9 June 2026
Strategic Opportunities for Indonesia’s Energy Transition Amid Middle East Geopolitical Shifts
Strategic Opportunities for Indonesia’s Energy Transition Amid Middle East Geopolitical Shifts
Farzana Hoque, Senior Advisor
Yusuf Utomo, Senior Associate
Overview
As the Iran conflict and Strait of Hormuz disruption continue to evolve, potentially winding down, Climate Smart Ventures is assessing its impact across key markets with a particular focus on coal-fired power plant (CFPP) transition and industrial decarbonization—their current state, challenges, and our recommendations for a cleaner, more secure and affordable energy future. Indonesia is our first case, where rising fossil fuel prices are compounding fiscal pressures, driven in part by increased energy subsidies to protect consumers from price shocks.
In this article, we highlight four strategic opportunities for coal asset owners and the industrial sector in Indonesia to sustain momentum on the energy transition. We examine why the current geopolitical environment reinforces, not diminishes, the importance of energy transition.
Coal-Fired Power Plant Transition
- Opportunity 1: Integrating a renewable energy pathway or another route to CFPP asset repurposing to retain value
- Opportunity 2: Addressing captive CFPPs – leveraging private ownership to reduce transition complexity
Industrial Decarbonization
- Opportunity 3: Implementing decarbonization for strategic business gains, improving security and cost advantages
- Opportunity 4: Preparing for the shifting regulatory landscape in domestic and global markets
Climate Smart Ventures has supported accelerated CFPP transition and industrial decarbonization efforts across Asia since its founding. As geopolitical and market conditions evolve, we continue to closely track emerging developments and opportunities, while working to support our partners and clients in navigating the transition.
Coal-Fired Power Plant Transition
Indonesia has relied on coal as the backbone of its energy system for more than two decades, with coal use accelerating rapidly since the mid-2000s alongside industrialization and rising electricity demand. Today, coal accounts for roughly 40% of primary energy supply¹ and more than 60% of electricity generation², making Indonesia one of the most coal-dependent power systems in Southeast Asia. See Figure 1.³
Figure 1: Indonesia’s Primary Energy and Electricity Mix
At the same time, the country imports only a minimal share of its coal needs (about 1–3% of production), making it a largely self-sufficient and net exporting coal economy.⁴ In the current geopolitical environment, this could create an incentive to deepen reliance on coal as a source of energy security and economic stability. In the short-term, coal ramp up may realistically be needed. Over dependence and maintaining it for the long-term, however, reinforces long-term structural vulnerabilities – increasing exposure to future trade and regulatory pressures and delaying investment in cleaner and more resilient energy systems.
Since the onset of the Iran war in February 2026, the government has signaled a shift to increase coal output this year and has accelerated approvals to increase production quotas.⁵ Yet the government is also reinforcing its renewables push with a 100GW solar power target within the next three years.⁶
Importantly, the shift toward renewables is increasingly being recognized not only as a climate objective, but also as a strategic energy security imperative. This framing was echoed by the government during the ASEAN Summit in early May 2026, where President Prabowo Subianto emphasized both the urgency of energy security and the region’s vast renewable energy potential. He called on ASEAN countries to better leverage their collective assets, stating:
“The question is whether we are ready to act on that potential; not only to meet our sub-regional needs, but also to contribute to ASEAN’s energy transition.”⁷ – President Prabowo Subianto
In this context, Indonesia’s Electricity Supply Business Plan (RUPTL) 2025–2034, released in June 2025, provides a credible and politically grounded foundation for accelerating implementation and building broader stakeholder support. This plan increases the projected share of renewables (excluding storage) to 74%, with a strong emphasis on solar deployment.⁸
In addition, Indonesia now has a clearer regulatory foundation for coal transition than at any point in its history. Ministry of Energy and Mineral Resources (MEMR) Regulation No. 10/2025, also called the Roadmap for Energy Transition in the Electricity Sector, establishes a legal basis for phased coal retirement.⁹
We highlight two key opportunities that CFPP asset owners (both for utility-scale or captive CFPPs) in Indonesia can leverage to support a sustainable transition away from coal.
