Capacity Building of Industry, Academia and Government Towards Green and Sustainable Industry

To encourage wider adoption of decarbonization pillars, IESR organized a workshop and exhibition titled ‘Capacity Building for Industry, Academia and Government Towards Green and Sustainable Industry’, as a first step to equip and sharpen the capacity of key stakeholders in the industrial sector in Indonesia.

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Embarking on the Decarbonization Journey of the Steel Industry

Jakarta, 20 March 2024 – The industrial sector is one of the important sectors for reducing emissions. The large energy consumption and its significant contribution to the economy in 2022 amounting to 16.48 percent of Gross Domestic Product (GDP), are strong reasons to make this sector more sustainable. Industries with high energy needs, such as the iron and steel industry, require strategic preparation to carry out decarbonization.

Indonesia is one of the largest steel producing countries in Southeast Asia, and ranks number 15 steel producers in the world. In 2023, Indonesia’s steel production capacity will reach 16 million tonnes and is estimated to reach 33-35 million tonnes in 2030.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), in the webinar “Accelerating the Transformation of the Steel Industry in Southeast Asia: Indonesia Chapter” stated that Indonesian steel production still has high emissions.

“Indonesia’s projected steel demand is predicted to increase. If we don’t take serious decarbonization steps, emissions from the steel industry will also continue to increase,” said Fabby.

We also face international market demands to produce lower carbon steel. For example, the European Union has implemented the Carbon Border Adjustment Mechanism (CBAM), which, effective in 2026, will have a negative effect on the exports of the Indonesian steel industry. For this reason, the steel industry needs to undergo transformation.

Farid Wijaya, Senior Analyst at IESR, explained that decarbonization for the steel industry will bring prospects for economic growth, although currently there are still quite a lot of challenges.

“Green industrial standards can be one way to encourage environmentally friendly industries. Green standards for steel have only recently been established and are still limited to sheet steel per layer. “Currently there is no steel industry that has received a green certificate due to implementation limitations,” said Farid.

Kajol, Program Manager for Climate Neutral Industry Southeast Asia, Agora Industry, added that currently almost 80% of steel production is carried out through blast furnace technology.

“We have to start thinking about better and modern technology to replace blast furnaces. “When the blast furnace facilities currently operating start to become less efficient in 2030-2040, we must replace them with more modern technology and no longer invest in blast furnaces,” she explained.

One of the technologies Kajol refers to is Direct Reduced Iron (DRI) which can produce primary steel using natural gas or clean hydrogen. Iron ore is reduced to produce DRI, which can then be melted in an electric arc furnace (EAF) to produce primary steel.

Viable strategies for decarbonizing the steel industry include direct and indirect use of renewable energy, resource efficiency and circular economy, and closing the carbon cycle.

Helenna Ariesty, Sustainability Manager of PT Gunung Raja Paksi (GRP) as an industry player emphasized the importance of regulatory certainty in encouraging industrial decarbonization.

“We face several challenges to navigate the inconsistent policy direction. Apart from that, access to funding is affordable considering the initial investment required is significant,” Helenna said.

Joseph Cordonnier, Industrial Policy Analyst, OECD agrees that policy and access to funding will be key framework components for building a supporting ecosystem for industrial decarbonization.

“As part of this framework we also have to really look at how to maximize the utilization of existing assets based on engineering variables, energy efficiency and emission reduction of these assets,” said Joseph.

Fausan Arif Darmaji, Infrastructure Development Analyst, Green Industry Center, Ministry of Industry said the government is aware of the need to reduce emissions from Indonesian steel production.

“The steel sector is also our current focus. “While we are waiting for the policy regulations that are currently being made, we are providing training on GHG calculations for the steel sector, as well as calculating the economic value of carbon,” said Fausan.

Deon Arinaldo, IESR Energy Transformation Program Manager closed this webinar by underlining the need for industrial decarbonization as an effort to remain relevant to the demands of industrial development.

“Currently decarbonization in the industrial sector is still considered a challenge. Not only in Indonesia, but also a global phenomenon. “We must anticipate this trend because decarbonization is inevitable,” said Deon.

Decarbonization of the Iron and Steel Industry Needs a Comprehensive Roadmap

press release
The Executive Director of IESR, Fabby Tumiwa
The Executive Director of IESR, Fabby Tumiwa

Jakarta, March 20, 2024 – Indonesia’s iron and steel industry is experiencing consumption growth. Data from the Coordinating Ministry for Economic Affairs shows that in 2022, the average steel consumption was 15.62 million tons annually. This number exceeds the average steel production of around 12.46 million tons annually. Meanwhile, in terms of exports, the iron and steel industry experienced an increasing trend from USD 7.9 billion in 2019 to USD 28.5 billion in 2022.

