Indonesia’s Coal Price Cap: A barrier to renewable energy deployment

The document argues that Indonesia's coal price cap, designed to protect the finances of the state-owned utility PLN, acts as a subsidy that locks out renewable energy. By capping coal prices at USD 70 per tonne, the government reduces operational costs for coal plants, making it difficult for renewables to compete under a pricing system based on average generation costs (BPP). The brief suggests alternative policies, such as windfall taxes on coal or 'polluter pays' principles, to support PLN without disadvantaging clean energy.

• The Indonesian government's domestic market obligation (DMO) requires coal mining companies to allocate 25 per cent of their production volume to the domestic market for 2018 and 2019, with a price cap of USD 70 per tonne for coal with a calorific value above 6,000 kcal/kg GAR.
• The coal price cap functions as a subsidy that significantly improves the profitability of coal-fired power plants and the financial position of the state-owned electricity company, Perusahaan Listrik Negara (PLN). IISD estimates the value of this policy to PLN was USD 1.27 billion in 2018 and USD 1.79 billion in 2019.
• The pricing system for electricity generation in Indonesia creates a competitive disadvantage for renewables because the maximum purchase price for wind and solar is often capped at 85 per cent of the regional average generation cost (BPP), while large coal plants can receive up to 100 per cent of the national rate.
• The combination of subsidized coal fuel costs and regulated tariffs for independent power producers (IPPs) effectively locks out renewable energy integration by making coal assets more viable and limiting the viability of new renewable projects.
• To support PLN's finances without hindering renewables, the document proposes several alternatives: increasing electricity tariffs, better targeting of subsidies, replacing the coal cap with a windfall tax on coal companies, decoupling renewable procurement from the BPP, or implementing a 'polluter pays' principle through environmental taxes.

APA

Bridle, R., Suharsono, A., & Mostafa, M. (2019). Indonesia’s Coal Price Cap: A barrier to renewable energy deployment. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/indonesia-coal-price-cap.pdf

Chicago

Bridle, Richard, Anissa Suharsono, and Mostafa Mostafa. Indonesia’s Coal Price Cap: A barrier to renewable energy deployment. International Institute for Sustainable Development, 2019. https://www.iisd.org/system/files/publications/indonesia-coal-price-cap.pdf.

Wikipedia

{{cite report |last1=Bridle |first1=Richard |last2=Suharsono |first2=Anissa |last3=Mostafa |first3=Mostafa |title=Indonesia’s Coal Price Cap: A barrier to renewable energy deployment |publisher=International Institute for Sustainable Development |date=May 2019 |url=https://www.iisd.org/system/files/publications/indonesia-coal-price-cap.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{bridle2019indonesias, author = {Bridle, Richard and Suharsono, Anissa and Mostafa, Mostafa}, title = {{Indonesia’s Coal Price Cap: A barrier to renewable energy deployment}}, institution = {International Institute for Sustainable Development}, year = {2019}, month = may, url = {https://www.iisd.org/system/files/publications/indonesia-coal-price-cap.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }