Mineral industries such as steel, nickel, and aluminium smelters require enormous amounts of heat and uninterrupted electricity to operate. In many places where downstream mineral facilities are located, the national grid managed by PLN (Perusahaan Listrik Negara) seldom provides the supply with the required quality and reliability.

Consequently, coal-based captive power plants have emerged as a solution to meet these industrial demands. Nearly 25% of coal power plants in Indonesia are captive coal power plants, with numbers expected to rise throughout this decade as the downstream mineral target expands.

While the global energy transition is underway, Indonesia continues to expand the number of captive coal units. Furthermore, as this captive coal is excluded from PLN’s business plan (RUPTL), they are not directly tied to coal phase-down targets under JETP (Just Energy Transition Partnership). Without stringent policies and regulations on mineral downstream industries, Indonesia risks locking in coal infrastructure, undermining JETP goals and deepening long-term reliance on coal.

To address this, the Government of Indonesia is exploring innovative financing mechanisms to accelerate the early retirement of captive coal and replace it with renewables. Captive coal retirement is more feasible than grid-connected coal as it avoids issues of state revenue loss, change in PLN’s asset values, and implications for grid reliability. These plants are privately owned, newer, and concentrated in industrial zones, making them ideal for renewable microgrids or hybrid systems.

Transition credits, high-integrity carbon credits linked to coal phase-out, offer a scalable solution to mobilise private and concessional capital through blended finance. Structured under Article 6 of the Paris Agreement, these credits could attract sovereign buyers, corporate net-zero leaders, and ESG investors, while supporting Indonesia’s decarbonisation roadmap and boosting the global competitiveness of its mineral exports.

The Institute for Essential Services Reform (IESR) intends to conduct a feasibility study on the utilization of Transition Credits to accelerate the early retirement of coal captive power plants in Indonesia’s mineral downstream industries. Transition credit is high-integrity carbon credit that can serve as a complementary financing mechanism to accelerate and scale the early retirement of coal-fired power plants (CFPPs). The study will be undertaken by qualified experts and will include:

• (i) an assessment of the suitability of using carbon credit as transition credit for its application to early captive coal retirement in Indonesia’s mineral processing industries;

• (ii) a techno-economic and financial analysis of early retirement scenarios;

• (iii) case study reviews; and

• (iv) analysis of policy and regulatory gaps and the design framework and strategies to enable the transition credit to be applied in the case, and application of renewable electricity integration and emission reduction as a solution.

The objective is to provide evidence-based feasibility of utilization of Transition Credits for early coal retirement and a set of recommendations that support the business case of early coal retirement, align with international climate commitments, and enhance the competitiveness of mineral-based industries.