Increased consumption of iron and steel on a national level directly impacts the amount of greenhouse gas emissions. According to the Institute for Essential Services Reform (IESR) report, the iron and steel industry alone contributes to 4.9% of total industrial emissions. This amounts to approximately 430 million tons of carbon dioxide in 2022, equivalent to 20-30 million tons per year. To promote greener and more sustainable business practices, the IESR recommends that the government and iron and steel industry players work together to reduce emissions.

The Executive Director of IESR, Fabby Tumiwa, stated it is crucial to address the transfer of iron and steel production process technology to decarbonize the iron and steel industry sector. Currently, 80% of iron and steel production in Indonesia is still produced using blast furnace technology, which relies heavily on coal and coke as fuel. This means that reducing emissions in Indonesia’s iron and steel industry will become increasingly challenging if the use of blast furnace technology continues to rise.

“Steel is a vital material required for various developmental purposes, including producing technologies that support the worldwide shift towards renewable energy. To generate 1 MW of renewable energy using solar panels and wind turbines, we need approximately 20-180 tons of steel. Therefore, it is essential to decarbonize the steel industry to ensure that the technology supply chain becomes low-carbon through increased energy efficiency. One way to achieve this is by switching to environmentally friendly technology, using renewable energy, and optimizing the use of recycled steel (scrap),” said Fabby Tumiwa in the Webinar Accelerating the Transformation of the Steel Industry in Indonesia and Southeast Asia organized by IESR and Agora Industry. 

The urgency to reduce carbon emissions in the iron and steel industry is influenced globally by low-emission product regulations, carbon limits for exports, and carbon trading. At the national level, Farid Wijaya, a Senior Analyst at IESR, stated that decarbonizing the iron and steel industry can help achieve Indonesia’s economic growth goals, protect the domestic supply chain and future economy, and increase export competitiveness for global markets that value environmentally friendly practices.

“To reduce carbon emissions in the industry, it is essential to establish regulations and standards for building a green industry ecosystem. This ecosystem should include the provision of green energy and low-carbon technology. To effectively achieve this goal, each industry and association needs to develop a clear roadmap for decarbonization. Currently, this roadmap only exists for a few sectors and has not yet been established as a regulation that can serve as a basis for action by industry players and associations,” Farid said. 

The IESR study provides recommendations to encourage the reduction of carbon emissions in Indonesia’s industrial sector. Firstly, the Ministry of Industry should complete the industrial decarbonization roadmap by the end of 2024 or sooner. Secondly, the study recommends strengthening the reporting and data collection process regarding implementing the Minister of Industry Regulation No.2/2019, which concerns the procedures for submitting industrial data through the National Industrial Information System (SIINAS). This will ensure the disclosure of industrial sustainability reports for transparency and access to information, mainly reporting on energy and raw material use and waste generated. Finally, the study suggests benchmarking green industry production processes and expanding the scope and limit values of green industry standards (SIH) from voluntary and referring to local best practices to mandatory, based on the emission reduction needs in 2060 or earlier.

Kajol, Southeast Asia Climate-Neutral Industry Program Manager, Agora Industri, said the transformation of the iron and steel industry requires three strategies, namely the use of direct and indirect renewable energy, resource efficiency and the implementation of a circular economy, and ending the carbon cycle with the use of Carbon Capture Use and Storage (CCU/S) and biomass and bioenergy supplemented with CCS (BECCS).

Fausan Arif Darmadi, Infrastructure Development Analyst, Center for Green Industry, Ministry of Industry (Kemenperin), it is worth noting that the party has introduced a green industry standard (SIH) that covers various aspects such as raw materials, auxiliary materials, energy, production processes, products, business management, and waste management. Minister of Industry Regulation (Permenperin) No. 12 of 2023 also sets limits on energy use, water consumption, and greenhouse gas (GHG) emissions for coated steel. This regulation aims to assist companies in adopting an efficient and eco-friendly production process.

“The commitment of the industrial sector is crucial in reducing carbon emissions. As a result, the Ministry of Industry has offered training to the steel industry on calculating greenhouse gas (GHG) emissions and determining the economic value of carbon. Meanwhile, a comprehensive guide to aid in calculating the economic value of carbon is currently in development,” said Fausan.

MEMR Regulation No. 2/2024 Limits Public Participation to Support Energy Transition through Rooftop Solar PV

press release

Jakarta, February 23, 2024 – The Indonesian government has officially issued Minister of Energy and Mineral Resources (MEMR) Regulation No. 2 of 2024 concerning Rooftop Solar Power Plants Connected to the Electricity Network of Holders of Electricity Supply Business License for Public Interest, which is a revision of MEMR Regulation No. 26 of 2021. 

