Indonesia’s aluminium industry is growing fast, tackling all the stalled sites and upgrading technology at processing units. The RKAB structure has made sure that the ore and the subsequent production process are streamlined. But what about the electrons? Globally, electricity alone accounts for roughly 30-35 per cent of the cost of producing one tonne of primary aluminium. By 2028, Indonesia’s primary aluminium smelting capacity is projected to rise from 0.75 million tonnes per annum in 2024 to 3.13 million tonnes in 2028, a 317 per cent increase in just four years. That expansion is the final leg of Jakarta’s downstream pivot: converting bauxite reserves into integrated alumina and aluminium output. But the decisive constraint is neither geology nor capital. It is power.
Indonesia’s multi-GW demand shock that other regions have already faced
The projected increase by SMM to 3.13 million tonnes per annum by 2028 is the culmination of Indonesia’s post-2023 bauxite export ban strategy, which redirected ore into domestic refining and smelting. Since the ban, Indonesia has accelerated alumina refinery construction (with 14.2 million tonnes of additional alumina capacity in the pipeline) and mapped out more than 7,150 thousand tonnes of additional aluminium smelting capacity.
Also, the power demand increase is concentrated in regions where smelter projects are under construction or planned, including North Kalimantan, West Kalimantan, Sulawesi and parts of Sumatra. But is Indonesia ready for such a demand leap?
International experience shows that resource availability and project financing alone do not guarantee execution. Europe’s aluminium curtailments during the 2022 energy crisis and Mozambique’s Mozal smelter dependence on dedicated power supply arrangements illustrate how electricity availability ultimately determines operating continuity and cost competitiveness. In Indonesia’s case, with aluminium value-chain power demand projected to rise from 1 GW in 2024 to 9.5 GW by 2028, power supply, not geology or capital, is the binding constraint.
Likewise, several European smelters were curtailed in 2022 as high power prices made continued operation uneconomic, demonstrating how a regional power shock can directly remove capacity and raise downstream premiums.
By contrast, jurisdictions that link smelters to secured low-cost baseload capacity can sustain large-scale primary aluminium operations. For example, Iceland’s smelters (for example, Alcoa’s Fjarðaál) were sited deliberately to exploit geothermal power under long-term arrangements, a model that ensures low unit energy costs.
Similarly, Malaysian developments in Sarawak have been explicitly tied to new hydropower projects that create the generation margin required for expansion of smelting capacity.
In any stance, why are we worried about the power source? Let’s look back a bit to better understand the picture.
The first bout of news that Indonesian aluminium industry grabbed
Especially for the aluminium industry, Indonesia grabbed the international headlines when it became the stock feeder of bauxite from Kalimantan Province 10-15 years ago to China, when the latter’s alumina refiners were hit by a depleting domestic bauxite ore reserve and needed to replace them with imported bauxite. Indonesia had excellent quality, and the freight cost back to the major eastern coastal ports of China was reasonable.
China kept pushing bauxite imports to over 20 million tonnes per annum from Indonesia till the latter realised that this surge in exports won’t do much good in the future. Rising ‘mineral nationalism’ led Indonesia to ban bauxite exports in June 2023.
The bauxite export ban triggered the second bout of headline
China found a way around and built alumina refineries in Kalimantan and Bintan Island to in return gain limited bauxite export quotas. These refineries dug a hole in China’s pocket as compared to building domestic Chinese refineries. Their operating costs were not that low as well, as energy was more expensive in Indonesia.
However, the Chinese exporters took the long view that they could use the alumina back in China, and it preserved access to some Indonesian bauxite, which yielded good margins when refined in China.
Indonesia has had one aluminium smelter for years, the INALUM smelter on Sumatra, which was built in 1976. This was funded with Japanese capital when the Japanese exited aluminium smelting domestically after the oil shocks of the early 1970’s. Japan’s logic was it was cheaper to invest overseas and import the metal for consumption in its value-added rolling and extrusion markets.
Since INALUM was built, Indonesia has had aspirations to build more smelters, but only now is real traction being achieved. Fast forward to 2025, and China is borrowing a page from the Japanese investment playbook.
China has a production cap of 45 million tonnes for domestic primary production, of which it produced approximately 44.6 million tonnes in 2025. As the nation reaches its cap and Beijing does not appear to be budging on the cap, China has gone to Indonesia to produce more, which could then China bring back onshore to meet the domestic demand or export to the rest of the world.
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Thus, there is now a massive list of projects being considered
In total, Indonesia has 11 planned smelters totalling 13 million tonnes of output, with Chinese companies accounting for about 84 per cent.
