Adaro aluminum smelter and coal plant face weak financial case in Indonesia

Indonesian coal company Adaro Group's planned Phase 1 aluminum smelter of 500 kilotonnes per annum and its 1,100 MW supporting coal-fired captive power plant will require eight to eleven years to recover a US$2 billion capital investment even under the best-case assumption of sustained aluminum prices at US$2,800 per tonne. The project will add an estimated 5.2 million tonnes of CO2 annually, equivalent to nearly 1% of Indonesia's 2021 total carbon emissions.

The Phase 1 complex is under construction at Kaltara Industrial Park in North Kalimantan province. The captive coal plant, dedicated exclusively to supplying the smelter's power needs, bypasses Indonesia's electricity grid. Aluminum smelting requires approximately 15,700 kWh per tonne of output, making the energy supply arrangement central to the project's economics. IEEFA's financial analysis finds the project generates losses at the current global aluminum price of US$2,200 per tonne, and that only sustained prices of US$2,800 per tonne — the upper bound of the five-year price range — could deliver payback within the eight-to-eleven-year window, assuming a 30% price increase from current levels.

Standard Chartered and DBS Bank, both financial institutions with formal coal exit policies, declined to provide financing for Adaro's Phase 1 smelter and coal plant. The project subsequently secured loans from five Indonesian domestic banks. IEEFA notes that this financing outcome reflects a broader trend of international lenders applying coal exclusion policies, a shift documented in IEEFA's survey of more than 200 financial institutions and their coal exit commitments. The financing gap between global and domestic lenders for coal-dependent industrial projects is expected to widen as more institutions align with net-zero commitments.

A broader concern flagged by IEEFA is Indonesia's reported consideration of reclassifying captive coal-fired power plants as green infrastructure if they support energy transition materials such as nickel and aluminum. Captive coal capacity already installed across Indonesia stands at 13 GW, representing 32% of 2023 coal-fired generating capacity, with a further 21 GW planned — enough to add 52% to 2023 coal power capacity and 17% to 2022 coal demand. IEEFA warns that including captive coal in the national green taxonomy would send a damaging signal to sustainability-focused investors and undermine Indonesia's credibility in international climate negotiations.

Key figure — 5.2 million tonnes CO2 — estimated annual emissions from Adaro's Phase 1 smelter and captive coal plant, equivalent to ~1% of Indonesia's 2021 total