The need for clean energy technology deployment towards global net-zero emissions is becoming more critical. To meet the net-zero emission target in 2030 and reduce global energy consumption to 7% less than the level in 2020, a massive deployment of clean energy technologies is needed.
That means the capacity addition of solar PV and wind power in 2030 needs to increase up to four times that of the 2020 level. The share of electric vehicles (EVs) is expected to be 60% of global car sales in 2030.
Asean's energy demand in 2030 is predicted to increase up to 1.5 times the 2020 value. Among member countries, Indonesia has the largest share of total energy demand in the region -- a 31% share of total energy demand in 2030. The transport sector consumed the second-largest share of energy after the electricity sector, which generated the second-largest GHG emissions in the region. The transport sector consumed 41% of the total energy demand of Indonesia in 2020.
Indonesia's policy on electronic vehicles (EVs)
Indonesia aims to deploy 15.2 million units of EVs by 2030. Such a policy is one of mitigation measures to ensure a 12.5% GHG emissions reduction. Under this plan, batteries play a critical part in securing the supply chain of the EV industry. That means vital minerals needed by the EV battery industry are more critical for Indonesia as well as Asean. Lithium, nickel, cobalt, manganese, and aluminium are the most needed critical minerals for the EV battery industry. Asean accounted for 47% and 35% of the global production of nickel and tin in 2020. Among AMS, Indonesia is the largest nickel producer -- accounting for 35% of the global nickel production in 2020.
Indonesia's long road ahead to being a global EV battery production hub
With its abundant resources of nickel, the Jokowi administration immediately seized the opportunity to solidify its ambition to serve as the world's main electric vehicle (EV) battery producer.
Having said that, President Joko Widodo in 2020 met Tesla's owner, Elon Musk, to invite Tesla to produce EVs and batteries in Indonesia. In the National Masterplan for Industry 2015–2035 and National Medium-Term Plan 2020–2024, the development of the EV infrastructure and production to establish a solid national economic structure was incorporated in both national masterplans.
To move into action, the government issued Presidential Regulation No.55 of 2019 on Battery Electric Vehicle (BEV) for Road Transportation Program Acceleration to accelerate the construction of manufacturing infrastructure. However, the government might face difficulties in implementing the policy as Indonesia is not yet on track to achieve an integrated battery supply chain.
The first challenge is in the raw material supply chains. The scarcity of lithium in Indonesia, as the critical mineral for battery EVs, will eventually lead to importing the mineral. Most EV batteries, such as NMC batteries, contain a cathode made up of lithium, nickel, manganese, and cobalt. Indonesia needs 70,000 tonnes of lithium hydroxide annually yet still imports the mineral from China, Australia, and Chile.
The market dynamics of critical minerals also affect the battery supply chain in Indonesia.
Indonesia's loss in the World Trade Organization's (WTO) lawsuit on raw nickel ore last year will have a major impact. To put it into perspective, processed nickel exports have increased significantly, with an added value of approximately US$19 billion (688 billion baht) in 2021. The loss will interrupt domestic needs for the downstream nickel process, whereby, from the beginning, the industry has lacked the adaptability to compete with other major industries.
Moreover, Indonesia also has a production capacity gap between the supply of raw materials and the ability to process them. The development of battery EVs, particularly the infrastructure for nickel processing High-Pressure Acid Leaching (HPAL) and advanced technology, is inadequate in Indonesia.
The last challenge is in ensuring the refining process will be eco-friendly through waste disposal. HPAL Projects in Indonesia have a problematic record that often involves higher carbon materials and issues with waste management in their processing. This may influence investors to reconsider when allocating their assets. Learning from the past, Tesla seemed to turn down Indonesia, giving market observers the impression that Indonesia's nickel industry was not meeting sustainability standards and was risky.
The government needs attainable solutions to scale up Indonesia's opportunity
In response to Indonesia's loss in the WTO lawsuit, the government needs to employ additional strategies to boost the added value of nickel products and lay more of the spotlight on the domestic industry.
The government needs to reduce mineral imports and prevent environmental impacts during the refining process.
To overcome a lack of supply of lithium, Indonesia needs to explore alternative sources. Recently, some researchers discovered geothermal brine can extract lithium and have since been developing a promising technology for sustainable domestic lithium extraction. Moreover, the geothermal brine can also be applied in Indonesia as an alternative source of lithium in the future after the discovery of lithium content in one of its geothermal sources. Not to mention the fact that Indonesia has big potential in geothermal energy.
Pushing Asean to become a global EV hub
Indonesia continues to showcase its strong position in the EV industry and is leading the region to become a global EV manufacturing centre. Indonesia has attracted much investment from global companies and may become the largest hub in Asean for the production of batteries and component parts. Moreover, there are encouraging indications for electric vehicle (EV) markets in the region, as Thailand and Indonesia are leading the way. In 2022, Thailand's percentage of electric vehicle sales was roughly 3%, compared to Indonesia's average of 1.5%. Given the region's potential, at the Asean Summit 2023, all leaders agreed to explore close cooperation and collaboration for building Asean as a global production hub and to harmonise regional standards for the EV ecosystem.
Ambiyah Abdullah is a researcher at the Asean Centre for Energy (ACE). Auliya Febriyanti is a researcher at ACE.