Indonesia should adopt least-cost planning to deliver 100GW solar program as coal loses cost advantage

Aligning the Electricity Supply Business Plan (RUPTL) with changing generation costs and regional economics could reduce electricity costs, subsidies, and fossil fuel dependence

August 28, 2026 (IEEFA Asia): A new report by the Institute for Energy Economics and Financial Analysis (IEEFA) finds that Indonesia’s long-standing assumption that coal is the cheapest source of electricity no longer holds, with renewable energy increasingly competitive with or less expensive than coal-fired generation.

Rising coal, oil, and gas costs, exchange-rate volatility, and aging generation assets have substantially eroded the historical cost advantage of fossil fuels – particularly coal – while declining renewable energy technology costs are reshaping the economics of electricity generation. 

The report recommends that future revisions of Indonesia’s Electricity Supply Business Plan (RUPTL) adopt a dynamic least-cost planning approach that reflects current and projected generation costs, fuel price risks, financing conditions, and regional electricity economics. 

The 100GW solar program’s role in least-cost planning

Indonesia’s 100-gigawatt (GW) solar program, first announced by the government in June 2025 and officially launched by President Prabowo Subianto on 25 August 2026, is central to the least-cost planning strategy and signals a greater role for renewable energy in the nation’s electricity supply. The initiative is expected to be incorporated into future RUPTL revisions. 

The report proposes that the solar program be embedded into the electricity planning framework rather than treated as a standalone ambition. The program could reduce electricity costs, strengthen energy security, and accelerate the shift away from fossil fuels. 

Retiring inefficient fossil fuel power plants, particularly coal-fired power plants (CFPPs), ahead of schedule would support this transition by freeing up grid capacity, reducing subsidies, and creating space for renewable energy additions, while directly supporting the 100GW solar target.

“Indonesia's challenge is no longer whether renewable energy can compete with fossil fuels, but whether the electricity planning framework can keep pace with rapidly evolving generation economics. It is critical to plan electricity system development based on current economics rather than historical assumptions,” says report co-author Mutya Yustika, IEEFA’s Research & Engagement Lead, Indonesia Energy Transition.

Coal’s cost advantage falls while government’s subsidy burden rises

Coal-fired generation costs in Indonesia have increased steadily in recent years. Average costs rose by 46% from IDR637 per kilowatt-hour (kWh) in 2020 to IDR930/kWh in 2025. IEEFA estimates that the average cost of coal-fired generation could rise further to approximately IDR1,060/kWh in 2026. 

Indonesia's electricity planning has long assumed that coal-fired generation is the lowest-cost source of electricity, particularly given the country’s abundant coal reserves. However, this assumption no longer reflects the full cost of coal-fired generation. 

Policies such as the Domestic Price Obligation (DPO) and Domestic Market Obligation (DMO) keep coal prices below market levels, obscuring the true cost of coal-fired electricity, and making it challenging for renewable energy projects to compete. The estimated cost of coal generation without the DPO was IDR1,455/kWh in 2025 — 56% higher than the IDR930/kWh cost with the DPO applied. This difference illustrates how regulated domestic coal prices materially influence the apparent cost competitiveness of coal-fired generation. 

Using the levelized cost of electricity (LCOE) to compare generation technologies, the report finds that coal is no longer the cheapest option in Indonesia’s power mix. Coal’s LCOE, ranging from USD10.0–15.1 cents per kilowatt-hour (¢/kWh), is higher than that of utility-scale solar photovoltaic (PV) (USD5.6–8.4¢/kWh) and onshore wind (USD6.8–10.3¢/kWh). Gas is the most expensive fossil fuel option, with an LCOE ranging between USD14.0–21.0¢/kWh.

These ranges highlight a significant shift in the economics of new power generation. Utility-scale solar is approximately 44% cheaper than coal, while onshore wind is about 32% cheaper. Even at the upper end of its cost range, solar’s LCOE remains below the lowest estimate for coal. Wind overlaps with coal only at the margins, with its upper-end estimate of USD10.3¢/kWh broadly comparable to coal at the bottom of its range.

