Incentives Needed to Drive the Electric Vehicle Market

Jakarta, May 11,  2023 – Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, stated the Government of Indonesia provided electric vehicle incentives as one of the strategies to open or develop the electric vehicle industry itself. However, Fabby stressed that there are better solutions than incentivizing electric vehicles to overcome the congestion problem. This was said by Fabby Tumiwa when he was a guest speaker on the Mining Zone program, CNBC Indonesia TV, on Thursday (11/5/2023).

“We already have a downstream policy; we cannot export nickel ore. For this reason, nickel must be produced in Indonesia, and we already know that nickel is processed in smelters to become batteries. With this policy, several global companies are currently investing in Indonesia, including Korea and China. Well, the next stage is building an electric vehicle. For example, the type of battery is like Nickel-metal hydride (NiMH),” explained Fabby Tumiwa.

Furthermore, Fabby said to attract investment in electric vehicles, it is necessary to create market demand (demand). It is considering that the need for electric cars in Indonesia is still small. According to Fabby, sales of electric vehicles have remained within 25 thousand units since the issuance of Presidential Regulation (Perpes) No 55 of 2019. Reflecting on this, the government needs to set a strategy to grow demand for electric vehicles.

“With the demand, it is hoped that electric vehicle manufacturers can invest in Indonesia. However, it should be remembered that if we want to encourage investment on the upstream side, the incentives will differ. On the other hand, if we build a market from the product, the incentives are also different. Hence, the existing incentives cannot be wrong because we need to look at the context,” mentioned Fabby Tumiwa.

In addition, Fabby stated that in the context of energy use, there is a need to substitute fuel oil imports (BBM). As is known, Indonesia’s oil production continues to decline every year. Under these conditions, said Fabby, if there were no efforts to reduce fuel consumption, more than 60% of fuel needs would be imported. This is a severe problem because it threatens the security of the national energy supply.

“Under such conditions, incentives for electric vehicles are also part of a strategy to reduce growing demand for fuel by shifting vehicle technology. Remembering that electricity can come from anywhere, including renewable energy, “said Fabby Tumiwa.

Not only that, in the context of the energy transition, said Fabby, the automotive industry will sooner or later experience changes. If Indonesia is prosperous in electric vehicles, the production of conventional cars will decrease, which can impact reducing employment opportunities. As market interest in conventional vehicles declines, green jobs will be created.

Indonesia’s Potential to Becoming the Top Player in ASEAN’s EV Market

Jakarta, 12 May 2023 – During the 42nd ASEAN Summit held in Labuan Bajo, East Nusa Tenggara, ASEAN demonstrated its determination to develop an ecosystem for electric vehicles (EV). Within ASEAN, some member states have already established their own EV industries, namely Thailand and Indonesia. In Indonesia alone, production reaches 1.2 million units per year, and capable of engaging in export and import activities within ASEAN markets. 

Fabby Tumiwa, Executive Director of Institute for Essential Services Reform (IESR) explained that there are several factors to consider to promote the growth of the EV ecosystem, one of which is the development of the EV component industries, particularly batteries which can account for up to 40% of overall EV prices. Furthermore, discussions on batteries also involve talking about critical mineral industries, such as lithium, nickel, manganese, and cobalt. Not every ASEAN member states possesses these critical minerals, which positions Indonesia, as a nickel and cobalt producer, with the potential to be a hub for battery industry development. 

“However, other countries like Thailand possess other strategic advantages such as a more supportive investment climate for electric vehicle development. Therefore, it is not surprising that China prefers to establish factories in Thailand rather than Indonesia,” Fabby explained.

In addition to batteries, Fabby sees Indonesia’s potential as an electric vehicle supplier, and steel. Alloys are also required for EV frames, which Indonesia can supply due to its ownership of several iron ore industries. Domestically, Indonesia’s automotive industry has employed a significant amount of labor, so it is hoped that when the time comes to move away from  fossil fuel vehicles, Indonesia will not be solely reliant on importing electric vehicles. Considering Indonesia’s market potential, Fabby believes that middle-range vehicles (priced around Rp 400-600 million) are the most suitable and promising for the Indonesian market. 

