Jakarta, October 25, 2023 – The Institute for Essential Services Reform (IESR) and the Lawrence Berkeley National Laboratory (LBNL) have released a roadmap and policy recommendations for industrial decarbonization to achieve net zero carbon emissions (NZE). This report focuses on five industrial sectors: cement, iron and steel, pulp and paper, ammonia, and textiles, which are expected to experience a significant increase in GHG emissions if no decarbonization measures are taken. According to the Ministry of Industry, from 2015-2022, the industrial sector contributed 8-20% of national emissions. Referring to IESR’s modeling, total industrial GHG emissions are predicted to continue to increase by 3-4 times by 2060 without any intervention (Business as usual, BaU).
Deon Arinaldo, Energy Transformation Program Manager at IESR, stated that implementing decarbonization in the industrial sector, as the main driver of the Indonesian economy, is a precondition to ensure high economic growth and to make Indonesia an advanced yet low-emission country. Industries with low-carbon products will become the most competitive industries.
“Indonesia can implement the pillars of industrial decarbonization, which include improving energy efficiency, electrifying energy needs, transitioning to low-carbon fuels such as renewable energy, and enhancing material usage efficiency. Each industry is unique, so it’s necessary to anticipate the specific situations and contexts when developing the roadmap and supporting regulations,” Deon said in his address at the Dissemination Workshop of Indonesia Industry Decarbonization Roadmap and Policy Recommendations organized by IESR in collaboration with LBNL and supported by the ClimateWorks Foundation.
IESR and the Lawrence Berkeley National Laboratory (LBNL) view that decarbonizing the industrial sector can be achieved before 2060. According to IESR’s data, among the total of 17 business entities analyzed in these five sectors, each company has set different proportions of decarbonization targets, although only the pulp and paper industry has specific decarbonization targets.
“Large-capacity industries such as cement, iron and steel, textiles, pulp and paper, and ammonia have a strong motivation for decarbonization. There are still challenges regarding high energy consumption, dependence on fossil fuels, waste management, and GHG emissions in processes and value chains, as well as the high costs and economic benefits of decarbonization efforts. Furthermore, the existing regulations have not improved much for the industry, advanced industry, and consumers to drive industrial decarbonization,” explained Farid Wijaya, Senior Analyst at IESR.
Hongyou Lu, Environmental/Energy Technology Researcher at LBNL, emphasized that the Indonesian government needs to develop different national strategies for each type of industrial sector. For example, the iron and steel industry can focus on implementing electric arc furnaces as a process electrification step for a short-term strategy, along with energy and material efficiency. Meanwhile, in the cement industry, decarbonization strategies could include increasing the use of substitute materials for clinker materials (supplementary cementitious materials), implementing material efficiency and energy efficiency measures (short term), and switching to low-emission fuel sources (medium-long term). Furthermore, the government should also create a national strategy for green energy production, such as hydrogen and ammonia, cross-sector technologies like heat pump applications, and Carbon Capture Storage (CCS) for residual emissions that cannot be decarbonized.
“To implement these various industrial sector decarbonization strategies, the Indonesian government needs to coordinate planning with various stakeholders in the development of low-carbon infrastructure, such as pipeline networks, storage facilities, and electricity transmission and distribution systems, enabling industries to access renewable energy,” explained Hongyou.
Furthermore, Hongyou Lu added that industrial decarbonization is unavoidable and involves many aspects. Decarbonizing the industry has the potential to develop new industries, boost the local economy, reduce air pollution, and enhance Indonesia’s competitiveness in the international market. This is necessary to ensure that Indonesian industrial products can still comply with stricter environmental regulations for imports and effective carbon pricing mechanisms in some export destination countries, such as the European Union.
Jakarta, 6 February 2023 – Indonesia’s journey to net zero emission is still a long and winding road. One of the government’s actions in realizing this target is to make regulations to encourage the implementation of renewable energy. In reality, targets, regulations and implementation are often unaligned.
Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), in the Market Review segment on the IDX channel (24/01/2023), stated that in 2022, Indonesia’s target for renewable energy development of 1000 MW has not been fully realized.
“There are several factors why this target was not fully realized, the first is the economic weakening which has caused unoptimized growth of electricity demand. Another factor is the pandemic, which caused delays on several renewable energy projects,” explained Fabby.
