonesia can use its bold leadership, strategic planning, and inclusive dialogue to transform its coal legacy into a launchpad for a green revolution, securing energy access, promoting economic growth, and enhancing climate resilience.

“There is an opportunity to shift legacy coal assets into platforms for future-ready energy solutions while avoiding capital outlays. It changes the narrative from ‘retirement as a cost’ to ‘retirement as an opportunity’, especially if paired with a clear regulatory framework and government support,” says Yustika.