“Furthermore, Indonesia will likely participate in the EV global supply chain, given our strategic advantages such as abundant natural resources, developed vehicle industries, and intermediate industries such as battery cells,” pointed out Fabby.

Fabby also commented that the incentives needed lie in the research and development of a new-generation battery. He highlights that nickel reserves will last less than 20 years if they continue to be extensively mined for battery production, which also applies to lithium.

Moreover, Fabby explains that the most viable strategy is to research for a new generation of batteries using readily available metals in Indonesia. Incentives are also necessary for downstream industries to stimulate the EV market until 2030. With the increasing demand of EV, it is hoped that Indonesia will attract more investors, consequently strengthening the domestic supply chain.

“In the future, we hope to have a complete industrial chain, encompassing not only battery production, but also vehicle manufacturing. Therefore, stimulus measures to boost demand must also be implemented,” Fabby concluded. 

Photo by dcbel on Unsplash

Incentives to Boost Electric Vehicle Adoption

5 April 2023 – Electric vehicle subsidies have recently become an interesting topic on social media.  Some consider this policy as a mismatch, but others argue that electric vehicles will help the energy transition process.  In the Ruang Publik KBR event which was held online on March 20 2023, Ilham R.F.  Surya, IESR Environmental Policy Researcher, explained that giving electric vehicle incentives would be useful in stimulating electric vehicle adoption.  In addition, the government also needs to implement an Avoid-Shift-Improve (ASI) strategy to reduce emissions in the transportation sector.

According to Ilham, the use of the Avoid-Shift-Improve (ASI) paradigm will help reduce carbon emissions, especially for the transportation sector as one of the biggest emitters.

“If possible, avoid it first, such as reducing unnecessary trips.  If not, do the shift by using public transportation.  The final option is to improve or use environmentally friendly technology,” Ilham explained.

Furthermore, he explained that electric vehicles are set to meet the needs of environmentally friendly technologies.  In terms of emissions and pollutants, electric vehicles are much lower than fuel vehicles, even when the electricity source is not optimal or they still use coal.  According to him, using electric vehicles is a small act that can be done individually to reduce carbon emissions, apart from using energy wisely.  Moreover, the energy sector is now the largest contributor to emissions in Indonesia, which is around 26%.

Regarding Indonesia’s readiness to adopt electric vehicles, Ilham stated that all parties were still waiting for each other to show readiness before taking further steps in developing electric vehicles.  What will have the most impact, however, is the installation of Public Electric Vehicle Charging Stations (SPKLU) or charging units, which will be 3-4 times more effective in increasing electric vehicle adoption due to reduced range anxiety.  In addition, electric vehicles have so far provided several innovations in technology, and in terms of safety, they are also following vehicle standards in general.

One of the efforts to increase the adoption of electric vehicles by the government is to provide incentives because there is still a gap between the prices of electric vehicles and fuel vehicles.  Regarding the recipients of the incentives themselves, Ilham stated that the purchasing power of Indonesian people is still limited to electric motorcycle consumers, while electric cars are more affordable for 1% of the population.  So, to increase adoption, incentives are better suited to be given to electric motorbike consumers.

“Before this incentive was implemented, it would be nice if the requirements for the Domestic Component Level (TKDN) were mandatory for incentives, because, by increasing adoption, it would simultaneously employ domestic workers,” Ilham explained.

Ilham also assessed that electric vehicles can help with accessibility in remote areas.  However, the challenge that arises is electricity which often experiences rotating blackouts in the regions.  Another challenge to electric vehicle adoption includes the price, not only the price of the vehicle but also the infrastructure.  Apart from that, there is also range anxiety because the infrastructure is inadequate.

