Indonesia Accelerates Solar Push as LNG Costs Upend Gas-Heavy Power Plans
Wood Mackenzie says Indonesia is accelerating solar deployment and trimming its gas ambitions as the Iran war sustains elevated LNG prices across Southeast Asian markets.
Wood Mackenzie said on Thursday (2026-08-06) that gas shortages and high prices are derailing Southeast Asia's power buildout, and that Indonesia is placing greater emphasis on accelerating solar deployment alongside selective gas development as a result.7
JKM, the Asian LNG benchmark, was quoted at $21.14/MMBtu on Friday (2026-08-07). That is the price environment confronting Southeast Asian utilities trying to anchor grid reliability on flexible gas-fired generation, and it is beginning to redirect investment priorities in the region's largest coal-exporting economy.7
The Iran war has been the primary shock to the region's supply arithmetic. The International Energy Agency warned in June (2026-06) that Southeast Asia's power sector is too exposed to risk from its dependence on oil and gas imports from a limited number of suppliers. That exposure became an active problem once the Iran conflict began disrupting regional supply chains.6
The immediate response across the region has been coal. Rystad Energy estimated in a June (2026-06) note that the Iran conflict fallout alone will drive an additional 70 million tons of coal consumption across the Asia-Pacific region in 2026.4
Supply is not growing to match. Global coal output is forecast to decline 5.7 percent to 985 million tons in 2026, according to Argus business development manager Bryan Lim. A fatal explosion at a Shanxi province mine in May (2026-05) triggered sweeping safety inspections, tightening Chinese domestic supply at a moment of rising regional demand. DBX Commodities CEO Alexandre Claude estimated that China's June (2026-06) thermal coal imports would climb 27.6 percent from a year earlier to 27.8 million metric tons to compensate.4
Indonesia is caught on both sides of that dynamic. As a major exporter, it faces the prospect of shipments falling around 11 percent this year to 446 million tons if production tracks the current pace, according to Argus. The Southeast Asian buyers that form its core customer base are simultaneously scaling up coal-fired capacity precisely as Indonesian supply tightens.4
The Iran conflict disrupted a different set of plans. Before the war escalated, Indonesia had announced in early February (2026-02) six coal gasification projects backed by $9.8 billion in investment, aimed at converting domestic coal reserves into dimethyl ether and synthetic gas. Those projects predate the war by several months.3
PLN, the state utility, has been expanding gas and LNG infrastructure alongside Indonesia's renewable rollout, positioning flexible gas capacity as the stabilizing backbone for rising variable generation. Wood Mackenzie's assessment says that logic has weakened: gas shortages and procurement costs are shifting the calculation toward solar.5,7
Indonesia's renewable buildout carries its own execution constraints, independent of gas economics. The country reached 14 GW of installed renewable capacity in 2024, but grid bottlenecks, policy gaps, and PLN's dominance over network access have slowed the pace at which new capacity connects. Transmission infrastructure across the archipelago's islands has struggled to keep up with demand growth.2
The IEA estimated that Southeast Asia's combined renewable capacity, which stood at 120 GW as of 2024, could nearly triple by 2035 under current policy settings and potentially jump fivefold if all announced targets are met. Indonesia's solar acceleration, if it materializes, would push the regional total toward the upper end of that range.7
"The shift will impose substantial environmental and public health costs," said Dinita Setyawati, senior energy analyst at Ember, referring to the broader regional pivot to coal. Indonesia's near-term generation mix is carrying more coal than its pre-war plans anticipated, even as the stated policy direction turns toward solar.1
Getting that solar onto the grid is the harder test. PLN's network dominance and the inter-island transmission gaps that constrained the last wave of renewable projects remain unresolved. Wood Mackenzie's forecast of accelerated deployment assumes those obstacles give way — and PLN's pace of grid investment, more than the scale of solar ambitions, will set the floor for how much of that capacity actually connects.2,7