Furthermore, Fabby explained that Government Regulation no. 79/2014, which was more thoroughly mandated in Presidential Decree 22/2017, has set a target of a national renewable energy mix of 23% by 2025. To achieve this target, Fabby estimates that there needs to be a renewable energy growth of 3-4 Gigawatts per year. In fact, since the Government Regulation in 2014 was enacted, the average renewable energy increase rate is only 15% from 3-4 GW, which is around 400-500 MW.
This problem is also rooted in the country’s energy infrastructure itself. Indonesia’s energy source still depends on fossil energy, which accounts for 86%. To change this structure, it is also important to consider the growth in energy demand in Indonesia. Indonesia must then strive to use renewable energy to tackle this increasing energy demand. According to IESR calculations, energy transition efforts in Indonesia require around 1.4 billion dollars in funding. This fund covers renewable energy and energy infrastructure upgrades.
Regarding people’s economic perceptions, Fabby assesses that fossil energy is still seen as more economic because currently coal is still subsidized by the government. The Domestic Market Obligation Act in 2017 capped coal prices at $70/ton even if global prices are higher. This kind of incentive should also be given to the development of renewable energy. However, the incentive was also hampered by the Domestic Component Policy Level (TKDN).
“Solar PV has become the most efficient source of renewable energy, but in Indonesia it has become expensive. Compared to 10 years ago, the price of solar PV has decreased by 90%. The TKDN policy is actually a disincentive that can prevent investors from investing and make solar PV more affordable,” concluded Fabby.
Jakarta, December 15, 2022 – The Institute for Essential Service Reform (IESR) launched the Indonesia Energy Transition Outlook (IETO) 2023 report. IETO 2023 is the 6th edition; previously, this report was titled Indonesia Clean Energy Outlook in 2017 but changed its name in 2020. Its transformation widens the analysis from initially focusing solely on clean energy developments to analyzing the energy system, including its funding system.
Deon Arinaldo, Manager of the Energy Transformation Program, IESR, stated that Indonesia’s energy transition had entered a new phase. It’s reflected in several published policies supporting adopting low-carbon and low-emission technologies, such as Presidential Decree 112/2022. In addition, the achievement of funding commitments for the energy transition Just Energy Transition Partnership (JETP) and infrastructure projects resulted from the G20 Summit. IESR also reviewed this topic in the IETO 2023 report.
“Funding is one of the keys to a successful energy transition in Indonesia. Furthermore, we also highlight the role of solar power in the energy transition and the development of electric vehicles,” he said.
Fabby Tumiwa, Executive Director of IESR, presented at the report’s launch and discussed the Indonesia Energy Transition Outlook (IETO) 2023 organized by IESR with the support of Bloomberg Philanthropies, explained that the earth’s temperature has increased by at least 1.1°C. Without intervention, the temperatures can reach 2.8°C. Furthermore, Fabby emphasized that a transition to renewable energy is crucial to limiting the increase in the earth’s temperature to more than 1.5°C.
“The IESR study shows that solar PV is coupled with a storage capacity of 50% and 100%, so renewable energy will be cheaper than operating a coal-fired power plant (CFPP) after 2032. That is, when we still maintain fossil power plants in the energy system, we will face an increase in much more expensive energy costs,” explained Fabby Tumiwa.
Fabby continued that enlarging the portion of renewable energy in Indonesia’s energy system is far more profitable than utilizing fossil energy or maintaining fossil energy with carbon capture technology, such as carbon capture and storage (CCS). However, 87% of the electricity consumed by Indonesia still comes from fossil energy and only 13% from renewable energy. For this reason, Fabby said three things needed to be done to encourage the energy transition.
“First, make the most of Indonesia’s renewable energy potential for the electricity, transportation, industrial and other sectors. Based on the latest ESDM study, Indonesia has far more than enough renewable energy potential to achieve 100% renewable energy to achieve net zero emissions (NZE). By increasing renewable energy, we also have to reduce coal power plants. Second, boost investment for the energy transition,” said Fabby.
The IESR study assesses that Indonesia will need USD 25-30 billion in investment from now until 2030 to support the achievement of net-zero emissions (NZE) by 2060 or sooner. A no-regrets policy is required to obtain investment, or once there is a policy, it cannot be revoked or terminated. Second, it is necessary to reform policies that hinder renewable energy. Thus, said Fabby, the government must review the domestic market obligation (DMO) for coal mining because this policy contradicts Indonesia’s efforts to promote renewable energy. Third, managing the energy transition process. The energy transition is a risky action because it will cause an increase in costs in the short term, and at the same time, we are still dependent on coal energy. Moreover, the energy transition process needs to be managed effectively so that the energy transition process will be smooth.
