The 2023 Conference of the Parties (COP) concluded with a historic deal: committing the world to a transition away from coal, oil and gas in a just and orderly manner.

While not the first time a COP event called for a move away from coal, it is the first time for oil and gas, which signifies the slow but resolute global effort in the energy transition. This also suggests that there is no turning back for coal.

But what does this mean for Indonesia, a fossil fuel reliant market?

Indonesia’s challenges in the energy transition: consensus and speed

President Joko Widodo and key representatives were at COP to position Indonesia as a future green energy economy and attract foreign investment into the country. Just a week before that, Indonesia published the Comprehensive Investment and Policy Plan which underpins implementation of its Just Energy Transition Partnership. Among the initiatives under the plan is early coal retirement.

So far, this seems consistent with the global trend on coal.

Foreign capital for coal projects are dwindling and the government is committed to cease new coal power in the main grids. It is therefore expected that construction of new coal power plants would come to a halt and the country’s rising electricity demand will likely be supported by the oft-reported excess coal power capacity but this will eventually be exhausted

Back home, however, energy transition is often considered an elitist conversation encumbered with foreign interests. This sparks a different debate locally, often leading to resistance to ending or phasing out coal—one of the country’s major commodities and source of power generation, and hence a significant part of Indonesian livelihoods.

But there is another conundrum. Despite the decline in coal growth in Indonesia’s electricity sector, green energy development to replace the fossil fuel is nowhere near the capacity that is needed to continue powering the country. To date, renewable power generation remains stagnant at around 13% of total power generation.

To make matters worse, this year Indonesia’s clean energy investment potentially hits its lowest point since 2017.

The recent inauguration of the Cirata floating solar power plant should be applauded, but note that India built the same capacity every four days last year. The pace of the country’s transition is far behind what is required. In the absence of an accelerated clean energy development the breathing room for Indonesia’s power sector is narrowing and the country risks sleepwalking towards an electricity crisis.

Turning coal barriers to future growth into solutions

Indonesia applies a lock-in price for coal. The policy was established with good intentions to make electricity cheaper. But this masks the real economics of coal as an electricity fuel, thus making it artificially more affordable against cleaner energy resources.

The coal price cap is a luxury which Indonesia can afford as the largest coal exporter, but it is also costing the country its clean energy transition while the world moves forward.  China and India are major coal producers and consumers, but they are also at the forefront of green energy development.

Import markets cannot be stopped from buying Indonesian commodities, but some of the economic rents from the coal sector can be reallocated to aid the transition. Electricity prices can still be managed through coal levies, but the government needs to start setting aside funds to help the country’s electricity transformation.

The Indonesian coal-dominated power market also deserves an overhaul. The mismanagement of the power sector—leading to a power oversupply—under the fully state-owned utility company Perusahaan Listrik Negara is costing the government, and taxpayers, tens of trillions of rupiah every year. The problem is that, any transformation of the sector may be seen as an effort to liberalise the power market, which have in the past resulted in opposition by members of the public to rollback such efforts through the Constitutional Court. The Indonesian constitution bestows PLN with strategic importance—and rightly so. However, the rationale for modernising Indonesia’s power market is that there should be robust governance of the sector with a commercial discipline, so as to prevent further long-term investment missteps, the cost of which would be borne by the Indonesian public.

Where to from here?

The energy transition has multiple angles. From electrifying remote villages to reduce their reliance on imported oil-based power supply, to meeting industrial demand for clean energy which is becoming increasingly necessary for foreign direct investment.

Energy transition is not just a topic for the elite. There are pragmatic reasons to discuss this more widely in the interest of the Indonesian people and environment.

The world is transitioning towards cleaner energy as a means to staying relevant and competitive. It is time for Indonesia to reflect on its own progress.