Indonesia’s plans to phase out all fossil fuel-based power plants by 2040, as announced by President Prabowo Subianto at the recent G20 summit, are facing skepticism over implementation feasibility.

Credit ratings agency Fitch Ratings has highlighted significant challenges tied to policy execution, infrastructure readiness, and energy security, casting doubt on the coal-heavy reliant Southeast Asian country’s ability to achieve its net-zero emissions target by 2050.

Coal-fired power accounts for 67% of Indonesia’s electricity, with fossil fuels overall contributing more than 80% of power generation, a trend projected to persist until at least 2027. Phasing out this capacity by 2040 will require scaling renewable energy investments to an unprecedented level.

President Prabowo has outlined a target of building 75 gigawatts of renewable energy and expanding biodiesel production over the next 15 years, but according to Fitch, past efforts to boost renewable contributions have fallen short, with renewable power comprising just 12% of the energy mix in 2023, far below the 23% target set for 2025.

State utility PT Perusahaan Listrik Negara ( PLN ), responsible for 62% of Indonesia’s installed generation capacity, is central to the transition. PLN’s capex strategy prioritises renewable energy expansion and grid upgrades.

While international funding through the Just Energy Transition Plan ( JETP ) may offer some relief, Fitch warns that a rapid fossil fuel phase-out could strain its financial forecasts and require government intervention, such as increased subsidies or revised electricity pricing.

The broader impact on Indonesia’s coal industry, which accounts for significant domestic power and global thermal coal demand, is also under scrutiny.

A swifter transition may accelerate coal producers’ diversification strategies, affecting global coal markets over time. Despite this, domestic banks are expected to provide near-term support for coal miners managing debt refinancing pressures.