In the future, Ilham believes that as technology improves, the price of electric vehicles will decrease.  The amount of decline per year is around 9%, so by 2030, it is expected to be equivalent to the price of a gasoline car.  In addition, with the increasing adoption of electric vehicles, it is expected that Indonesia’s dependence on fuel, which until now has been subsidized, will decrease.  By reducing emissions and pollution, coupled with reducing fuel consumption, of course the energy transition will develop more rapidly.

“But of course, the decision to buy an electric vehicle still depends on the buyer.  Look at the needs and supporting infrastructure, and don’t depend on the fear of missing out (FOMO).  For now, of course, give incentives to those who need it more,” Ilham concluded.

Projections of electric vehicles in 2023 are summarized in the Indonesia Electric Vehicle Outlook 2023.

Electric Vehicles to Support Decarbonization of Transport

Jakarta, 28 March 2023 – The energy transition process requires great efforts from all sectors, including the transportation sector. Transport decarbonization then becomes a practical and affordable way for individuals to cut carbon emissions. One way to do this is by using an electric vehicle. In an interview with Saya Pilih Bumi at IIMS last February 24, Faris Adnan, Researcher for Electricity Systems and Distributed Energy Resources at IESR, explained the progress of the decarbonization of transportation that is currently happening in Indonesia.

“From year to year, the development of electric vehicles in Indonesia continues to increase. In 2022 alone, the increase in the adoption of electric motorbikes can reach 5 times and electric cars 3 times compared to the previous year,” explained Faris.

Geographically, 70-80% of electric vehicles in Indonesia are still concentrated in Jakarta. In terms of the economic ability of buyers, most of the users are also in the upper middle class. This demographic is following the economic capacity of each region, which considers that the price of electric vehicles is still competitive compared to fuel vehicles.

Faris said charging facilities tend to be built in areas with high electric vehicle users, creating a dilemma for local electric vehicle users and investors. Electric vehicle users are concentrated in Jakarta, so most of the Public Electric Vehicle Charging Stations (SPKLU) are built in Jakarta. Investors will be more reluctant to build in areas where there are no users, while users will also reconsider using electric vehicles due to range anxiety. Thus, government policies and investments are needed to stop these problems.

Regarding the performance of the electric vehicle itself, Faris thinks that the technology is not perfect. The system has limitations which, when removed, can make the range farther or the speed higher. However, doing so will wear the battery more easily. In addition, Faris assessed that if the vehicle’s power is low, its speed will also decrease, in contrast to fuel vehicles.

Every year, fuel consumption increases by around 1.2 million kiloliters, which contributes to a significant increase in carbon emissions. Faris then explained that the comparison of emissions between electric vehicles and fuel depends on their use. Currently, the majority of Indonesia still uses coal as an energy generator, so the use of electric vehicles has not yet become zero emission. But with the same use, the emissions emitted from electric vehicles are certainly lower. If electric vehicles are sourced from renewable energy, the emissions released will be minimal compared to if the electricity is sourced from coal-fired power plants.

“Electric vehicles are important for pursuing decarbonization, but they are not the only solution. If we talk about decarbonization, it is important to use the Avoid-Shift-Improve (ASI) framework. The existence of this electric vehicle can also help to let go of our dependence on fossil fuel, and even better if it is integrated into public transportation,” concluded Faris.

Emission Reduction in Transportation

Kendaraan Listrik

Jakarta, February 20, 2023 – Decarbonizing the transportation sector is one of the key agendas to achieve Indonesia’s net zero emission target by 2060. The transportation sector is the second largest GHG emitter (23%), which road transport contributing 90% of the sector’s emissions, with total emissions in the energy sector closing to 600 MtCO2eq in 2021 (IESR, IEVO 2023).

