Nurul Ichwan, Indonesia’s deputy investment minister, says that it is “not an ideal time” for the country to shift to renewables as it scales up energy-intensive nickel and battery manufacturing, spurring the need for carbon capture and tailored green power solutions.
“We don’t have time to wait for renewable energy to be available to supply nickel processing and manufacturing,” he says in an interview with fDi. “Some of the technology, especially for the [smelting process], requires very high energy capacity.”
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Seizing the opportunity to build up downstream processing capacity, the south-east Asian country, which is home to roughly a fifth of the world’s nickel deposits, has outlined that it wants to move up the value chain and compete with other countries that produce electric vehicle (EV) batteries. This follows its ban on nickel exports, which has been in place since 2014.
“It is not an ideal time for us, as we are shifting from coal power to renewables, while at the same time supplying the global demand for batteries. This is why [attracting investments in] carbon capture and storage will be a priority for us,” says Mr Ichwan.
In September, UK multinational energy company BP signed a memorandum of understanding alongside Japanese utility company Chubu Electric to carry out a feasibility study to develop a carbon capture, utilisation and storage value chain to decarbonise gas power plants in Indonesia.
In addition, the Indonesian government has solutions to meet the green requirements of international investors, he adds. “We have strong indications coming from Western investors [in the battery supply chain] who want to ensure that they have a supply of green energy,” says Mr Ichwan.
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The Indonesian ministry of investment has tailored its offering for certain investors. Mr Ichwan explains that one unnamed German investor did not want to connect to the national grid as it is supplied by coal power and this would hit the investor with an extra tariff under the EU’s Carbon Border Adjustment Mechanism when it exported its products to Europe.
“One of our offerings for this is to have a dedicated green energy supply to tenants within an industrial estate. Some investors are OK with [being connected to] the national grid as long as they have green certification, others want separate supply,” Mr Ichwan says. “We’ll try and do the best we can do.”
Mr Ichwan insists that this does not mean that the country is averse to the build-out of renewables. “It is not a choice for Indonesia. It is a must for us to shift to renewable energy and we have the plan [to do so],” he says.
The Indonesian government has a renewables target of 23% by 2025 and will retire some 30% of its coal-fired power plant capacity by 2030. The country’s renewable energy ambitions mostly rely on hydro and solar power. Some of these clean energy plants are expected to power smelters in industrial parks, such as a hydropower project in Kalimantan on the island of Borneo.
But, Mr Ichwan adds, “it is impossible for us to maintain the growth of our economy” without the country utilising existing coal power. “If [foreign investors] ask us to have [substantially more] green energy within the next five years, for example, we don't have enough money for this,” he says.
According to the latest figures from the World Bank, Indonesia is predicted to grow by 4.9% in 2023, having registered a rate of 5.3% last year.
Angela Tritto, honorary fellow at University College London, says there has been a certain amount of “cognitive dissonance” in Indonesia’s adherence to the Paris Agreement and its nickel processing and EV battery ambitions.
“Indonesia has to step up its game and move away from being a pollution haven,” she says, but adds that new greenfield hydropower sites have environmental and social impacts of their own.
This necessitates “relocating a lot of people and changing the hydrology of a place”, she says. “It is really not the way to move to carbon neutrality by choosing a greenfield site rich in biodiversity instead of a brownfield site which was already somewhat developed.”
The number of greenfield investment projects in the battery supply chain, spanning metals, electronic components and chemicals, has increased significantly over the past few years, according to fDi Markets, rising from one project in the whole of 2018 to 11 between January and August this year.
Overall, greenfield FDI into Indonesia has soared to an estimated $37.4bn between January and August this year, according to fDi Markets, already its highest level in seven years.