Indonesia’s captive coal: Financing industrial decarbonisation
Exploring why energy transition capital is currently being blocked from reaching the country’s captive power plants – and what to do about it The post Indonesia’s captive coal: Financing industrial decarbonisation appeared first on Dialogue Earth .
Indonesia has seen an increase in international financing for decarbonisation efforts in recent years. The country's Just Energy Transition Partnership (JETP), launched in 2022, has pledged USD 20 billion, with the United States having since withdrawn its support. The JETP aims to guide developing countries towards cleaner energy sources, with funding coming from a group of developed nations.
However, financing specifically directed at transitioning from captive coal power remains limited. Captive coal plants, primarily found in Indonesia, are off-grid, dedicated power stations fuelled by coal and play a significant role in industrial operations, posing a major obstacle to decarbonising the nation's energy-intensive industries.
Despite the availability of international funding, the policies, financing mechanisms, and investment opportunities needed to channel capital into viable decarbonisation projects are lacking. Blended finance, which combines public or concessional funding with commercial capital, has been identified as a potential solution for funding the transition away from captive coal.
However, various obstacles persist in attracting blended finance in Indonesia due to funding, policy, and project challenges. Experts point out that understanding the scale of Indonesia's financing gap is crucial for identifying the most effective ways to finance industrial decarbonisation. The captive power sector will require an estimated USD 31 billion in investments between 2025 and 2030, with an additional USD 92 billion needed from 2025 to 2050.
Major investment requirements lie in the nickel industry, aluminium sector, pulp and paper, mining, and steel. While the JETP's pledged commitment has increased from USD 21.8 billion in February 2026, most funding has been directed towards the grid power sector. The JETP's existing commitments are insufficient to meet the total investment needs, necessitating greater funding from diverse sources of capital.
The state's allocation towards transitioning from captive coal remains undisclosed. Several international institutions, including the Asian Development Bank and International Finance Corporation, are supporting Indonesia's energy transition and industrial decarbonisation. Domestic sources of capital, such as Danantara Indonesia, are also emerging, investing in strategic projects to support long-term economic growth.
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