On the same occasion, the Secretary General of the Ministry of Energy and Mineral Resources (ESDM), Rida Mulyana, explained that the energy transition is one of the priority issues at the G20 Indonesia Presidency in 2022. It can be seen by the Bali Compact agreement, which can serve as a guide to achieving the NZE 2060 or faster. Furthermore, Indonesia already has a road map for the transition of new renewable energy (NRE) to net zero emission in 2060, created by the Ministry of Energy and Mineral Resources.
“Indonesia plans to build massive solar PV starting in 2030, followed by onshore and offshore wind power plants starting in 2027, and geothermal will also be maximized. Indonesia will optimize hydroelectric power plants, we will send the electricity to load centers on other islands, and nuclear power plants will operate in 2039,” said Rida Mulyana.
Akbar Bagaskara, IESR Electricity System Researcher, stated the electricity system is low-hanging fruit to reach NZE. The electricity system contributes 250 MtCO2 emissions, or about 40% of emissions in the energy sector. Renewable energy status in the energy mix is 12.67%, while the 2025 target is 23%. Thus, said Akbar, Indonesia needs to reduce its fossil capacity and seek alternative energy sources to achieve this target.
“At least Indonesia can use renewable energy that has not been maximized, such as solar and wind. Then, the transmission network (grid) must also be made flexible. However, regulations are needed regarding guidelines for operational systems and negotiations for generating units,” said Akbar.
In line with Akbar, Raditya Yudha Wiranegara, IESR Senior Researcher, explained that what can be done to provide renewable energy penetration is to operate CFPP flexibly. Technically, this operation requires changes in the main components of the CFPP.
“Flexible operation will require flexibility regarding power purchase agreements and fuel supply contracts. According to the IEA, by making these contracts more ‘flexible,’ there will be savings of 5% of the total operating costs for a year, or the equivalent of USD 0.8 billion. Grid Code should also be made more detailed. This is also necessary so that operators have guidelines for operating regulations in a flexible manner,” stated Raditya.
Julius Christian, IESR Clean Fuel Specialist Researcher, explained that until now, fossil energy consumption in transportation had reached 87%, the industry has reached 56%, and buildings have reached 41%. In the transportation sector, using electric vehicles is a crucial strategy for a low-carbon transportation system because it has higher energy efficiency and uses renewable energy. Julius explained that up to now, 199 buildings had been certified as green buildings in Indonesia, even though large buildings should already have green building certification.
“We need to focus on four things to accelerate the energy transition; 1) regulations encourage people and industries to switch to carbon-efficient technologies; 2) the government needs to socialize more to increase public awareness to switch to low-carbon; 3) incentives and financing schemes are also worth considering; 4) preparing the supporting ecosystem,” said Julius.
On the other hand, Martha Jessica, IESR Social and Economic Researcher, said the importance of collaboration between the central government and local governments to promote the energy transition and achieve NZE. Currently, 71.05% of provinces in Indonesia have established Regional Energy General Plans (RUED), in which each region sets its energy mix targets.
“One province that has shown a commitment to the development of renewable energy is Central Java. Interestingly, there is a new commitment to green recovery this year. This is defined as using public budgets to target the site level, especially for renewable energy development. Approximately IDR 8.9 billion has been budgeted for this commitment. This development has succeeded in increasing the income of its users by 2-3 times, where farmers get an easier water source through solar water pumps,” said Martha.
Handriyanti Puspitarini, the IESR Senior Researcher, said several essential things in Indonesia’s energy transition status, namely, fossil energy use, had increased this year due to the increasingly vibrant economy. Still, this condition is sure to change due to the large amount of foreign assistance to reduce emissions, especially in the electricity sector. She considered that regulations supporting renewable energy penetration need to be available. She gave an example that limiting the capacity of a rooftop solar PV by 15% would reduce people’s interest in utilizing it and suppress community participation regarding the renewable energy mix on a national scale.
