Hans Nicholas Jong, Jakarta – The Indonesian government has scrapped a plan to retire a major coal-fired power plant, after having promised for years to do so.
Airlangga Hartarto, the country's chief economics minister, said in December that it would be unfeasible to shut down the 660-megawatt Cirebon-1 plant by 2035, which is seven years ahead of its scheduled end of operation.
But energy analysts and civil society groups say the decision reflects deeper political and financial resistance to moving away from coal – resistance that could undermine Indonesia's energy transition at a time when global climate finance is becoming harder to secure.
The failure of the early retirement plan for Cirebon-1 exposes how government policies that continue to protect and subsidize coal make it costly to shut plants early, they warn, even as Indonesia seeks international funding to do so.
Airlangga said the decision was "based on technical considerations," arguing that the plant, which went into operation in 2012, is still relatively young and therefore has a long operating life ahead. He also said Cirebon-1 uses "relatively better" technology that results in lower emissions, making it a less suitable candidate for early retirement compared with older, dirtier coal plants.
As such, he said, the government will focus on shutting down older units, where the environmental benefits would be greater.
"We will look for an alternative – one that is older and whose environmental impacts clearly mean it should already be retired," he said on Dec. 5, as quoted by state news agency Antara.
The government and state-owned utility PLN are identifying other plants that could take Cirebon-1's place for early retirement.
History of a failed retirement
The Cirebon-1 project had long been framed by the Indonesian government and international partners as a test case for coal phaseout in the Global South, under energy transition financing mechanisms backed by the G7 group of wealthy nations.
Planning for the early retirement began in 2021, when Indonesia joined the Energy Transition Mechanism (ETM) launched by the Asian Development Bank (ADB) at the COP26 U.N. climate talks in Glasgow, Scotland.
The initiative gained momentum in 2022 when Indonesia assumed the presidency of the G20 group of biggest economies, and agreed to participate in the Just Energy Transition Partnership (JETP). Under the JETP, G7 countries, multilateral banks and private lenders pledge support to help developing countries transition to low-carbon economies.
For Indonesia, part of that road map was to retire Cirebon-1 early and replace it with nearly $200 million worth of solar, wind and battery storage projects. The proposal went through technical and economic feasibility studies, and the ADB had prepared financing support for the early retirement, subject to government approval.
Blow to credibility
With years of preparation already underway and international partners involved, the newly announced cancellation risks undermining Indonesia's credibility and weakening investor confidence, according to the Institute for Essential Services Reform (IESR), a Jakarta-based think tank.
The decision also signals policy inconsistency and undercuts Indonesia's stated ambitions on energy transition, IESR said.
President Prabowo Subianto has publicly made bold pledges to achieve 100% renewable energy and retire coal-fired power plants within the next two decades, although these goals have yet to be translated into binding policy.
IESR also warned that cancelling Cirebon-1's retirement could slow efforts to decarbonize Indonesia's power sector.
Some analysts say the decision fits a broader pattern of retreat from earlier energy transition commitments. In 2025, the Ministry of Finance raised concerns over the cost of replacing Cirebon-1 with renewable energy, which it estimated could reach $1.3 billion, largely in subsidies to cover higher generation costs.
Grid operator PLN also cited financial risks in justifying the cancellation. The utility's director for projects and renewable energy management, Suroso Isnandar, said PLN would need to pay around 60 trillion rupiah ($3.8 billion) in penalties over five years if the early retirement proceeded.
Taken together, critics say, the arguments suggest the decision was driven more by financial concerns than by any technical issues cited by the government.
Who bears the cost?
IESR said the high cost of shutting coal plants early is largely self-inflicted.
Under Indonesian regulations, independent power producers (IPPs) sign long-term contracts with PLN to build and operate coal-fired power plants. These power purchase agreements often require PLN to keep paying plant operators for electricity even when the power isn't fully needed.This has strained PLN's finances, particularly on Java Island, home to the majority of the country's population, where electricity oversupply has persisted for years due to large-scale power plant projects combined with slower-than-expected demand growth.
Many of these contracts run for up to 30 years – far longer than the typical investment payback period – driving up compensation costs when a plant is retired early.
Coal that isn't cheap
Coal power in Indonesia is also made to look cheaper than it really is, analysts say.