In this new regulation, the net-metering scheme is abolished so that excess electrical energy or export of electrical power from users to State Electricity Company (PT PLN Persero) cannot be calculated as part of the reduction in electricity bills.  The regulation also stipulates a quota mechanism for rooftop solar power systems in the electricity system of owners of Electricity Supply Business License for Public Interest (IUPTLU) for five years. In addition, this regulation stipulates the registration period twice a year and the compensation provided by the state to PLN if the cost of electricity supply is affected due to the penetration of rooftop solar PV.

The Institute for Essential Services Reform (IESR) considers that the elimination of the net-metering scheme will make it difficult to achieve the National Strategic Project (PSN) target of 3.6 GW of rooftop solar PV by 2025 and the 23% renewable energy target in the same year. The impact of the elimination of this scheme is a decrease in the economic level of rooftop solar power plants, especially in the household segment, which generally experiences peak loads at night. 

Fabby Tumiwa, Executive Director of IESR said that household or small business customers will tend to delay the adoption of rooftop solar PV because their peak electricity demand occurs at night, while solar PV generates peak energy during the day. Without net-metering, rooftop solar PV investment becomes more expensive, particularly when users have to spend additional funds for battery energy storage.

“Net-metering is actually an incentive for household customers to use rooftop solar systems. With PLN’s controlled electricity tariffs, net-metering helps improve the economic viability of rooftop solar systems installed at a minimum capacity of 2 – 3 kWp for R1 category consumers. Without net-metering and the relatively high cost of batteries, this minimum capacity cannot be met, resulting in higher investment costs per kilowatt-peak unit. This will reduce the economics of rooftop solar systems,” said Fabby Tumiwa.

For rooftop solar PV with a capacity greater than 3 MW (three megawatts), this regulation requires users to provide weather forecast database settings that are integrated with the Supervisory Control and Data Acquisition (SCADA) system or distribution smart grid owned by the Holder of Electricity Supply Business License for Public Interest (IUPTLU).

“The regulation removes the obligation to pay parallel generation charges, i.e. capacity charges and emergency service charges previously applied to industry – equivalent to 5 hours per month. The elimination of this parallel charge adds to the attractiveness for industrial customers, but the obligation to provide weather forecasting for systems of more than 3 MW will also add to the installation cost component,” said Marlistya Citraningrum, Program Manager of Sustainable Energy Access, IESR.

Marlistya also highlighted the regulation of the term for submission of applications by prospective customers, which is carried out twice per year, namely every January and July.

“This arrangement and the determination of quotas per network system raise questions regarding the transparency of quota determination and approval, especially for industrial customers who want to install rooftop PLTS on a large scale, while the IUPTLU mechanism to add quotas when the system quota has run out is not clearly regulated in this regulation,” he continued.

This regulation guarantees that customers who have utilized rooftop solar power systems before this regulation is enacted, remain bound by the previous regulation, for the next 10 years. This includes still benefiting from the rooftop solar power export system.

“As an on-grid rooftop PV user, I actually have questions about this transitional rule – considering that during installation, rooftop PV exports are still calculated as equivalent to 0.65 of the electricity tariff based on Permen ESDM No. 49/2018, not 1:1 like Permen ESDM No. 26/2021. This transitional rule needs to be clearly informed to current rooftop solar power users,” said Marlistya.

IESR regrets that this regulation is too favorable to the interests of PLN, which can have an impact on hindering the participation of electricity consumers in supporting the government’s goal of accelerating Indonesia’s energy transition, efforts to reduce GHG emissions at low cost and not burdening the state because renewable energy investments are made by electricity consumers without the need for state subsidies.

Fabby Tumiwa hopes that this new regulation can be implemented by paying attention to the benefits obtained by the state if rooftop solar PV is allowed to grow rapidly, namely increasing renewable energy investment, growing the solar PV industry, creating jobs, and reducing GHG emissions. For this reason, IESR urges an evaluation after a year of the Ministerial Regulation’s implementation to determine its effectiveness in encouraging the utilization of renewable energy in Indonesia. The government needs to openly revise it in 2025 as the threat of electricity overcapacity faced by PLN in Java-Bali decreases.

Industry’s Role in a Clean Future

Bandung, January 25, 2024 – Indonesia is blessed with abundant natural resources and committed to achieving the Net Zero Emission (NZE) target by 2060 or earlier. The industrial sector is crucial in this energy transition towards a sustainable future. Based on data from the Ministry of Industry (MoI), greenhouse gas (GHG) emissions from the industrial sector in Indonesia reached 238.1 million tons of CO2 in 2022. 2015-2022, it reached 8-20% of the total national GHG emissions. The most significant contributor to emissions comes from industrial energy use. 