“Thus, changes are needed, such as increasing financial support for rooftop solar PV project developers, clarifying tariff schemes and licensing processes, and increasing developer access to capital with lower interest rates. Implementation of President Regulation112/2022 also needs to be observed next year. Some people also think that this is the time for Indonesia to do an energy transition and utilize other energy sources such as solar, water, and wind,” said Handriyanti.
The writer of Indonesia Energy Transition Outlook (2023), a senior researcher at IESR, Handriyanti D Puspitarini, explained that Indonesia’s gross domestic product (GDP) grew 5.72 percent in the third quarter of 2022, in line with increased economic activity as before the pandemic. However, more budget allocations support fossil energy in the economic recovery program.
Fabby Tumiwa, Executive Director of IESR, said that the Indonesian government needs to make a transformative and massive effort to completely decarbonize the energy system by raising around USD 1 .2 trillion by 2050. Based on a study by IESR & the University of Maryland, the cost of ending 9.2 GW of PLTU in 2022-2030 requires around USD 4.6 billion. Furthermore, early retirement of all PLTUs in 2045 with an average age of 20 years requires USD 28 billion to compensate for stranded assets and the cost of decommissioning (closing) power plants.
Jakarta, October 11, 2021 – In recent months, many media have reported on the energy crisis in Europe. In the UK, for example, many electric and gas utility companies went bankrupt and were forced to close. People are also seen queuing at gas stations to buy fuel. This phenomenon shows us that even countries with strong economies are still quite vulnerable to energy security issues.
CASE for Southeast Asia Project held a discussion entitled “Energy Crisis in UK and Europe: Lessons Learned for Indonesia’s Energy Transition” which invited speakers from the UK and Europe (11/10/2021). In this discussion, the public in Indonesia is involved in the discussion to find out various important facts and findings related to the issue of the energy crisis that is currently happening in the UK and Europe.
In the UK the, industrial and household sectors are quite dependent on natural gas. With the winter season is approaching, the demand for gas is increasing as the need to warm homes also increases. This condition, when a country relies heavily on energy sources that are vulnerable to global markets, does raise a question: is this really an energy crisis, or is it a fossil energy crisis?
William Derbyshire, Director of Economic Consulting Associates (ECA), UK, on this occasion gave an explanation regarding the fact that the primary energy mix in the UK relies on natural gas as much as 42%. Furthermore, William also showed data that illustrates that since 2017, the price of natural gas has gradually increased until 2021, which has resulted in an increase in the selling price of electricity.
“If high fossil fuel prices are the problem, then the answer is reducing dependence on coal and gas, not adding more fossil fuels,” William said.
Based on this conclusion, renewable energy is a good solution to reduce dependence on fossil energy. But not without challenges, the UK, which has 16% of wind power plants in its power generation mix, has several important points to note. For example, Gareth Davies, Managing Director of Aquatera explained that wind farms in the UK have a fairly high variability scale.
Responding to this challenge, Gareth conveyed the need to conduct spatial analysis and planning related to areas that have sufficient wind gust potential, also taking into account the historical climate data.
“By distributing wind power production over a wider geographic area, it will help improve energy security and balance the UK’s energy supply through renewable energy,” said Gareth.
In line with William’s statement regarding the importance of making an immediate energy transition, Dimitri Pescia, Program Manager Southeast Asia of Agora Energiewende explained the fact, for example, in Germany, the investment cost to build renewable energy power plants is much cheaper than to build fossil power plants. In this context, Dimitri explained that investment in renewable energy can be considered as a hedging strategy to minimize the risk of using fossil energy in the energy transition period over the next few years.
From this discussion, the public is being helped to understand the real situation and the lessons that can be drawn for the energy transition process in Indonesia. Fabby Tumiwa, Executive Director of IESR said that Indonesia needs to quickly adopt the use of renewable energy to minimize the risk of an energy crisis due to dependency on fossil energy. Fabby added that the development of these abundant potentials of renewable energy in Indonesia needs to be accompanied by energy efficiency, development of energy storage technology, as well as inter-island interconnectivity.
“It should be remembered that the current energy crisis is a fossil energy crisis. The volatility of fossil energy prices is very high. The increase of fossil energy prices will have an effect on other aspects,” said Fabby, emphasizing the real cause of the energy crisis in the UK and Europe.
