Coal Policy Shift Looms as Indonesia Weighs Higher DMO and Slower Output

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JAKARTA, investortrust.id — Indonesia considers raising domestic coal obligations above twenty five percent as the government reviews next year’s output targets and confronts a sharp drop in prices caused by oversupply. The reassessment comes as national electricity demand continues to depend heavily on coal fired power plants and the country’s renewable capacity remains limited, shaping a policy shift designed to balance market stability with domestic energy security.

In the second paragraph, the Ministry of Energy and Mineral Resources is introduced as the Ministry of Energy and Mineral Resources (ESDM), the national utility as PT PLN (Persero), and Danantara as Badan Pengelola Investasi Daya Anagata Nusantara (BPI Danantara).

Minister of Energy and Mineral Resources Bahlil Lahadalia said the government’s evaluation centers on correcting the imbalance between global coal supply and demand, which has pushed prices down throughout the year. He noted that the 2025 work-plan volume is significantly above market absorption.

“Our work plan allows production to reach nine hundred million tons. What happens then? Supply and demand go out of balance. Global coal demand is only around one point three billion tons, and we alone can supply up to six hundred million tons, almost half of it. That is why coal prices have fallen sharply,” he said during a visit to the ESDM Secretariat in Jakarta on Friday, November 14.

Bahlil stressed that cutting production will not be enough unless domestic obligations are adjusted to ensure sufficient supply for sectors tied closely to public welfare, including electricity generation, fertilizer producers, and cement manufacturers. The domestic market obligation, currently at twenty five percent, has applied since 2020 to all coal mining permit holders and coal cooperation agreement operators.

He said the final decision would follow a full review of the 2026 work-plan submissions. “We will evaluate the work-plan volumes. Once we do that, the twenty five percent DMO will likely be pushed higher if national needs require it, especially for cement. If PLN and fertilizer need only twenty percent, that is manageable.

But if there is still a shortfall, we will raise the DMO,” he said. Coal demand for electricity alone reaches between one hundred forty and one hundred sixty million tons annually. While the exact DMO volume for next year remains under review, he confirmed that the price ceiling for domestic coal supply remains at seventy US dollars per metric ton.

“The final DMO will depend on the consolidated work-plan figures. The minimum is twenty five percent. Full stop,” he said.

Coal-Fired Power Still Dominant as National Capacity Reaches 107 GW

The debate over higher DMO requirements is closely linked to the structure of Indonesia’s electricity system. Acting Director General of Electricity Tri Winarno told lawmakers that national installed capacity reached one hundred seven gigawatts by October 2025, with coal plants still serving as the backbone of baseload supply. Renewable energy sources accounted for just 14.4 percent of total capacity.

“Hydropower remains the backbone with more than seven percent of total capacity,” Tri said during a hearing with Commission XII of the House of Representatives on November 13. “It is followed by biomass at three percent, geothermal at two point six percent, solar at one point three percent, wind at zero point one percent, and other renewable sources that are still relatively small.”

Tri said that despite strong efforts to advance clean-energy development, Indonesia cannot quickly move away from coal due to the scale of demand and the intermittent nature of variable renewable energy. “Our generation structure still shows a strong dependence on fossil energy, especially coal, which remains the main baseload generator operating twenty four hours to meet national electricity needs,” he said.

He added that coal fired plants will remain critical even as Indonesia pursues net zero emission by 2060 or earlier. “We cannot suddenly abandon coal plants. Their role in providing reliability is still significant. At the same time, pressure for decarbonization continues to rise, both from national policies and global economic dynamics,” he said.

Tri also underscored the role of gas fired plants as flexible support for the transition. “Gas turbines can follow changing loads and act as peakers when electricity demand suddenly rises. That flexibility is increasingly important as the penetration of variable renewables such as solar and wind increases,” he said.

Waste-to-Energy Expansions and Implications for Coal Demand

Alongside coal policy adjustments, the government is rolling out a nationwide waste to energy program aimed at reducing landfill pressures and providing PLN with additional renewable supply. Chief Investment Officer of BPI Danantara Pandu Sjahrir said the initiative will not disrupt coal supply already committed to the national utility. “Coal remains the baseload. There is no change to coal volumes that have already been contracted,” he said during a media briefing at Wisma Danantara in Jakarta on October 3.

Pandu said the waste to energy program aligns with PLN’s long-term plan to add sixty nine point five gigawatts of new capacity over the next decade, seventy six percent of which is expected to come from renewable sources. He stressed that DMO requirements — which he noted at thirty percent in his remarks — ensure domestic coal availability remains intact even as waste to energy capacity expands.

Stefanus Ade Hadiwidjaja, Managing Director of Danantara Investment Management, said the program also addresses urgent waste challenges in major cities. He cited the example of Bantargebang landfill, where only thirty eight percent of accumulated waste can be processed. “If the fifty five million tons of waste piled up in Bantargebang were brought back to Jakarta, almost the entire city would be covered,” he said.

Danantara Indonesia CEO Rosan Perkasa Roeslani said the waste to energy program will be implemented in thirty three cities nationwide with an investment requirement of around ninety one trillion rupiah. The first phase will begin with ten priority cities identified by the Ministry of Environment based on waste volume and water availability. “We will start with the first ten cities,” Rosan said at the Indonesia International Sustainability Forum in Jakarta on October 10.

Officials say the government’s review of coal production and DMO levels must reflect these overlapping priorities: securing fuel for PLN, supporting industrial demand, sustaining market stability, and advancing the longer-term shift toward cleaner power generation. The final DMO revision is expected to serve as a bridge between Indonesia’s immediate reliance on coal and the broader goals of energy transition.