A cluster of heavyweight Chinese and domestic investors, led by Adaro Aluminium, a joint venture between Adaro Energy and Ningbo Liqin in North Kalimantan, is developing 1.5 million tonnes of capacity in three 500,000-tonne phases and is poised to produce first metal in October.
China Minmetals is planning a 1-million-tonne smelter in the same region, while Huaqing Aluminium (a Huafeng Group and Tsingshan joint venture) has already commissioned Phase I of its 1-million-tonne project (500,000 tonnes) in Sulawesi, with the balance under construction.
Nanshan Indonesia is targeting 400,000 tonnes in Phase I by 2026 en route to 1 million tonnes, and Xinfa Indonesia, partnered with Tsingshan, is energising first pots in its initial 500,000-tonne phase toward a planned 1 million tonnes. Weiqiao & Halida’s 1-million-tonne West Kalimantan project, slated for 2027, and PT Westerfield Alumina Indonesia, backed by East Hope Group, with an ambitious 2.4-million-tonne plan.
Meanwhile, INALUM is pursuing a 600,000-tonne smelter in West Kalimantan, potentially expandable to 900,000 tonnes, with CHALCO long rumoured as a partner. By contrast, smaller proposals such as Bosai Group’s 100,000-tonne concept and LuanChuan Molybdenum’s 200,000-tonne target appear economically subscale by modern standards and would likely need to be upsized to at least 500,000 tonnes to achieve competitive CAPEX and OPEX economics, while PT Cita Mineral Investindo Tbk’s 500,000-tonne plan sits more comfortably within today’s minimum efficient scale for greenfield smelting.
These projects are backed up by expansion in alumina capacity
The smelting projects will need 24 million-25 million tonnes of alumina to support the full build-out. There is about 7 million tonnes of installed capacity and Jinjiang Group has plans to build an 8-million-tonne plant. They are one of the majors in China and know how to execute something of this scale.
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To support these massive projects, Kalimantan has both hydro and coal
Indonesia’s energy mix is still coal-heavy. Not enough hydro is developed to support all the alumina and aluminium expansion. Coal will have to be the base load for much of the growth. This means the carbon footprint will be poor and will limit any metal entering the EU in the long term, as the EU is about to launch its Carbon Border Adjustment Mechanism.
The initial phase of CBAM will only tax direct emissions, which means the energy source (indirect emissions) will not be penalised to start. That could give these smelters some breathing room as their direct emissions should be low thanks to the use of the latest Chinese technology. However, CBAM eventually will capture indirect emissions.
Now, the future stability of both the alumina and the aluminium production projects, despite all the planning and the investments, depends on whether the projects secure -
- Preferential long-term power purchase agreements (PPAs)
- Captive generation at scale
- Stable natural gas pricing
- Hydropower integration
- Hybrid low-carbon configurations to mitigate future carbon penalties
Major investments
Investments across Indonesia’s energy industries span fossil fuels, coal, renewables and transition finance.
In oil and gas, the government auctioned 14 upstream blocks in 2024–25 with estimated resources of 2.2 billion barrels of oil equivalent to lift output, while PT Pertamina, supplying 55-60 per cent of national energy, continues investing across exploration, pipelines and refining, including its USD 7.4 billion Balikpapan refinery upgrade.
Foreign capital remains active, with KUFPEC committing USD 1.54 billion to develop the Anambas gas block in the Natuna Sea. Coal still dominates the power mix, supported by state and captive plants serving mining and smelting, with firms like AlamTri Resources expanding mining and associated power capacity.
At the same time, Indonesia’s renewable potential, estimated at 207 GW solar, 75 GW hydro, 29.5 GW geothermal and 60.6 GW wind, ensures a 42.6 GW target by 2034. Investment needs are substantial, such as roughly USD 45.6 billion for solar, USD 36.2 billion for hydro, USD 79.1 billion for geothermal, USD 7 billion for storage and USD 3.3 billion for biofuels, alongside grid upgrades led by PT PLN.
The USD 20 billion Just Energy Transition Partnership (JETP) aims to support coal phase-down and power sector decarbonisation, complemented by private climate finance flowing mainly into hydro and geothermal. Emerging investments include talks on new refineries with foreign partners and potential multi-billion-dollar commitments to projects such as the Abadi LNG development targeted for FID by 2027.
The morale? Without structurally low-cost
energy transition, new Indonesian smelters risk drifting upward on the global cost curve, especially if LME price cycles soften while commissioning peaks, as it has now softened post the peak of over USD 3300 per tonne during the initial days of January 2026.
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