Encouraging the Decarbonization of MSMEs in Indonesia

press release

Jakarta, March 14, 2024 – Micro, Small, and Medium Enterprises (MSMEs) have become one of the important pillars of the Indonesian economy. Based on data from the Ministry of Cooperatives and Small and Medium Enterprises (Kemenkop), the MSME sector contributed to the Gross Domestic Product (GDP) by 60.5 percent and contributed to employment reaching 97 percent of the total workforce in 2021. 

On the other hand, MSMEs produce greenhouse gas emissions that are responsible for the climate crisis. Based on a study by the Institute for Essential Services Reform (IESR), estimated energy-related emissions from MSMEs reached 216 MtCO2 in 2023, equivalent to half of the national industrial sector emissions in 2022. For this reason, the Institute for Essential Services Reform (IESR) encourages MSME players to make efforts to reduce emissions to achieve greener and more sustainable businesses. 

The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, said that MSMEs have a significant role to play in achieving Net Zero Emission (NZE) by 2060 or sooner. According to him, reducing emissions or decarbonizing the entire supply chain in the MSME sector will open opportunities for Indonesian MSMEs to compete at the global level.

“Our study found that 95 percent of emissions from MSMEs come from burning fossil energy. Reflecting on this data, the government needs to start identifying opportunities and challenges in decarbonizing MSMEs. The government also needs to propose strategies and provide assistance in the form of financial and technical assistance to MSMEs so that they are able to plan and encourage investment to reduce greenhouse gas (GHG) emissions,” Fabby said in a webinar on Decarbonization Opportunities for Small and Medium Enterprises (SMEs) in Indonesia and Learning from Global Experiences.

 

In collaboration with Lawrence Berkeley National Laboratory (LBNL), IESR formulated a study that offers solutions to decarbonize MSMEs, especially in the Small and Medium Industry (SMI). SMEs were chosen because the subsector emits higher emissions than other SME subsectors. In addition, SMEs can employ up to 100 people, potentially providing jobs for local residents. This can be a reference to ensure a just transition, both at the local and national level.

The IESR and LBNL analysis recommends technology upgrades and electrification to decarbonize SMEs. The study takes three examples of SMEs with their decarbonization solutions First, electrification for the textile and clothing sector. Second, the construction sector that needs to increase the use of low-carbon cement, innovative concrete formulations and propose eco-friendly equipment to building owners. Third, the tanning industry sector to encourage the penetration of variable renewable energy (VRE), such as solar panels and domestic wind turbines.

Energy Data Analyst of IESR, Abyan Hilmy Yafi, mentioned, through the initial strategy of decarbonizing SMEs, several economic benefits will be obtained such as the creation of new business opportunities, increasing brand value, and attracting customer trust. Not only that, decarbonization will also improve production processes, profitability, and competitiveness while reducing climate change risks and ensuring a positive impact on the environment.

“MSMEs need to get more assistance because many MSME players do not know about energy, its units and how to make it efficient. With collaboration between the government, private sector, and the community, MSMEs can become agents of change that drive the transition to a clean and sustainable economy for a better future for all,” Abyan said. 

Head of the Green Industry Development Program Team, Ministry of Industry, Achmad Taufik, said that his party is working on green funding/investment for SMEs from banks, private and international sources. In addition, his party is exploring several models and preparing studies to strengthen green industry service providers. 

“For small and medium industries in an effort to transform towards green industry, we will help with training and capacity building, access to green technology, access to markets or creating new markets,” said Achmad. 

Highlighting decarbonization opportunities in the Small and Medium Enterprises (SMEs) sector, Energy and Environmental Policy Researcher, LBNL, Bo Shen stated that the application of energy efficiency is an attraction for the market in choosing SME products. In China, energy efficiency certification for SMEs is the basis for large companies to take SME products, he said. Meanwhile, learning from the United States, a number of universities have created government-funded industrial assessment centers to determine the estimated energy consumption and emissions of SMEs. 

“There are several effective ways to encourage energy savings in SMEs in Indonesia that can be applied. Among them, the availability of a standardized and transparent system to track, assess and communicate the energy performance of SMEs. Second, the existence of a government-supported evaluation scheme in business image improvement. Third, the existence of clear decarbonization targets for the government, multinational companies and SMEs,” said Bo Shen. 

Note to Editors:

MSMEs are all micro, small and medium-sized enterprises/businesses. 

Small and Medium Enterprises (SMEs) means excluding micro enterprises.

Small and Medium Industry (SMI) is a business that has a production process/conversion of raw/half-raw goods to finished goods that has a small to medium business size.

The type of micro, small, medium can be seen from the capital/income/number of employees.

