Indonesia's Aluminum Industry Expansion Hinges on Reliable Electricity Supply

Current Electricity Demand in 2026

As of 2026, the aluminum value chain (primarily smelting) consumes an estimated 3.5 GW of electricity. This marks a 150% increase from the roughly 1 GW baseline in 2024, driven by new and ramping smelters. Key operational facilities include:

• State-owned Inalum's Kuala Tanjung smelter (North Sumatra), producing around 280,000 tonnes annually and historically powered by hydropower.
• Newer projects like Adaro Minerals' smelter in North Kalimantan (targeting 500,000 tonnes/year, with operations starting late 2025/early 2026).
• Chinese-backed developments in regions such as Weda Bay (North Maluku) and others in Kalimantan and Sulawesi.

Demand is heavily concentrated in remote industrial zones like North Kalimantan, West Kalimantan, Sulawesi, and parts of Sumatra which areas where grid infrastructure has historically been limited.

Projected Electricity Demand Surge

Projections indicate the sector's power needs will escalate dramatically:

• By 2028, demand from the aluminum value chain alone could reach 9.5 GW, a staggering 317% increase from 2024 levels.
• This aligns with primary aluminum smelting capacity growing from ~0.75 million tonnes per annum (Mtpa) in 2024 to ~1.5 Mtpa in 2026 and up to 3.13 Mtpa by 2028.

The surge compresses decades of typical industrial energy scaling into just a few years, creating unprecedented challenges for regional power distribution and grid stability.

Current Power Supply Landscape

Much of the electricity for these smelters comes from captive coal-fired plants, dedicated on-site generation owned by the operators rather than the national grid (PLN). As of 2024-2025:

• Captive power capacity across energy-intensive industries has grown rapidly to over 22-25 GW, with coal dominating (>75-81%).
• Aluminum currently draws around 1 GW from such sources, but this is set to expand sharply.

A single large smelter (e.g., 500,000 tonnes/year) often requires ~1.1 GW of dedicated power, often from coal plants emitting millions of tonnes of CO₂ annually.

Grid reliability remains a bottleneck in key regions, where smelters demand uninterrupted supply. Renewable integration (hydropower in Sulawesi/Java, solar initiatives) is progressing under Indonesia's Net Zero 2060 goals, but adoption is slow due to high upfront costs, long development timelines, and infrastructure needs. PLN has signed MOUs for large supplies (e.g., up to 1,260 MVA for certain projects), but coal continues to provide the bulk of near-term additions.

Initiatives to Enhance Power Availability

To support the sector's energy needs:

• The Ministry of Industry (Kemenperin) has proposed expanding the Harga Gas Bumi Tertentu (HGBT) scheme, subsidized natural gas at USD 6-7 per MMBTU to the aluminum industry (currently limited to other sectors). This would enable more gas-fired generation as a transitional option, offering a more flexible and potentially lower-emission alternative to coal while addressing immediate power demands.
• In West Kalimantan, Rosatom (Russia's state nuclear corporation) has actively proposed collaboration (as of February 27, 2026 discussions). Rosatom offers reactor technologies from 100 MW to 1,200 MW per unit with high safety standards, suitable for powering bauxite-to-aluminum processing in this bauxite-rich province. The province's geological stability supports nuclear development, and such plants could deliver reliable, low-carbon baseload power to smelters, reducing reliance on coal and imports. Indonesia targets its first nuclear plant by 2034 (potentially using small modular reactors), and this could accelerate energy security for energy-intensive industries.

Challenges in Power Infrastructure

Power remains the primary constraint:

• Unreliable or delayed supply has already slowed some project timelines.
• High dependence on coal raises carbon intensity concerns, conflicting with global trends (e.g., EU CBAM enforcement, China's expanding ETS).
• Competition for electricity from other sectors (e.g., AI data centers globally) could intensify pressures.

Outlook: Electricity as the Make-or-Break Factor

By 2028, Indonesia could see aluminum smelting demand hit 9.5 GW, positioning the country to capture a larger share of global supply (potentially 5-7%) amid constraints elsewhere. Success depends on scaling power infrastructure rapidly through captive expansions, gas bridging, renewables, and potential nuclear partnerships. Overall capacity additions are targeted to support a +57% increase in national power availability over the coming decades (reaching ~177 GW by the mid-2030s from mid-2020s levels of ~112-116 GW).

The aluminum sector's trajectory hinges on electricity reliability and scale. With the right power developments, Indonesia can sustain its downstream ambitions and become a major global player; without it, growth could stall amid deficits and higher global prices.