In a low carbon scenario compatible with the Paris Agreement target (LCCP), emissions from transportation in Indonesia must decline to 100 MtCO2eq in 2050. Meanwhile, in the IESR’s calculation the entire energy sector, including transportation, must be near zero by 2050 to keep the global temperature rise below 1.5 °C. To achieve that, the electrification of transportation and utilization of other sustainable fuels should be prioritized.

One way to decarbonize road transport is by increasing the utilization of electric vehicles (EVs). The substitution of conventional internal combustion engine (ICE) vehicles with EVs is not only a solution to avoid direct GHG emissions from burning fossil fuels but will be a more economical choice given the high energy efficiency of EV technology. EVs are projected to represent more than 60% of vehicles sold globally by 2030. Hence, the supporting infrastructure for EVs in Indonesia, such as EV chargers, urgently needs to be prepared.

Despite the promises, people still doubt or even argue that EVs are not a truly GHG emission reduction solution. The reason is that the source of electricity for charging EVs still comes from fossil fuel power plants, particularly in Indonesia where about 67% of the electricity comes from coal-fired power plants (CFPPs). Moreover, EVs battery manufacturing processes are also highly energy-intensive and produce a high amount of GHG.

In this respect, the decarbonization of the transportation sector must be viewed from a long-term perspective with optimism. Concern regarding the source of electricity for EVs is indeed a great challenge to increasing EVs utilization. Therefore, EVs development plans should be integrated with the multi-sector decarbonization pathway because high EV adoption could potentially help another sector, namely the power sector.

The Bottleneck in Power Sector

One of the reasons for slow renewables development in Indonesia is the oversupply condition in the power system. Moreover, the system has a high reserve margin (power reserve), which is estimated to reach 56% in 2022 , while the typical reserve margin according to PLN’s RUPTL is in the range of 15-40%. The conditions are said due to the demand overestimation and the effect of the global pandemic. 

Unfortunately, most of the new operating power plants are CFPPs which cannot operate flexibly because they are constrained by take or pay agreements. Meanwhile, some CFPPs, especially older ones, are constrained to operate flexibly due to their limited technical abilities such as slow ramping rates, high minimum load, and long start-up time.

Based on these issues, there should be an increase in electricity demand or the retirement of fossil-fuel generators, with or without intervention, to allow higher renewables penetration. In this regard, EV utilization development, with the proper strategy, can be used as a tool that helps minimize problems in the power system. 

The high adoption rate of EVs could potentially absorb the excess electricity supply from the operating power generators. In IESR’s deep decarbonization scenario, the demand for transportation electrification will reach 136 by 2030 (approximately 28.6% of total electricity demand) [2]. In other words, the electrification of the transport sector can be a strategic approach to cut down the oversupply issue and make room for more renewables in the power system. Besides, electrification will significantly cut down the direct GHG emission and improve energy security through fuel import reduction.

Electric Vehicles Value in Power System

An electric vehicle is essentially a large battery connected to an electric motor and wheels. Simply, it is a moving energy storage asset. An EV car today has an average battery capacity of about 40 kWh which can be viewed as a valuable asset for the power grid. It is a fairly large capacity considering a home storage battery unit typically has a capacity of no more than half of the EVs’. Hence, any additional value of EVs should be enabled through vehicle-grid integration (VGI).

Various VGI schemes have been developed, namely, V1G (one-directional energy flow), V2G (bidirectional energy flow), V2B (vehicle to building), etc. Suitable integration strategies can benefit both EV owners and grid operators. Through V1G, for example, the grid operator may apply different charging tariffs at specific charging hours that would influence the charging behavior of EV owners. Grid operators can maintain the peak loads, avoiding additional operating costs or the need for capacity addition. In return, EV owners will get the incentive of low charging tariffs during off-peak hours.

In further implementations, VGI can be promoted to V2G. The EV fleets can collectively act like a stationary energy storage system (ESS) where the grid operator can buy electricity from EV’s battery to be supplied to the grid when needed. However, its implementation will require regulations related to interconnection.

