Commodities 22h ago
Indonesia Should Embrace Least-Cost Power Planning as Coal Costs Rise, IEEFA Says Indonesia should shift to least-cost electricity planning as renewable energy becomes cheaper than coal, supporting the country's 100-gigawatt solar program, the Institute for Energy Economics and Financial Analysis said in a Friday note.The report urges Indonesia to update its Electricity Supply Business Plan, or RUPTL, using current generation costs, fuel risks, financing conditions and regional market differences.Indonesia announced the 100 GW solar program in June 2025 and President Prabowo Subianto formally launched it Aug. 25, 2026, according to the note.IEEFA said Indonesia should integrate the solar initiative into its broader power strategy rather than treating it as a standalone target, thereby enabling renewables to reduce costs and improve energy security.The report also calls for the earlier retirement of inefficient fossil-fuel plants, particularly coal-fired power plants, to free up grid capacity, reduce subsidies, and accommodate additional renewable generation.Coal generation costs climbed 46% from 637 Indonesian rupiah ($0.03) per kilowatt-hour in 2020 to 930 Indonesian rupiah/kWh in 2025, while IEEFA projects costs could reach about 1,060 Indonesian rupiah/kWh in 2026.The report said Indonesia's domestic coal pricing policies obscure the actual economics of coal power, limiting the ability of renewable projects to compete on an equal basis.Without the Domestic Price Obligation, coal generation would have cost 1,455 Indonesian rupiah/kWh in 2025, 56% above the 930 Indonesian rupiah/kWh cost under the regulated pricing system, IEEFA estimated.Levelized costs also favor renewables, with coal ranging from 10 US cents/kWh to 15.1 US cents/kWh, compared with 5.6 to 8.4 US cents/kWh for utility-scale solar photovoltaic projects.Onshore wind carries an estimated cost of 6.8 to 10.3 US /kWh, while gas ranges from 14 to 21 US cents/kWh, making gas the costliest fossil-fuel option.IEEFA estimates utility-scale solar costs are about 44% lower than coal, while onshore wind costs roughly 32% lower, highlighting the changing economics of new power generation.Higher fossil-fuel costs and currency swings have increased pressure on Indonesia's national utility, PT Perusahaan Listrik Negara, or PLN, as regulated consumer tariffs fail to cover rising electricity supply expenses.Consumers paid an average retail tariff of about 1,112.69 Indonesian rupiah/kWh in 2025, while PLN's generation cost plus business margin reached 1,785.64 Indonesian rupiah/kWh, according to IEEFA.Government subsidies and compensation covered the resulting shortfall, with those payments rising sharply from 65.9 trillion Indonesian rupiah in 2020 to 200 trillion Indonesian rupiah in 2025, the analysis said."Leveraging least-cost planning and competitive procurement would allow Indonesia to diversify away from coal and gas while reducing long-term generation costs and easing financial pressure on PLN and the government," said IEEFA's Energy Finance Specialist, Randi Bachtiar.Eastern Indonesia offers particularly large savings opportunities, as Maluku, Papua, West Nusa Tenggara and East Nusa Tenggara rely heavily on costly diesel generation across smaller power systems.IEEFA said utility-scale solar combined with battery energy storage systems can already undercut diesel generation in those regions while providing dependable power beyond daylight hours.Replacing diesel with renewable generation could also reduce fuel imports and exposure to volatile commodity prices, while isolated systems can make the switch without major transmission investments, IEEFA said."Replacing diesel generation with renewable energy offers multiple benefits: lower generation costs, reduced fuel imports, greater energy security, and less exposure to volatile fuel markets," said IEEFA's Energy Finance Analyst, Yusuf Kresna.The RUPTL 2025-2034 already targets 42.6 GW of renewable capacity and 10.3 GW of energy storage by 2034, alongside transmission investment, according to the report.IEEFA recommends directing new solar and storage projects toward high-cost regions, while using competitive procurement, bankable power purchase agreements and clearer regulations to attract private investment and reduce Indonesia's long-term electricity costs.