Closing this discussion, Fabby expresses the urgency for the public to know this issue contextually so that there would be no panic in the community. “Indonesia itself does not need to worry about energy crises that occur in Europe, China, Britain, India, because Indonesia has the advantage of a better energy transition planning towards decarbonization way earlier,” concluded Fabby.
Paolo Malanima, an economic historian from Italy, classifies the history of the world energy into two periods based on the utilization of energy source. The first period ranges from 7 million to 500 years ago, marked with five prime energy sources, namely food, firewood, animal feed, hydropower, and wind power. For about 5 to 7 million years ago, food is known as the only energy source by a human with other two forms of energy (i.e., kinetic and thermal). They only relied on their body and animals to perform some works with limited usage of hydro and wind power. For this reason, he then called this period as the organic vegetable economy.
The second world energy period spans from the present to last 500 years ago. In this era, the prime energy sources for human and animals have been replacing by fossil fuel-based, along with the development of machine tools and mechanization. The fossil energy sources which have been utilized are from coal, crude oil, primary electricity, natural gas, and nuclear, respectively. So, for this second period, Paolo Malanima called the era as the organic economies.
From these two periods, the common principle to extract the energy remains the same: by burning the carbon. While the first period used direct timber and other traditional biomass as the carbon source, the modern period uses the “fossil” carbon from ancient plants and organisms which subject to intense heat and pressure over millions of years. The changes in the use of fuel between these periods encourage the emergence of the energy transition.
What is energy transition?
The energy transition can be interpreted simply as “changes in the system of energy production and consumption in a certain period of time.” Nowadays, the terms globally referred as the transformation process in the energy supply in which from fossil fuel-based energy system (i.e. coal, oil, and gas) towards a more efficient, low carbon, and sustainable energy system with renewables (e.g. solar, wind, bioenergy, hydro). The current transition is driven to achieve global climate mitigation goals in limiting global warming to 2oC – or even limiting to 1.5oC.
Energy transition phenomenon is actually already started a long time ago. It began in the mid 19th century by the utilization of coal as the main source of energy, followed by the introduction of oil in the 20th century, and nuclear in the 1950s. From the 1950s to date, the energy supply from renewables has been taking over the dominance of the non-renewables. It’s fairly to say that the global energy transition has undergone under four major waves (see Figure 2).
The first global energy transition arguably marked when Thomas Newcomen and James Watt invented the steam engine in the late-18th century. In this era, there have been changes in the number and pattern of energy use as well as the energy-carrying substitutes – which were originally dominated by biomass (firewood) to coal and oil later in the mid-20th century. Further, the geographical distribution of energy production, the commercialization of energy resources, and the impact of energy use on the environment began to be visible in this industrial revolution era.
The era of industrialization – along with the discovery of electricity and the increasing population of the world, pushed for greater demand for energy. Coal and oil have more energy density than biomass. Hence, these two sources of energy had been used massively in the era to supply the needs. As a consequence, biomass utilization was dramatically decreased and the new type of energy, i.e. electricity, was started to increase.
High utilization of coal and oil – plus economic development, not only increased fossil fuel usage but also encouraged the development of technology towards more efficient and more environmentally friendly. That’s why the introduction of nuclear energy to generate electricity in the 1950s marked as the third wave of the global energy transition. The world’s first nuclear powerplant started operations in Obninsk, in the Soviet Union, on June 27, 1954.
The fourth wave of the global energy transition marked by the reduction in the use of fossil fuels, especially in developed countries. With the threat of climate change and its impact, countries in the world then agreed to require the transition of the current energy system towards a cleaner system by using renewables. Solar and wind energy are among the most renewable sources which have a rapid deployment around the globe.
“Back to the future past”
Maybe not many people are aware that we finally return to the original wisdom of energy use in the past. If we referring back to the Paolo Malanima’s classification, our ancestors had been evidently used the renewable energy to empower their work in the first place. With technological advancement, we can back to use past wisdom in tapping the energy from renewable energy sources, in more effective ways.
Current renewable energy technologies, combined with the storage system, can substitute the dirty fossil power plants without having the reliability. The rise of micro-power and decentralized generation globally indicates that we no longer need the big, centralized power plant. Moreover, the digital revolution in the energy sector (e.g. digitalization, internet of things) also accelerate the energy transition towards a more efficient, low carbon, and sustainable energy system with renewables.
So let’s turn, not burn!
Program Manager – Energy Transformation
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