From Coal DMO to Burden Sharing to Safeguard Electricity Security

Indonesia is once again confronted with a paradox. As the world’s third-largest coal producer with output approaching 790 million tonnes per year, the country faces a potential shortage of coal supply to meet the needs of its national power plants. Amidst an abundance of natural resources, PT PLN (Persero) still encounters challenges in securing coal supplies with specifications suitable for its power generation units. This paradox indicates that the national energy issue is no longer solely about resource availability. The real challenge lies in governance, policy design, and the national energy system’s ability to adapt to the changing characteristics of Indonesia’s resources.

So far, the debate surrounding the Domestic Market Obligation (DMO) for coal has largely revolved around price levels and producer compliance. However, merely adjusting the DMO price will not resolve the root problem. A more comprehensive policy reform is needed to maintain national energy security without sacrificing industrial sustainability or the country’s fiscal stability. Currently, around 65 percent of Indonesia’s coal production is allocated for export, while PLN’s annual coal requirement is approximately 154 million tonnes. Quantitatively, national supply is more than sufficient. The problem arises because Indonesia’s coal production structure is increasingly dominated by low-rank coal, whereas many existing power plants are still designed to use medium to high-calorie coal. Consequently, even though supply is available, not all of it can be optimally utilised. This challenge must be addressed immediately through the modernisation of the national power generation system.

Moving forward, PLN and Independent Power Producers (IPPs) need to accelerate retrofit and modernisation programmes to ensure plants have the flexibility to use various coal qualities. Upgrades to boiler technology, coal blending systems, and combustion technology will make plants more adaptive to the characteristics of domestically available coal. The paradigm for building new power plants must also change. Future plants should not be designed for a single fuel specification. The concept of fuel flexibility must become the new standard, enabling plants to use combinations of different coal calorific values, biomass, natural gas, and even gradually accommodate hydrogen and other low-carbon fuels. This approach will strengthen energy security while improving long-term cost efficiency in power generation.

An evaluation of the DMO price is necessary to guarantee coal supply for PLN. However, any price increase should not be borne entirely by PLN, the government, or the public through electricity tariff hikes. Indonesia requires a new approach in the form of a proportional burden-sharing mechanism. This concept is not unfamiliar; the government previously implemented a similar mechanism through the Palm Oil Plantation Fund Management Agency (BPDPKS), where a portion of industry profits is used to maintain the overall ecosystem’s sustainability. The same principle can be adapted for the coal sector. For illustration, if the economic price of coal for power plants is around US$88 per tonne, the difference between the market price and the price PLN can afford need not be fully borne by a single party. A burden-sharing scheme could be designed as follows: approximately 65 percent borne by business actors benefiting from high export prices through a coal sector stabilisation fund or similar instrument; around 25 percent contributed by the government through measured fiscal instruments, whether incentives, compensation, or energy sector fund management mechanisms; and roughly 10 percent allocated to non-subsidised electricity consumers through gradual and measured tariff adjustments, avoiding shocks to inflation or public purchasing power. This approach is far more equitable as the risk is not borne by one party alone. Industry retains business certainty, PLN secures supply guarantees, the government can maintain fiscal health, and the public remains protected from drastic electricity tariff spikes. Furthermore, this scheme creates a mechanism for sharing benefits when commodity prices are high, as well as sharing risks when market conditions are under pressure.

This case also serves as a reminder that Indonesia cannot continue to rely its electricity system on a single primary energy source. Accelerating the gasification of power plants must be a national priority. Indonesia possesses large gas reserves, yet their utilisation for the electricity sector remains suboptimal. The development of gas pipelines, LNG, mini-LNG, CNG, and beyond-pipeline infrastructure must be expedited to provide plants with more flexible and efficient energy alternatives. Additionally, the biomass co-firing programme needs to be scaled up. Indonesia’s biomass potential is enormous, ranging from palm oil waste, forestry waste, rice husks, to other agricultural residues. Beyond reducing coal consumption, biomass can create economic added value in the regions, open new employment opportunities, and strengthen a circular economy based on local resources.

Energy security is not solely determined by resource availability. The current coal paradox is a momentum for fundamental reform in national energy governance. The solution is not merely adjusting DMO prices, but building a more adaptive, equitable, and sustainable energy ecosystem. The burden-sharing scheme, power plant modernisation, and energy diversification are three strategic pillars that must be advanced simultaneously. With the right policy design, Indonesia can transform this paradox into an opportunity to build a more resilient, efficient, and sustainable electricity system for future generations.