Government rules require coal miners to sell fuel to the domestic power sector at fixed, below-market prices, shifting fuel price risk onto PLN and, ultimately, the state. As a result, coal-fired electricity appears artificially cheap, while renewable energy must compete without similar protections.
This policy effectively subsidizes the coal industry and helps prolong its viability, even as much of the world moves away from coal due to climate concerns and falling costs of renewable energy.
"Right now, coal is still being given a red-carpet treatment: electricity is subsidized, and the mining business is still lucrative," Tata Mustasya, executive director of nonprofit group SUSTAIN, told Mongabay.
Wanting early coal retirement without removing the incentives that keep coal profitable is incoherent, he added.
"[The government is] not even willing to make things difficult [for the coal industry], but [it] wants early retirement. To me, that doesn't really make sense," Tata said. "You're not brave enough to apply pressure, yet you want early retirement."
He added the government has also shown little willingness to use state funds to support early coal retirement, instead waiting for international financing.
"That's where the deadlock is. Indonesia isn't contributing anything because its stance is firmly 'show us the money,'" Tata said. "But countries backing the JETP and multilateral development banks are also expecting Indonesia to contribute."
Carbon tax and political barriers
One way to lower the cost of early coal retirement would be to make coal power less profitable, Tata said. That could be done by imposing a carbon tax on coal-fired power plants and higher levies on coal mining and exports.
Such measures would reduce coal asset values, making early retirement cheaper – or even voluntary, he said.
Indonesia adopted a legal framework for a carbon tax in 2021 and initially planned to begin collecting it from coal power plants in April 2022. However, the implementation has been repeatedly postponed.
The Ministry of Finance has said enforcement requires additional regulations and a clear road map, which is still being drafted. Officials have also raised concerns that a carbon tax could increase electricity production costs, with some of the burden potentially passed back to PLN and the state.
Tata said the tax could be designed to avoid that outcome, but political barriers remain. He pointed to overlapping interests between policymakers and independent power producers.
A 2022 political-economy study found that coal companies in Indonesia are largely controlled by conglomerates with close ties to political elites, and that several coal tycoons have held or funded political office.
"The same people who are – or have been – policy decision-makers are also the ones operating as independent power producers," Tata said. "That's what makes it difficult."
The economics of early retirement
If the government looked at the full economic picture, early coal plant retirement would actually benefit the state, IESR said.
Coal power isn't truly cheap, because its external costs – including health impacts and air pollution – aren't reflected in electricity prices. These costs are borne by the public and the government, including through increased pressure on Indonesia's national health insurance system.
IESR estimates that when these externalities are accounted for, the benefits of early coal retirement outweigh the costs as much as fourfold.
A 2022 IESR study found that retiring coal plants in PLN's system in line with the Paris Agreement would require $4.6 billion through 2030 and $27.5 billion through 2050. By contrast, it estimated savings from avoided coal subsidies and reduced public health costs at $34.8 billion and $61.3 billion, respectively.
Where the money will come from?
The uncertainty surrounding Indonesia's coal phaseout is unfolding amid growing volatility in global climate finance, raising questions about how – and from where – future energy transition funding will come.
Despite the potential economic benefits of early coal retirement, Indonesia faces a more uncertain global financing landscape – especially after the United States decided to withdraw from the United Nations Framework Convention on Climate Change (UNFCCC), according to Agung Budiono, executive director of CERAH, a local advocacy group pushing for a clean energy transition.
He said the U.S. withdrawal from the UNFCCC could further constrain concessional finance and international support – precisely when Indonesia is struggling to move forward with coal phaseout plans such as Cirebon-1.
The U.S. had already been replaced by Germany as co-lead of Indonesia's JETP, reflecting shifting leadership within the partnership even before Washington's formal withdrawal from the UNFCCC.
However, this shouldn't weaken Indonesia's climate and energy transitions, Agung said. Instead, Indonesia could build bilateral financing cooperation with countries in the Global South to continue and even strengthen its climate and energy transition commitments, he said.
"Indonesia still has significant potential to expand bilateral cooperation with countries in the Global South and the Middle East – such as Egypt, Kuwait and Morocco – in renewable energy development, energy efficiency, and strengthening energy transition capacity," Agung said.