Kata Data | Civil Society Coalition: 3 Rules Set Back Energy Transition Commitments

Program Manager of Energy Transformation, Institute for Essential Services Reform (IESR), Deon Arinaldo said that the draft KEN RPP makes Indonesia only reach peak emissions in 2035. This is seven to ten years later than the need to limit the global average temperature rise to below 1.5°C according to the Intergovernmental Panel on Climate Change (IPCC) report.

Read more on Kata Data.

Navigating Water Illuminates the Plains of Sriwijaya

Palembang, February 27, 2024 – The Jelajah Energi South Sumatra group was welcomed by the thunderous sound of the fast-flowing Endikat River and the cloudy weather upon their arrival at Muara Endikat, also known as the mouth of the Cawang River, in Singapore Village, Kota Agung District, Lahat Regency, South Sumatra. This region is known for its breathtaking natural beauty and has significant potential to provide electrical energy for the local population.

Located about a 1 to 1.5-hour drive away from Pagar Alam City, the Jelajah Energi South Sumatra group reached PLTMH Green Lahat. This Mini Hydro Power Plant (MHP) has been operational since 2015 and has an electrical energy production capacity of 3×3.3 Megawatts (MW), making its total capacity 9.9 MW.

“7 MW of the total energy produced is allocated to meet the electricity needs of Pagar Alam City, while the remaining 30% is distributed to Lahat Regency,” said Kastiono, plant manager of Green Lahat MHP. 

Next to MHP Green Lahat, MHP Endikat (both under the parent company PT Manggala Gita Karya) has also been built with a 3 x 2.67 MW capacity, which will be operational in 2022. The two independent power producers (IPPs) utilize the flow of the Endikat River to produce electrical energy that is sold to PLN and used later by the community.

Kastiono explained that before the construction of the MHP, the residents residing around the power plant in Pagar Alam City and Lahat Regency used to experience a drop in electricity voltage. The poor quality of electricity was influenced by various factors, including the power plant’s location being too far from the substation, which led to unstable voltage. Additionally, Kastiono admits that the electricity production from MHP Green Lahat depends on the conditions around the river upstream.

“The most crucial aspect is the greening of the upstream. Everything must be controlled, and there should be no illegal logging. However, the responsibility of maintaining forest cover in the watershed also involves other agencies,” he said.

Rizqi Mahfud Prasetyo, Project Coordinator of Sub National, Sustainable Energy Access, IESR mentioned that according to IESR’s study, Indonesia has 27.8 GW of MHP/MH potential, of which 287.7 MW is located in South Sumatra. 

“In addition to increasing the renewable energy mix in PLN’s electricity. MHP can improve the quality of energy access for people who may not have been reached by the PLN network,” Rizqi said.

Rizqi also added that the geography and topography of some of Indonesia’s contoured areas allow for the existence of river flows and river drops. River flow has the potential to be utilized as a power plant, one of which is in PLTM Green Lahat which utilizes the Endikat river flow.

The presence of MHP Green Lahat and MHP Endikat instills a sense of hope in the communities of South Sumatra by providing dependable electrical energy and bolstering the infrastructure and local economy. These micro-hydro power plants are expected to continue to offer sustainable benefits to the community and the environment in the long run.

When Geothermal Energy Illuminates the Land of Sriwijaya

Palembang, February 29, 2024 – On Thursday morning, the Jelajah Energi South Sumatra group arrived at the Geothermal Power Plant (PLTP) in Lumut Balai, Muara Enim, South Sumatra, owned by PT Pertamina Geothermal Energy Tbk (PGE), after a long and winding journey that took about 4 hours from Muara Enim City. The group was welcomed with cold weather due to the plant’s location on a hill. Despite challenging geographical conditions, PLTP Lumut Balai Unit I, located at least 2,055 meters above sea level, has become a silent witness to the wonders of geothermal energy.

Acting General Manager of PT Pertamina Geothermal Energy Tbk (PGE) Lumut Balai Area, Aris Kurniawan, explained that the company is committed to providing reliable, affordable, clean energy access to all Indonesian people. The Lumut Balai Unit 1 PLTP, which has an installed capacity of 55 MW, has been supplying electricity to around 55,000 homes in the PGE working area since 2019. Moreover, it has helped reduce greenhouse gas emissions by 300,000 tons of carbon dioxide (CO2).

“The Lumut Balai geothermal plant continues to move forward. By 2024, the target is to complete the construction of unit 2 of the Lumut Balai PLTP and proceed to the commissioning stage. Unit 2 has entered the EPCC (engineering, procurement, construction, commissioning) stage for the plant’s construction. In December 2024, it is expected to enter the commissioning phase until commercial operation (commercial on date). The project is still on track,” said Aris.

Aris stated that the Lumut Balai geothermal power plant is located in the Lumut Balai and Margabayur geothermal working areas (WKP), South Sumatra, with a mapped potential of 270 MW. With the development of the LMB Unit-2 Project, the installed capacity for the Lumut Balai Area will increase to 110 MW, equivalent to lighting 110,000 homes.

