A new analysis by the Energy Shift Institute (ESI) has recommended that Indonesian coal companies should accelerate their shift toward energy transition while market conditions still allow. 

Despite strong earnings and stable demand, researchers warn that these advantages are temporary and susceptible to global volatility.

“Coal’s remarkably robust earning power of recent years is but a temporary upswing inherent of a cyclical industry. It is not a structural advantage,” Hazel Ilango, ESI’s principal researcher and Indonesia coal transition lead, said on Wednesday, June 18, 2025.

The report, titled Coal in Indonesia: Paradox of Strength and Uncertainty, emphasizes that high prices, market confidence, and stable supply are masking deeper vulnerabilities. Coal prices have dropped more than 50 percent since their 2022 peak, though they remain above pre-pandemic levels.

Momentum

Putra Adhiguna, co-author of the report, warned that the current profitability should not justify inaction.

“A confluence of favorable factors is positioning the biggest thermal coal export nation in the world to use today’s cash to chart a more orderly transition,” he said. “We call on Indonesian mining firms to shake off their wait-and-see attitude and wake up to the worldwide momentum towards net-zero carbon”.

Indonesia’s coal sector remains a cornerstone of the national economy, contributing about 3.6 percent to GDP and ranking as the second-most profitable industry after banking. From FY2019 to FY2023, the coal sector generated $31.4 billion in net income.

Opportunities and risks

The report identifies both strengths and threats. Twelve major coal producers were analyzed, revealing minimal to moderate financial risk profiles, low debt-to-capital ratios, and mature assets with high productivity. However, overconcentration in export markets – especially China and India, which accounted for 63 percent of 2023 coal exports – is a growing vulnerability.

“Coal mining companies are prone to myriad risks, some of their own making and others beyond their control,” Adhiguna noted, citing weak diversification plans and dependence on a few mines.

The sector also faces policy hurdles, including domestic market obligations (DMO), foreign currency retention requirements (DHE), and royalty regulations that reduce earnings potential. These create disincentives for long-term transition planning.

Transition

Ilango stressed that companies delaying action in favor of short-term profits may lose the ability to adapt later. “A company that delays action restricts its flexibility and amplifies long-term risks,” she said.

She pointed to China’s increasing reliance on clean energy as a signal that future coal demand is uncertain.

Although a few Indonesian coal firms have initiated steps toward renewables and metal diversification, these efforts remain limited.

“A credible transition starts with clear targets and bankable projects,” the report concluded. “Indonesia’s coal producers have the foundation. Now they must act before that window closes”.