Opportunity 1: Integrating a renewable energy pathway or another route to CFPP asset repurposing to retain value
Anchoring a CFPP early retirement in a clearly articulated renewable energy pathway strengthens transition buy-in as it is part of broader system optimization rather than a standalone cost. The CFPP asset could also be transitioned into another productive asset besides renewables. The approach of coal plant repurposing–using the site for anything except coal generation, such as renewable energy, green hydrogen production, battery storage, and other economic uses like data centres, industrial hubs, etc.–will likely be more appealing among key stakeholders.
This also aligns with the MEMR, which includes accelerating renewable energy development as a strategy, in particular “[d]eveloping variable renewable energy sources and additional power plants based on new and renewable energy as alternatives.”¹⁰
- Commercial Viability and Transition Finance: Research has found that transition finance can be more compelling when it is explicitly positioned to enable diversification into cleaner generation at competitive rates, creating near- to mid-term value while supporting system reliability. A CSV report on transition finance for the coal to clean shift found that while CFPPs are still expected to generate significant value in the short-term, the market can also be viewed as rewarding companies that are increasingly diversifying into other generation technologies, specifically, renewables.¹¹ Under these conditions, it can help make accelerated CFPP retirement more commercially viable. Exploring finance from both sides–supporting the coal transition side and the renewable energy side–will still have the same net effect of better value if paired together. As such, framing coal retirement as the final step alongside renewables and storage scale-up can help align decarbonization, energy security, and commercial objectives.
While not covered in this article, we also recognize that other aspects of financing, such as the need to align with state-owned utility mandates and the benefits of including greater domestic financing participation, are also important. - Criteria For Early Retirement: How is it determined when a CFPP should shut down? A number of factors determine which CFPPs are better suited for early retirement and when. MEMR includes the following CFPP criteria to assess and compare: age, utilization, technology support, greenhouse gas emissions, economic value, availability of funding availability, system reliability, impact on electricity tariffs, and just energy transition.
For utility-scale CFPPs, plants older than 20-25 years with low utilization rates tend to present the strongest near-term case for repurposing or renewable energy integration, as their remaining book value is lower and more easily offset by transition finance instruments, while their sites often retain infrastructure value for alternative productive uses such as solar, storage, or industrial hubs.¹² The remaining tenure of a plant’s power purchase agreement (PPA) with PLN is an additional determining factor as plants nearing PPA expiry face lower stranded asset risk, making transition structuring more financially viable.¹³ Younger plants with higher utilization and longer PPA tenures require more complex structuring, typically involving a longer transition runway, stronger concessional support, or a phased hybridization approach before full retirement. - Alignment with International Net Zero Pathways: The average age of on-grid CFPPs in Indonesia is 20 years old,¹⁴ and CFPPs can typically operate for up to 40 to 50 years. Accelerating CFPP retirement aligns with international energy transition pathways. For example, the International Agency’s Net Zero Emissions by 2050 Scenario (NZE) envisages that unabated coal generation is phased out by 2040 in emerging markets.¹⁵ Indonesia has a net zero target of 2060 or earlier. The IEA scenario assumption nonetheless illustrates the extent to which coal assets may need to be retired before the end of their traditional technical lifetimes to align with decarbonization objectives.
- Policy Enablers for the Transition: In the Philippines, the government’s moratorium on new coal plants, combined with its Green Energy Auction Program, demonstrates how a regulatory signal can be paired with a procurement mechanism to help channel investment toward renewables as coal is wound down. These are elements Indonesia’s RUPTL 2025–2034 and MEMR Regulation 10/2025 are beginning to provide, and which coal asset owners can now use to anchor transition deal structures. That said, a more explicit renewable procurement mechanism, such as a green energy auction program or strengthened PPA framework, would further strengthen the enabling environment for paired coal retirement and renewables deals.