“Through our projects in Lumut Balai, we aim to mitigate climate change risks and support Indonesia in achieving 23% of the national grid mix from renewable energy sources by 2025. With a focus on innovation and efficiency, PGE is committed to reducing carbon emissions even further in the future to support Indonesia Net Zero Emission 2060,” said Aris.

Aris highlighted that, alongside the success of the energy transition through the optimization of geothermal development as a green energy source, PGE is also prepared to contribute to the carbon exchange initiative. This initiative serves as a tool that can encourage effective emission reductions and incentivize companies to participate in efforts to mitigate climate change.

“As of September 2023, PGE has contributed to the domestic carbon market by issuing 864,209 tons of CO2 equivalent (CO2eq), and this is the first geothermal carbon project on the carbon exchange,” Aris said.

Faricha Hidayati, Coordinator of the Industrial Decarbonization Project, Institute for Essential Services Reform (IESR) stated that among the geothermal working areas (WKP) established by the government, WKP Lumut Balai is one of the leading ones because it has geothermal potential of more than 300 MW, of which 55 MW has been operating since 2019 and other units are under construction and will be completed in December 2024. If this geothermal potential is properly utilized, Indonesia will be able to have 23.7 GW of clean energy and achieve net zero emissions by 2060, or sooner.

“Unfortunately, not many people are aware of this abundant potential, and many still choose energy from fossil fuels. Therefore, IESR in collaboration with the Energy and Mineral Resources Agency of South Sumatra held this Energy Tour to disseminate this information to the public. Hopefully, the Indonesian people will become wiser in using electricity and the like, and can then jointly oversee government policies in encouraging Indonesia’s energy transition to become greener and more sustainable,” Faricha explained.

Exploring Renewable Energy Utilization in the Land of Sriwijaya

Palembang, February 27, 2024 – The Institute for Essential Services Reform (IESR) and the Energy and Mineral Resources Agency (ESDM) of South Sumatra Province jointly organized an event called Jelajah Energi to explore the potential and implementation of renewable energy in the South Sumatra region. The event was held from Monday, February 26, to March 1, 2024. On the second day of Jelajah Energi, the team visited Jakabaring to observe the utilization of solar energy and PT Buyung Poetra Energi to witness the use of biomass.

Solar PV Jakabaring is a project established through a partnership between Indonesia and Japan under the Joint Crediting Mechanism (JCM)—the project aimed to fulfill the electricity requirements during the 2018 Asian Games. The total investment value for the project was USD 139 million, with most of the funds coming from private Indonesian investment and subsidies from the Japanese Government.

Ali Kartiri, the Operations Manager of PT Sumsel Energi Gemilang, is responsible for overseeing the Jakabaring solar power plant. According to Kartiri, the South Sumatra Provincial Government took the initiative to build this solar power plant. In collaboration with Sharp Japan, the project secured subsidies from the Japanese Government. These subsidies were primarily allocated for funding technology and infrastructure that supports greenhouse gas emissions reduction targets.

“The Solar PV Jakabaring has a peak electrical energy production capacity of up to 2 Megawatts (MW) when the sunlight is optimal. However, during the rainy season, the plant’s productivity is sometimes affected, and it can only absorb about 10% of the solar energy. The plant has been successfully operational since 2018 and integrated into the PLN grid, contributing renewable energy to the local community.,” Ali said.

Meanwhile, The Jelajah Energi team recently visited PT Buyung Poetra Energi (BPE), a company that established a biomass power plant (PLTBm) to preserve the environment. The plant uses rice husks as fuel to generate electricity, which was previously considered waste. Candra Priansyah, the Operations Supervisor of PT BPE, explained how this approach has turned an environmental problem into a valuable energy source.

“Waste produced during rice milling in the form of husks will be burned in a boiler to generate steam. This steam will then be transferred to a steam turbine that will power a generator. The power plant requires 4 tons of husks per hour and has a capacity of 3 MW. However, not all the chaff produced is used for the power plant. Only about 70% of the available supply is used for generating power, while the remaining 30% is used for heating and drying rice grains,” Candra said.

Candra said that all chaff waste produced by PT BPE is being utilized environmentally friendly, and none of it is being disposed of into the environment. Moreover, the electricity generated from this PLTBm is sufficient to meet the company’s operational requirements. Candra hopes this power plant can help reduce the amount of rice husk waste, particularly from factories in South Sumatra where rice husks have been thrown away or simply burned. Candra’s team has even developed a machine to compress rice husk by-products into pellets at the Subang Factory located in West Java. These pellets are then sold to cement factories as fuel.

 

During the visit, it was evident that South Sumatra is dedicated to developing renewable energy sources to tackle global environmental challenges. South Sumatra is making significant progress towards a more sustainable and eco-friendly future by working with the public and private sectors and receiving support from foreign governments.