Adaro Indonesia aluminum project faces losses at current metal prices

IEEFA warns that Adaro Group's US$2 billion Phase 1 aluminum smelter and 1,100 MW coal power plant in North Kalimantan will generate financial losses at the current global aluminum price of US$2,200 per tonne, and that only sustained prices of US$2,800 per tonne would produce payback within eight to eleven years. The project's coal-fired captive power plant will emit an estimated 5.2 million tonnes of CO2 annually, equivalent to 0.8% of Indonesia's total 2021 emissions.

Adaro first proposed the three-phase aluminum complex at Kaltara Industrial Park in May 2020. Phase 1 targets output of 500 kilotonnes per annum and draws energy from a dedicated 1,100 MW coal plant that operates off-grid, serving only the smelter. Construction is underway. Aluminum production is highly energy-intensive, requiring 15,700 kWh per tonne of output. IEEFA analyst Ghee Peh calculates losses for the project under current market prices and finds that payback under the best-case scenario requires eight to eleven years, contingent on aluminum prices rising 30% above current levels and remaining elevated throughout the payback period.

Standard Chartered and DBS Bank declined to finance the project — both have coal exit policies — and Adaro subsequently secured loans from five Indonesian domestic banks. Indonesia's captive power sector adds a systemic dimension to the analysis: 13 GW of captive coal capacity is already installed, representing 32% of total 2023 coal-fired generating capacity, with 21 GW more in the pipeline. If fully built, the new captive capacity would add 52% to 2023 coal power levels and 17% to 2022 coal demand. IEEFA flags that Indonesia's Financial Services Authority was reportedly reconsidering whether to classify captive coal plants as green if they support energy transition industries, raising greenwashing risks.

Only the third phase of the Adaro aluminum complex, also targeting 500 ktpa, is planned to use hydropower. The first two phases will rely on coal-fired electricity, creating a structural tension between the stated energy transition rationale for expanding domestic aluminum processing and the fossil fuel-intensive production method used. IEEFA recommends that investors, lenders and regulators monitor Indonesia's growing captive power capacity closely, given the potential for this off-grid segment to obscure actual coal demand growth in official statistics and undermine the country's climate commitments under its NDC and the Paris Agreement.

Key figure — 21 GW — additional captive coal power capacity planned across Indonesia, enough to add 52% to 2023 coal-fired generating levels