Opportunity 2: Addressing captive CFPPs – leveraging private ownership to reduce transition complexity
Within the broader discussion of CFPPs targeted for transition, captive CFPPs represent an important category that warrants attention for Indonesia. A captive CFPP is a coal plant owned and operated by a private company or facility to generate electricity primarily for its own use, rather than relying solely on the main grid.
The challenge is that captive CFPPs are expanding rapidly across Indonesia – between 2019 and 2024, captive power capacity more than doubled from 14 GW to 33 GW,¹⁶ and their average age is just 10 years old.¹⁷ This is particularly the case within industrial estates and mineral processing zones, many of which fall outside the scope of existing moratoria and transition commitments. Indonesia’s Just Energy Transition Partnership (JETP), for example, remains primarily focused on PLN-owned and grid-connected generation assets, including utility-scale CFPPs.
However, captive CFPPs may represent a strategic low-hanging fruit for early transition progress. Compared to utility-scale coal plants, captive assets are often easier to address due to their private ownership structures and relatively limited implications for broader grid stability and system operations.
Analysis of renewable technologies being adopted in the commercial and industrial sector suggests that the most effective solutions often involve integrating renewable energy, such as solar energy and refuse-derived technology, with existing thermal generation and heating-based industrial processes. These hybrid approaches are already deployed globally and across Southeast Asia, and companies implementing them have found them to be commercially viable and profitable.¹⁸ Hybrid solutions for captive CFPPs can offer a practical and near-term pathway for transition.
At CSV, we help coal asset owners structure early coal-fired power plant retirement deals and connect to the financing needed to make transition economics work.
Industrial Decarbonization
In addition to coal-fired power generation, the industrial sector is a major component of Indonesia’s energy system as the country remains a major manufacturing hub within the region. The sector accounts for 19% of GDP and employs more than 19 million people. But it also contributes over one-third of national emissions.¹⁹ Carbon-intensive industries in Indonesia include nickel, steel, cement, and pulp and paper sectors.
In August 2025, Indonesia’s Ministry of Industry, the World Resources Institute (WRI) Indonesia, and the Institute for Essential Services Reform (IESR) jointly released the Industrial Decarbonization Roadmap, which covers nine energy-intensive subsectors including cement, iron and steel, fertilizers, chemicals, pulp and paper, and textiles.²⁰ The roadmap aims to achieve net-zero emissions by 2050, ten years earlier than the national target, and it will be ratified as a Regulation of the Minister of Industry.²¹
Five key decarbonization strategies in the roadmap, which focuses on emissions reduction rather than emissions neutralization, include: (1) energy and material efficiency, (2) fuel and material replacement (3) process upgrading (4) low carbon power and electrification (5) carbon capture, utilization, and storage (CCUS).
Proponents of the roadmap emphasize that its implementation will help reduce operational costs, increase productivity, help attract new investment and ensure Indonesian products are competitive.
"The industrial decarbonization roadmap is a crucial strategy to achieve President Prabowo's ambition of 8 percent economic growth. Without a transition away from fossil fuels, this ambition will be difficult to achieve amid strict global emission standards for international trade and market demand for low-emission products.”²² - Fabby Tumiwa, CEO of IESR
We delve into two opportunities that demonstrate why accelerating decarbonization makes commercial sense for the Indonesian industrial sector.
Opportunity 3: Implementing decarbonization for strategic business gains, improving security and cost advantages
The Iran war has reshuffled the economics of industrial energy in ways that strengthen the case for decarbonization. Gas market disruption has raised the cost and risk of staying on imported fossil fuels, while the cost of renewable alternatives will likely continue to fall also relative to coal as its regulatory and financing headwinds grow. Green ammonia, electrified industrial heating, and on-site solar generation are increasingly cost-competitive options that also offer something fossil fuels cannot: insulation from global energy price volatility. For industrial operators, this is no longer purely a climate argument. It is a cost predictability and supply chain resilience argument.