Gas faces an even larger cost disadvantage. Its lowest estimated LCOE of USD14.0¢/kWh is already close to the upper end of the coal range and substantially above the cost range for both solar and most onshore wind projects. This suggests that, on a levelized-cost basis, new fossil fuel generation carries a cost premium relative to renewable alternatives.

These shifting economics carry significant financial implications for Indonesia’s national electricity utility, PT Perusahaan Listrik Negara (PLN), and the government. 

Rising fossil fuel costs, exchange-rate volatility, and regulated retail tariffs are widening the gap between electricity supply costs and consumer prices, increasing government subsidies and compensation.

In 2025, the average retail electricity tariff charged to consumers was approximately IDR1,112.69/kWh. IEEFA estimates that PLN's actual average electricity generation cost (BPP) plus business margin was IDR1,785.64/kWh. This gap was covered by government subsidies and compensation, which increased from IDR65.9 trillion in 2020 to IDR200 trillion in 2025. 

“Leveraging least-cost planning and competitive procurement would allow Indonesia to diversify away from coal and gas while reducing long-term generation costs and easing financial pressure on PLN and the government,” says report co-author Randi Bachtiar, IEEFA’s Energy Finance Specialist, Indonesia.

Eastern Indonesia offers the greatest savings opportunity

The report highlights significant regional differences in electricity generation costs across Indonesia. Generation costs are considerably lower in the large interconnected systems of Java and Sumatra, while Maluku, Papua, West Nusa Tenggara (NTB), and East Nusa Tenggara (NTT) have some of the highest costs.

While large interconnected systems in western Indonesia benefit from economies of scale, eastern regions, with their smaller electricity systems, remain heavily dependent on expensive diesel generation.

IEEFA finds that utility-scale solar PV paired with battery energy storage systems (BESS) can already generate electricity more cheaply than diesel. Importantly, solar plus BESS can provide firm, dispatchable supply, allowing it to replace diesel generation rather than simply reduce fuel consumption during daylight hours. 

Because these systems are small and isolated, this substitution can be achieved without large-scale investment in transmission and grid integration.

“Replacing diesel generation with renewable energy offers multiple benefits: lower generation costs, reduced fuel imports, greater energy security, and less exposure to volatile fuel markets. Indonesia could maximize the economic value of future investment by prioritizing diesel-dependent systems in the east and diversifying coal-heavy systems in the west,” says report co-author Yusuf Kresna, IEEFA’s Energy Finance Analyst, Indonesia.

RUPTL should keep pace with changing electricity economics

The RUPTL 2025–2034 represents a significant step forward in Indonesia's electricity transition. It substantially increases renewable energy deployment, targeting 42.6GW of renewable energy and 10.3GW of energy storage by 2034. 

Combined with investment in transmission infrastructure, the RUPTL could provide a strong foundation for expanding renewable energy while meeting Indonesia's growing electricity demand, the report finds.

The country’s 100GW solar program creates an additional opportunity to align electricity planning with changing generation economics. Integration through least-cost system planning would ensure that new solar capacity is developed where it delivers the greatest economic and technical value. 

The report recommends adopting forward-looking least-cost planning based on current generation costs rather than historical assumptions; prioritizing high-cost regions where renewable energy and storage can deliver the greatest savings; and strengthening private sector participation through bankable power purchase agreements (PPAs), transparent procurement, and regulatory certainty.

Aligning electricity planning with current economics would allow Indonesia to expand renewable energy while reducing system costs, improving energy security, reducing dependence on imported fuel, and insulating the electricity system from commodity price and exchange-rate volatility. 

Read the report: Rethinking Indonesia's electricity economics to reach the 100GW solar target

Read this press release in Bahasa Indonesia

Author contacts:

Mutya Yustika ([email protected])

Randi Bachtiar ([email protected])

Yusuf Kresna ([email protected])

Media contact: Josielyn Manuel ([email protected])