Indonesia faces electricity shortages amid coal production crisis

Indonesia is experiencing a wave of electricity shortages affecting households and businesses across the archipelago. As fossil fuels account for two-thirds of the nation's electricity, the instability has significantly impacted the economy, particularly small businesses lacking backup generators.

President Prabowo Subianto has instructed the Ministry of Energy and the state electricity company, PLN, to accelerate solutions to the regional outages. The crisis stems from a reduction in mining quotas from 790 to 600 million tons last year, intended to drive up market prices, alongside rising costs related to the war in Iran.

A central issue is the Domestic Market Obligation (DMO) policy established in 2009. This requires miners to sell 25% of their production to domestic buyers at a capped price of $70 per ton—a rate set in 2018 that remains far below current market values. Consequently, many producers find it more profitable to pay penalties for non-compliance rather than selling at the restricted domestic price.

The shortages also threaten the nickel processing sector, a critical component of Indonesia's economy and a vital link in the global supply chain for stainless steel and electric vehicles. Analysts from the Institute for Energy Economics and Financial Analysis (IEEFA) have noted that while Indonesia has potential in renewable energy, the sector remains heavily dependent on coal.