"Decarbonization used to be a question of when and at what cost. Now it is a question of whether you can afford not to. For industrial operators in Indonesia, staying on coal means having continuous exposure to volatile fuel costs, the uncertainty in tightening export market requirements, and growing financing constraints. The economics have shifted, and companies that move early will be better positioned to compete." - Arthur Simatupang, Co-Managing Partner Of Mahardika
On the financing side, capital is available. Development finance institutions including the Asian Development Bank, International Finance Corporation, and the Asian Infrastructure Investment Bank have active mandates for Indonesia’s industrial energy transition, with blended finance instruments designed to de-risk first-of-kind transactions in hard-to-abate sectors. Concessional first-loss facilities and sustainability-linked lending are increasingly accessible to operators with a credible decarbonization plan to support first-mover transitions and proof of concepts. Examples include blended finance facilities and concessional lending windows from institutions such as the ADB and IFC, which have been deployed in hard-to-abate sector transitions across Southeast Asia. Over time, these early transactions can help build market confidence, demonstrate viable financing models, and pave the way for broader participation by local and international financial institutions.
The bottleneck is therefore not capital or technology, but the lack of bankable deal structures that effectively bridge the two. Closing this structuring gap is where the most significant opportunity lies. Climate Smart Ventures, combining finance and country expertise with technical partners across the industrial value chain, works to develop these bankable structures and enable scalable deployment of industrial decarbonization solutions.
Opportunity 4: Preparing for the shifting regulatory landscape in domestic and global markets
- The EU CBAM: The European Union’s Carbon Border Adjustment Mechanism (CBAM), which entered its definitive period in January 2026, now requires EU importers of steel, cement, aluminium, fertilizers, and hydrogen to purchase certificates reflecting the embedded carbon of their goods. However, the financial impact is being phased in progressively through 2034 alongside the phaseout of free EU Emissions Trading Systems (ETS) allowances.
Indonesian exporters in these sectors already operate with above-average emissions intensity relative to EU benchmarks, and this translates into direct cost exposure and a risk of losing EU market access without verified decarbonization progress. The CBAM therefore presents a compelling reason and opportunity to decarbonize to maintain access to the European market. - Industrial Supply Chain Pressure: Beyond CBAM, battery and electric vehicle supply chain buyers, particularly those sourcing nickel and processed minerals from Indonesia, are increasingly requiring Scope 2 emissions disclosure and low-carbon certification as conditions of supply agreements.²³ This growing convergence of trade policy and corporate procurement standards is creating structural demand pressure that places coal-reliant Indonesian producers at material risk of market share erosion relative to cleaner peers in other jurisdictions.
- Carbon Economic Value (NEK): Indonesia’s carbon pricing framework, the Nilai Ekonomi Karbon (NEK), has been operational in the power sector since 2023, initially covering coal-fired power plants connected to PLN’s grid. Phase 2, running through 2025 to 2027, expands coverage to captive coal and gas-fired plants supplying energy-intensive industries, expected to regulate roughly 55 to 60% of power sector emissions. For the industrial sector specifically, the Ministry of Industry is designing a carbon trading policy that will initially cover four high-emission industrial subsectors, expanding to nine subsectors by 2027. These nine sectors include cement, textiles, steel and metal, paper and pulp, ceramics and glass, food and beverage, fertilizers, transportation equipment, and chemicals.
The challenge is that emissions limits for the second and third phases have not yet been determined, but are expected to be more stringent than in the first phase. For industrial operators, this creates a window to prepare for compliance requirements, whether by securing, in advance, green energy supply agreements or financing capital-intensive technology transitions before carbon costs fully materialize.²⁴
Decarbonization pathways will vary across Indonesia’s industrial sectors, as outlined in the Industrial Decarbonization Roadmap. A key enabling opportunity lies in better integrating technical decarbonization solutions with financial structuring and investment mobilization to accelerate the transition of Indonesia’s hard-to-abate sectors.
