Long tethered to coal, which still fuels about 68% of its electricity, Indonesia stands at a critical juncture in its energy transition. The country faces growing fiscal strain, exposure to global market volatility, and mounting fiscal pressures. Despite ambitious climate goals, structural barriers continue to hold back progress.

Originally targeting a 23% renewable share by 2025, Indonesia reached just 16% by mid-year, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA). In response, the government has pushed the target to 2030, indicating persistent bottlenecks in planning, procurement, and system integration.

The decision to cancel the early retirement of the Cirebon-1 coal-fired power plant further underscores the tension between short-term energy security and long-term sustainability.

This coal dependency is proving increasingly expensive. The Java-Bali grid is oversupplied, leaving coal plants underutilized while fixed payments under long-term power purchase agreements (PPAs) continue to burden the state utility, PLN.

With sluggish demand growth and binding take-or-pay contracts, Indonesia faces rising system costs, which may translate into higher tariffs or deeper subsidies.

Global headwinds and investment signals

Globally, markets are shifting toward clean energy. Renewables offer long-term price stability, lower reliance on imports, and stronger energy security, compared to fossil fuels facing volatile prices, unstable markets, and the economic burden of subsidies.

In 2025, shares in renewable firms such as Bloom Energy (U.S.), Sungrow Power Supply (China), and Siemens Energy (Europe) posted triple-digit gains, driven by structural demand. Much of this demand stems from the data center boom, particularly those supporting AI, which is expected to drive global electricity use up by 17% in 2026 and 14% annually through 2030, potentially exceeding 2,200 TWh by the end of the decade.

Indonesia's domestic data center capacity is projected to more than double from 1.44 GW to 3.56 GW by 2030. However, without scalable and bankable renewable energy options, the country risks losing digital and industrial investment to regional rivals offering clearer procurement pathways and greener grids.

Indonesia possesses vast renewable potential, including solar-rich islands, substantial geothermal reserves, and untapped wind corridors.

Renewables are now cheaper than new fossil fuel plants and could stimulate green industries and bolster economic resilience. Every $1 billion invested in renewables could yield $1.41 billion in economic output, according to the World Resources Institute.

Investor confidence is key to unlocking this potential, noted the report. Renewable projects provide predictable cash flows, reduce exposure to commodity price fluctuations, and strengthen alignment with environmental, social, and governance standards. In contrast, coal assets face mounting reputational risks and the threat of becoming stranded.

Major obstacles

Despite the strength, several structural challenges continue to strain renewable investment in Indonesia, including slow progress in renewable procurement for the private sector, a geographic mismatch between large-scale renewable resources and main industrial demand centers, and persistent grid infrastructure limitations.

Indonesia risks being left behind unless it acts decisively through regulatory certainty improvement, grid modernization acceleration, and financing mechanisms attracting private capital, the report said.

The joint transmission network utilization proposal, globally known as power wheeling, is a promising solution that allows the use of PLN's transmission network by multiple stakeholders to deliver electricity from generation sources to load centers. Though mentioned in a 2015 regulation, Indonesia has yet to implement this mechanism.

Meanwhile, Vietnam and Malaysia have introduced direct power purchase agreements and corporate clean energy schemes.

Due to the persistent gaps between targets and implementation, policymakers should address regulatory, infrastructure, and financing obstacles to make Indonesia a regional leader in clean energy. Decisions made in 2026 will determine if Indonesia can rapidly expand to reduce system costs, draw in private investment, and improve its regional competitiveness.