Climate Finance Asia Report Identifies Real Barriers to Coal Retirement in Indonesia
Study finds that PPA lock-in, audit risk, and fragmented authority, not just financing, are blocking early coal-fired power plant retirement
HONG KONG, June 01, 2026 – Despite growing global commitments to phase down coal and increasing availability of transition finance, early retirement of coal-fired power plants (CFPPs) in Asia remains limited due to institutional and governance constraints, according to a new report by Climate Finance Asia titled “Accelerating Coal-Fired Power Plant Retirement in Indonesia: Grounded Evidence and Stakeholder Mapping.”
Focusing on Indonesia, the report finds that barriers to early coal retirement are primarily structural. Long-term power purchase agreements (PPAs), fragmented decision-making, and legal and fiscal risks faced by public institutions prevent coal-retirement deals from moving into implementation, even where political will and financing are in place. The stalled Cirebon‑1 early-retirement pilot illustrates the problem: even with transition-finance interest, unresolved PPA modification, audit exposure, and lack of government authorization have stalled execution.
Indonesia was selected for this Phase II study, after Phase I covering Bangladesh, Indonesia, Malaysia and Pakistan showed that Indonesia has relatively stronger policy engagement, emerging transition finance activity, and high potential relevance for coal transition, as well as its large dependence on coal.
Based on plant-level interviews, stakeholder consultations, and institutional mapping, the study shows that early retirement becomes feasible only when clear authorization frameworks, audit-safe decision-making, and contractual flexibility are in place. Without these conditions, transition finance mechanisms cannot operate effectively. The analysis focuses on Jawa 7 and Jawa 8 as illustrative cases and draws on interviews with Indonesian institutions, state utility PLN, plant operators, financiers, and foreign energy investors with coal assets in Indonesia.
The report also highlights that decision-making authority is concentrated among a small group of actors, including key ministries and the PLN, while many affected stakeholders have limited influence. In addition, interviews with foreign energy investors indicate that early retirement of overseas coal assets remains institutionally difficult without an explicit regulatory ‘safe harbour’ for climate-aligned asset restructuring in their home countries. A comparative case from the Philippines, the ACEN–SLTEC transaction, shows that coal retirement can proceed when contracts are renegotiable and decision-making is internalized, conditions that differ sharply from Indonesia’s state-led power system.
“Our findings show that finance alone cannot drive coal transition,” said Dr. Farhad Taghizadeh-Hesary, Chief Economist of Climate Finance Asia. “Early retirement requires clear institutional mandates, legal certainty, and coordinated decision-making. Without these, even well-designed financial mechanisms remain underutilized.”
He added, “Recent geopolitical tensions in the Middle East and disruptions in fossil fuel markets, particularly oil and natural gas, have reinforced the urgency of accelerating the energy transition. Moving toward renewable energy supports both environmental goals and energy security by reducing exposure to external shocks. In this context, reducing reliance on coal is increasingly critical, as it supports both climate objectives and long-term energy security.”
The report provides an execution-oriented framework that emphasizes sequencing governance reforms before financial deployment and identifies priority actions for policymakers, financial institutions, and plant operators.
Based on findings from both Phase I and Phase II studies, Climate Finance Asia calls for accelerated, coordinated action by all stakeholders to enable the early retirement of CFPPs. Delays in transition impose significant social and environmental costs on the communities in which these plants operate. Advancing early retirement will support the transition to a low-carbon economy, enhance energy security, reduce the risk of stranded assets, and improve social and environmental well-being. Climate Finance Asia looks forward to working with like-minded stakeholders to help accelerate the transition away from coal-fired power generation.
The report “Accelerating Coal-Fired Power Plant Retirement in Indonesia: Grounded Evidence and Stakeholder Mapping” and the accompanying policy brief are available for download.
Climate Finance Asia (CFA) is a mission-driven business focused on tackling the climate challenge through sustainable finance tools. Founded in 2008 as Carbon Care Asia, CFA’s expert team helps clients across regulators, financial institutions, corporations and international organisations, turn climate challenges into strategic opportunities. Our high-impact advisory solutions drive sustainability performance, resilience, and long-term value.
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