At CSV, we turn decarbonization roadmaps into financeable deals, structuring blended finance solutions for hard-to-abate sectors across Indonesia.
Closing
The Iran war and the effective blockade of the Strait of Hormuz have had far-reaching consequences for energy markets, trade flows, and everyday life in Indonesia and globally. At the same time, the crisis has underscored the risks of continued overreliance on fossil fuels and the vulnerabilities embedded in current energy systems.
The disruption has also strengthened the economic and strategic case for renewables and the broader energy transition. It has made clear that energy security, affordability, and resilience increasingly point in the same direction.
The challenge now is to ensure this moment is not wasted, but instead used to accelerate a more deliberate and durable transition.
¹ Business Indonesia, Energy Overview, https://business-indonesia.org/energy_overview accessed May 15, 2026.
² Ember, Indonesia and the Philippines coal dependency surges past China and Poland, https://ember-energy.org/latest-insights/indonesia-philippines-coal-surges-past-china-poland/, July 1, 2024.
³ Ministry of Energy and Mineral Resources (MEMR), Handbook of Energy and Economic Statistics of Indonesia 2024; Ember, Energy Mix for Power Generation in Indonesia 2023 (July 2024); US Energy Information Administration (EIA), Country Analysis Brief: Indonesia (August 2025). Note: Electricity mix as of 2023; primary energy mix as of mid-2024.
⁴ U.S. Energy Information Administration, Country Analysis Brief: Indonesia, August 2025. Indonesia’s coal exports reached a record 615 million short tons in 2024; domestic self-sufficiency is structurally embedded in PLN’s supply chain. Imports are a marginal share of total production.
⁵ Asia News Network, Indonesia approves 580 million tonne coal production plan, signals output boost, March 31 2026, https://asianews.network/indonesia-approves-580-million-tonne-coal-production-plan-signals-output-boost/.
⁶ Ecobusines, Global energy crisis reinforces Indonesia’s 100 GW solar push, but hurdles persist, April 3, 2026, https://www.eco-business.com/news/global-energy-crisis-reinforces-indonesias-100-gw-solar-push-but-hurdles-persist/.
⁷ Tempo, Prabowo at ASEAN Summit: Brings Maung, Focuses on Food Security, May 11, 2026, https://seads.adb.org/news/special-bimp-eaga-summit-cebu-adopts-vision-2035.
⁸ IEEFA, The risks of fossil fuel dependence in Indonesia’s Electricity Supply Business Plan (RUPTL) 2025–2034, June 2025, https://ieefa.org/resources/risks-fossil-fuel-dependence-indonesias-electricity-supply-business-plan-ruptl-2025-0.
⁹ Learn more here: ABNR Counsellors at Law, MEMR 10 2025: A Bold Roadmap for Sustainable Electricity, June 10, 2025, https://www.abnrlaw.com/news/memr-10-2025-a-bold-roadmap-for-sustainable-electricity.
¹⁰ ABNR Counsellors at Law, MEMR 10 2025: A Bold Roadmap for Sustainable Electricity, June 10, 2025, https://www.abnrlaw.com/news/memr-10-2025-a-bold-roadmap-for-sustainable-electricity.
¹¹ Climate Smart Ventures, Future of Transition Finance in Asia: Addressing the Risk-Return Dilemma & Unlocking Capital for the Coal to Clean Energy Transition (2024), https://climatesmartventures.com/wp-content/uploads/2024/09/The-Future-of-Transition-Finance-in-Asia-Report.pdf.
¹² Information from research findings during CSV’s consulting engagements.
¹³ IEEFA, Transforming Indonesia’s Coal Dependence into Clean Energy Opportunities, November 19, 2025, https://ieefa.org/resources/transforming-indonesias-coal-dependence-clean-energy-opportunities.
