Financial Supports for Coal and Renewables in Indonesia

This report shows that the “true cost” of coal, including subsidies and externalities such as GHG emissions and air pollution, is considerably greater than the cost of renewable energy in Indonesia.

By Richard Bridle, Philip Gass, Lourdes Sanchez , Tara Laan, Lucky Lontoh, Clem Attwood, Aidy S. Halimanjaya, Lasse Toft Christensen on May 30, 2017

Electricity generation remains a key issue for Indonesian policy-makers. Millions of households are still without access to electricity, and large investments are needed to supply reliable power for households and industries across the country.

Coal has become an increasingly central part of Indonesia’s power plans and is expected by the government to continue to play a significant role in the decades to come. In 2014, coal accounted for 31 per cent of Indonesia’s primary energy mix, up from 17 per cent in 2004. In 2025, the government expects coal to meet around 30 per cent of Indonesia’s primary energy demand. In 2050, projections estimate coal to account for 25 per cent of Indonesia’s primary energy mix.

While this would see the total share of coal in the energy mix decline slightly, the projected growth in total energy consumption implies a large expansion in coal power production. This is also reflected in the government’s near-term plans to rapidly expand power production by 35 gigawatts (GW), with more than 20 GW of this amount to come from coal.

Nevertheless, concerns over the environmental impact of coal use and a desire to expand access to energy as quickly and cost-effectively as possible have created pressure to adopt cleaner forms of energy production.

Despite its negative impact, Indonesia’s coal industry and electricity sector have access to subsidies that can lock in coal use for the coming decades. By contrast, renewable energy is often perceived as too expensive to build on a large scale. However, such opinions are usually not based on an assessment of the true costs of generating electricity from renewables, which can be competitive with or even lower than coal. This is especially true when taking account of negative externalities such as air pollution and greenhouse gas emissions.

This report provides an estimate of subsidies to coal and renewables in Indonesia. It also considers the cost of externalities in order to make a comparison of the true costs associated with electricity generation from coal and renewable energy respectively.

Report details

Focus area
IISD, 2017