In addition to regulations, VGI will require the development of supporting infrastructures relevant to the power sector development roadmap. Considering the penetration rate of renewables, the adoption rate of EVs, and today’s typical load profile, VGI may begin to be implemented through low tariff incentives at night so that EV owners do home charging overnight. However, once the power system has high solar PV penetration (as what the government plans for the future), there will be high electricity generation during the day. Don’t we need to prepare more public charging infrastructure? Or is there another strategy?

Report Launching & Webinar Indonesia Electric Vehicle Outlook Report 2023

Introduction

Indonesia has ratified the Paris Agreement through the Law no 16/2016. As a result, Indonesia is legally bound to contribute to the global struggle of climate change through ambitious efforts and action in mitigating Greenhouse Gas (GHG) emission and limiting the increase of the average global temperature below 1.5 0C. In one of the IPCC climate model results of 1.5 0C compatible pathway, the global Greenhouse Gas (GHG) emission must decrease by 45% in 2030 compared to 2010 and reach net zero emission by 2050. As of now, Indonesia is among the top 10 greenhouse gas (GHG) emitters and still projected to increase its emissions, with the energy sector as the highest GHG contributor by 2030.

Transportation sector contributed to about 27% of energy sector emission or around 109 million ton CO2e in 2020. The number continues to grow along with the increase of transportation demand, number of vehicles on-the-road and the energy consumption, especially fuel. The problem is compounded with the fact that Indonesia has become net oil importer since early 2000s. Between 2015-2020, about half of the domestic gasoline consumption is fulfilled through import. The situation could also compromise the energy security aspect of the country, even further with the current energy/fossil fuel price spike.

The government of Indonesia, driven by the ambition to reduce emissions and fossil fuel imports, has promoted electric vehicles over the past few years. It becomes a strategy for optimizing electricity usage in the condition of overcapacity inline to decrease fuel consumption. In total, the percentage of EVs is targeted at 20% of total vehicles on the road by 2025. To create the demand, the ministry of coordinator of maritime and investment allocate 5 trillion rupiahs as incentif for electric cars, two-wheeler, and hybrid vehicles. By presidential instruction 7/2022, operational services vehicles should be converted to electric vehicles[1]. It wishes would create additional demand of EV.

To set the ecosystem, the supply chain of EV manufacture including battery packs becomes the other concern. Data from Capital Investment Coordinating Board (BKPM) said that investment in battery manufacturing reached Rp. 335.5 trillion which will set their production in 2024[2],[3]. Besides that, the number of electric charging Station is still growing and it is around 693 today.

With these background, Institute for Essential Services Reform is publishing an annual flagship report titled Indonesia Electric Vehicle Outlook 2023 (IEVO 2023) which will investigate annual progress in EV, its ecosystem, manufacturing and supply chain development in Indonesia as well as providing insight on how the development would progress in the next year.

 

Objectives

The objectives of the report launching, and discussion webinar are the followings:

  1. To launch IESR report that could provide research-based projection of supply and demand of Indonesisa Electric Vehicles to wider stakeholder
  2. Reviewing the readiness of Indonesia’s Electric Vehicles Development Progress
  3. To discuss the potential challenges and opportunities to overcome the future obstacle and echoing the positive implication on Developing Electric Vehicles.

 

 

[1] https://kemenperin.go.id/artikel/23668/Bentuk-Ekosistem-Kendaraan-Listrik,-Kemenperin-Dukung-Pembangunan-SPLU

[2] https://ekonomi.bisnis.com/read/20220614/9/1543428/bkpm-investasi-3-produsen-baterai-kendaraan-listrik-di-indonesia-capai-rp3358-triliun

[3] https://otomotif.kompas.com/read/2023/01/14/074200815/update-investasi-baterai-mobil-listrik-indonesia-mulai-produksi-2024