¹⁴ Institute for Essential Services Reform (IESR), Indonesia Needs to Immediately Establish an Early Retirement of Coal-fired Power Plants Roadmap, November 6, 2024, https://iesr.or.id/en/indonesia-needs-to-immediately-establish-an-early-retirement-of-coal-fired-power-plants-roadmap/
¹⁵ IEA, Executive Summary, Phasing Out Unabated Coal: Current Status and Three Case Studies, https://www.iea.org/reports/phasing-out-unabated-coal-current-status-and-three-case-studies/executive-summary.
¹⁶ IESR, Fact Sheet Captive Power Plans, February 20, 2026, https://iesr.or.id/en/fact-sheet-captive-power-plans/.
¹⁷ IESR, Indonesia Needs to Immediately Establish an Early Retirement of Coal-fired Power Plants Roadmap, November 6, 2024, https://iesr.or.id/en/indonesia-needs-to-immediately-establish-an-early-retirement-of-coal-fired-power-plants-roadmap/
¹⁸ Climate Smart Ventures, Accelerating Decarbonization in Southeast Asia: Commercial and Industrial Sector Captive Coal Fired Power Plants are the Low-Hanging Fruit Too Many are Ignoring (2024), https://climatesmartventures.com/wp-content/uploads/2024/03/Commercial-and-industrial-energy-transition.pdf.
¹⁹ Ember, From Captive Coal to Green Nickel: Securing Indonesia’s Future Competitiveness, October 2025, https://ember-energy.org/app/uploads/2025/10/Policy-paper-From-Captive-Coal-to-Green-Nickel_-Securing-Indonesias-Future-Competitiveness.pdf, and WRI Indonesia, National Nickel Industry Decarbonization Roadmap, June 2025.
²⁰ See: WRI Indonesia, Indonesian Government Prepares Roadmap for Clean Net-Zero Industry by 2050, August 2025, https://wri-indonesia.org/en/news/indonesian-government-prepares-roadmap-clean-net-zero-industry-2050.
²¹ Ibid. Note: Information from the presentation, accessible via the QR code in the main page.
²² WRI Indonesia, Indonesian Government Prepares Roadmap for Clean Net-Zero Industry by 2050, August 2025, https://wri-indonesia.org/en/news/indonesian-government-prepares-roadmap-clean-net-zero-industry-2050
²³ Ember, From Captive Coal to Green Nickel: Securing Indonesia’s Future Competitiveness, October 2025, https://ember-energy.org/app/uploads/2025/10/Policy-paper-From-Captive-Coal-to-Green-Nickel_-Securing-Indonesias-Future-Competitiveness.pdf, and WRI Indonesia, National Nickel Industry Decarbonization Roadmap, June 2025.
²⁴ International Carbon Action Partnership (ICAP), Indonesian Economic Value of Carbon (Nilai Ekonomi Karbon) Trading Scheme, https://icapcarbonaction.com/en/ets/indonesian-economic-value-carbon-nilai-ekonomi-karbon-trading-scheme, accessed May 18, 2026.
About Climate Smart Ventures
Climate Smart Ventures (CSV) is an advisory firm advancing the energy transition in Asia. The company’s expertise spans coal-to-clean utility-level transition, industrial decarbonization, grid transformation, and government-level policy recommendations. To support these transitions, the firm provides specialized technical services including M&A due diligence, valuation model reviews, the development of Green, Social, and Sustainability- Linked frameworks paired with Second Party Opinions (SPOs), and end-to-end carbon markets advisory and trading capabilities.
Additionally, CSV’s Solutions Studio serves as the firm’s innovation hub. It leverages data-driven tech and digital tools to operationalize next-generation climate-smart initiatives that unlock new value for the region.
On the capital advisory and deployment side, CSV launched Asia Energy Transition Platform (AETP) in 2023, a venture capital fund investing in next generation distributed renewable energy projects in Southeast Asia. In parallel, CSV is a joint-venture partner in Reviva Transition Partners, a first-of-its-kind equity fund driving commercially viable transitions from legacy coal to clean energy in emerging markets.
For more information, visit https://climatesmartventures.com.