Reflecting on these conditions, the West Java Energy Exploration team continued to visit several industries on the third day to see the utilization of renewable energy. PT Kahatex, PT Surya Energi Indotama, and Pertamina Geothermal Energy Area Kamojang show how industry can be central in utilizing renewable energy.

Reducing Emissions from the Garment Industry Production Process with Renewable Energy

The apparel and garment industry, particularly those involved in the global brands’ supply chain, must improve their production processes. The Carbon Border Adjustment Mechanism (CBAM) requires the industry to measure the carbon emissions produced during manufacturing.

Dedi Supriadi, Sustainability Compliance of PT Kahatex Majalaya, mentioned that the textile industry is competing with international brands to reduce emissions and increase the use of clean energy technology.

“From 2021, we (Kahatex Majalaya, red) installed rooftop solar power plants as much as 15% of the installed power capacity. From installing this solar PV, we managed to reduce emissions by around 40%-50% from 7,567e-1 CO2/unit to 3,190e-1 CO2/unit,” explained Dedi.

Kahatex has significantly reduced its greenhouse gas emissions and is now looking into utilizing other renewable energy sources to reduce its carbon footprint further. Since 2022, the company has been exploring biomass as a source of heat energy, which involves co-firing with coal. Since 2023, PT Kahatex Majalaya has been using 100 percent biomass to meet its heat energy requirements for production.

Solar Energy Illuminates the Earth of Indonesia

Director of Engineering & Operations, PT Surya Energi Indotama (SEI), Fajar Miftahul Falah, explained that SEI, as a subsidiary of PT Len Industri (BUMN), is responsible for developing renewable energy, particularly solar energy. Fajar stated that the business itself was the most significant challenge SEI faced since its establishment. Many people doubted its existence as a solar company at the beginning of its establishment. The high price of solar power and the belief that Indonesia was not ready to accept the offer made it even harder. However, with the acceleration of solar energy technology development, the price of solar PV has become more affordable. SEI has been in the solar power plant industry for over 15 years, with a total installed capacity of over 60 MW throughout Indonesia.

“Approximately 70% of the solar power plant construction projects we are currently working on are situated in Disadvantaged, Frontier, and Outermost (3T) areas or areas near them. Solar PV in these areas is challenging due to difficult terrain, making it hard to access the sites and creating safety concerns,” said Fajar. 

Operational room on PT SEI

Fajar mentioned that building solar PV in the 3T area is costlier than in other regions like Java. However, many believe the cost is the same in all areas. The fact is, while solar PV is affordable, the budget required to build it is expensive.

“We have been working on several solar PV projects, such as the Nusa Penida hybrid solar PV in Bali with a capacity of 4.2 kWp, the Merak Executive Terminal rooftop solar PV with a capacity of 324 kWp, and the Bakauheni Executive Terminal rooftop solar PV with a capacity of 192 kWp. Our main focus is on renewable energy, and we hope to contribute to Indonesia’s goal of achieving the NZE target by 2060 or earlier,” Fajar said.

 

Geothermal to Reduce Emissions

Raindrops welcomed the team from Jelajah Energi West Java upon their arrival at PT Pertamina Geothermal Energy (PGE) Kamojang Area. PGE is a PT Pertamina (Persero) subsidiary under the Upstream Directorate, which manages geothermal energy production from exploration activities to steam and electricity generation. The Kamojang geothermal energy sources are located in Ibun District, Bandung Regency, West Java, surrounded by beautiful pine forests.

Yustinar Uli, a representative of the PGE team, explained that PGE Kamojang Area became a pioneer of geothermal exploitation in Indonesia with the drilling of the first geothermal exploration well by the Dutch in 1926-1928. PGE Kamojang Area began operations on January 29, 1983, marked by the PLTP Unit 1 Kamojang operation.

“PGE constructed several units leading up to the PLTP Kamojang Unit 5 operation in 2015. Currently, PGE operates PLTP Kamojang Units 4 and 5 with a capacity of 60 MW and 35 MW, respectively. Meanwhile, PLTP Kamojang Units 1, 2, and 3, which have a combined capacity of 140 MW, are operated by PLN,” said Yustinar. 

Yustinar reported that the geothermal plants in the Kamojang area have a total installed capacity of 235 megawatts (MW). This is equivalent to reducing CO2 emissions by 1.2 million tons annually. The electricity generated from these plants is absorbed by PT PLN and distributed through the Java Madura Bali (Jamali) electricity interconnection system.