Indonesia's Nickel Ambition Confronts 13.9 GW Coal Power Challenge

The Challenge of Energy Reliance

Indonesia's position as a leading nickel producer and its aspiration to expand its presence in the electric vehicle (EV) battery supply chain face a significant energy challenge. A substantial portion of the country's industrial facilities, particularly in the nickel sector, depend on captive coal-fired power plants.

Data from a Just Energy Transition Partnership report for 2024 shows that coal accounts for nearly 20 gigawatts (GW) of Indonesia's total 26 GW installed captive power capacity. The nickel sector alone comprises 13.9 GW of this captive power capacity, making it the largest industrial consumer.

Other significant users include the pulp and paper industry, with 3.2 GW, and industrial estates, which use 2.4 GW to supply multiple factories. This energy structure presents a paradox for global decarbonisation efforts, as the carbon footprint of Indonesian nickel remains considerable.

Structural Factors Driving Coal Use

The extensive use of captive coal in Indonesia's nickel industry stems from the energy-intensive nature of smelting operations. According to Haykal Hubeis, secretary general of the Indonesian Smelter and Refining Enterprises Association (AP3I), smelting requires continuous, high-temperature processes and a stable baseload power supply.

Many nickel-processing hubs are situated in remote regions, where grid connectivity is limited, and infrastructure for renewable energy sources is insufficient. This geographical and technical constraint means that coal currently offers the most reliable and cost-effective energy solution for these operations.

Consequently, despite broader decarbonisation objectives, the technical and economic realities of nickel production in these locations continue to drive reliance on coal.

Policy Framework and Decarbonisation Paradox

Indonesia introduced a presidential regulation in 2022 aimed at accelerating renewable energy development and prohibiting new coal-fired power plants. However, this regulation included an exemption for captive coal plants linked to national strategic projects.

The government's strategy to process raw nickel into higher-value products, such as stainless steel and battery materials, is classified as a flagship national priority. This policy framework has inadvertently enabled the continued development of captive coal capacity within a broader agenda intended to support the energy transition.

Environmental analysts, including Katherine Hasan from the Centre for Research on Energy and Clean Air (CREA), highlight this as a paradox, given nickel's critical role in the global energy transition and the substantial carbon footprint associated with its Indonesian production.

Varied Corporate Decarbonisation Efforts

Despite the systemic challenges, some companies within the Indonesian nickel sector have initiated efforts to reduce their carbon intensity.

Vale Indonesia, a subsidiary of the Brazilian mining group Vale, recorded the lowest carbon intensity among four major Indonesian nickel producers, at 28.7 tonnes of CO2 per tonne of nickel produced, according to a 2024 analysis by the Institute for Energy Economics and Financial Analysis (IEEFA).

The company's 2021 sustainability report attributes this lower emissions profile to its use of three hydropower plants for its Sorowako operations in South Sulawesi, which it states avoid over 1 million tonnes of CO2 equivalent annually compared to coal-fired alternatives.

Dwi Cahya Agung Saputra, a researcher at the Institute for Essential Services Reform (IESR), notes that companies like Vale often cater to markets with a preference for low-carbon products and possess the capital, technology, and geographical advantages for cleaner power development.

However, emissions vary significantly even within single companies, as illustrated by PT Trimegah Bangun Persada Tbk, where ferronickel production remained emissions-intensive while battery-material production had a lower carbon footprint, reflecting diverse energy requirements.

This variation demonstrates that decarbonisation pathways must be tailored to specific companies, products, and technologies.

The Path Forward and Market Impact

The Indonesian government launched its National Nickel Industry Decarbonization Roadmap in June 2025, which sets a target of an 81 per cent reduction in the sector's greenhouse gas emissions by 2045.

This plan primarily focuses on accelerating renewable power deployment to transition away from captive coal, with green hydrogen, biomass, and expanded natural gas infrastructure playing smaller roles. The government is also developing a broader decarbonisation roadmap for nine key industrial sectors.

The success of these initiatives will be critical for Indonesia to maintain its competitiveness in global markets, especially as international carbon regulations evolve.

Decision-makers should monitor the implementation progress of the National Nickel Industry Decarbonization Roadmap, particularly the annual deployment figures for renewable energy capacity in nickel production hubs, with initial assessments of progress expected by late 2027.

Failure to meet these deployment targets could lead to higher compliance costs for Indonesian nickel exports under future carbon border adjustment mechanisms, affecting its market share in low-carbon supply chains.