Critical minerals and energy transition
The need for clean energy technologies deployment towards global net-zero emission pathways is becoming more critical due to energy transition and security targets. To meet net-zero emission target in 2030, the massive deployment of existing clean energy technologies would be needed to ensure global energy consumption would be 7% less than the 2020 level with the 40% higher of global energy growth. The capacity addition of solar PV and wind powers in 2030 needs to increase up to four times of the 2020 level. Moreover, the share of electric vehicles (EVs) is expected to be 60% of global car share in 2030. To enhance energy security target, revisiting the global supply chain of clean energy technologies both from production stages and interconnection among countries’ perspectives would be necessary. Understanding the production stages from upstream to downstream of the clean energy technologies supply chain would enable us to capture key materials and supply countries in the global supply chain of clean energy technologies. As critical minerals (such as copper, cobalt, and nickel) are located at the initial step of global supply chain clean energy technologies, the availability of critical minerals is critical for the deployment of these technologies towards global net-zero emission pathways.
ASEAN energy demand in 2030 is predicted to increase up to 1.5 times of the 2020 value. Among AMS, Indonesia has the largest share of total energy demand in the region by having a 31% share of total energy demand in 2030. Transport sector consumed the second largest share of energy demand after electricity sector, which generated the second largest GHG emitter in the region. Transport sector consumed 41% of total energy demand of Indonesia in 2020. Indonesia aims to deploy 15.2 million unit of EV by 2030 as one of mitigation measures to achieve 12.5% GHG emissions reduction target of energy sector under national self-effort. Battery plays a critical part in securing the supply chain of the EV industry. Under this context, critical minerals needed by the EV battery industry are more critical for Indonesia and ASEAN. Lithium, nickel, cobalt, manganese, and aluminium are most needed of critical minerals for EV battery industry. ASEAN accounted for 47% and 35% of global production of nickel and tin in 2020. Among AMS, Indonesia is the largest nickel producer which accounted for 35% of the global nickel production in 2020.
Indonesia’s long road ahead towards a global EV battery production hub
With its abundant resources in nickel, the Jokowi administration immediately seizes the opportunity in solidifying its ambition to serve as the world’s electric vehicle (EV) battery producer. Indonesia’s ambitious heightens as Jokowi set a meeting with the Tesla’s owner, Elon Musk, in 2022 to negotiate for manufacturing EV and the batteries in the country. In its National Masterplan for Industry 2015–2035 and National Medium-Term Plan 2020–2024, the Indonesian government incorporated the development of EV infrastructure and production to establish a solid national economic structure. Indonesia, in fact, establishes several project portfolios for the development of EV battery ecosystems and integrated battery energy storage systems. The government unveiled its first EV manufacturing plant, generated from a joint venture between South Koreas’ consortium and Indonesia Battery Corp (IBC).
To move into action, the government issued the 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 to implement 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 policy regulates the use of the Domestic Component Level (TKDN) that aimed to push the domestic production of BEV. However, the scarcity of lithium in Indonesia, as the critical mineral for battery EVs, causing a dependency on the import is inevitable. Most of EV batteries, such as NMC battery, contains a cathode made up of lithium, nickel, manganese, and cobalt. Indonesia needs 70,000 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. Following Indonesia’s loss in the World Trade Organisation (WTO) ruled, the government needs to confront the consequences that might impact the supply chain, including production. To put into perspective, processed nickel exports have increased significantly with added value of approximately USD 19 billion in 2021. The loss will interupt domestic needs for the downstream nickel process, in which the industry has already lack of the adaptability to compete with other major industries from the beginning.
Moreover, Indonesia also has a production capacity gap between the supply of raw materials and the ability to process them. The development of battery EV, particularly the infrastructure for nickel processing High–Pressure Acid Leaching (HPAL) and advanced technology, is inadequate in Indonesia.
Last challenge is ensuring the refining process to be eco-friendly through waste disposal. HPAL Projects in Indonesia has a problematic record that often involves higher carbon materials and issues with waste management in the processing. This may influence the investors to reconsider in allocating their asset. Learning from the past, Tesla seemed to turned down Indonesia, giving market observers the impression that Indonesia’s nickel industry was not meeting sustainability standards and becoming risky.
The government needs attainable solutions to scale up Indonesia’s opportunity
In response to Indonesia’s loss in WTO, 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. Instead of persisting to impose an export ban, Indonesia can develop a policy to ensure the long-term and sustainable supply of nickel. Improving the regulation, including the research and development, of nickel processing for battery EVs to meet environmental standards can be an effective option.
The current regulations on battery EVs (Presidential Regulation 55/2019) reflects the government’s seriousness in providing legal certainty for the construction of domestic BEV manufacturing infrastructure. However, the government still needs to monitor the progression towards the objectives, particularly in reducing dependency on mineral imports and preventing environmental devastation during the refining process.
To overcome a lack of lithium supply, Indonesia needs to explore alternative sources to substitute lithium materials. Recently, some researchers discovered geothermal brine can extract lithium and has been developing a promising technology for sustainable domestic lithium extraction. Moreover, the geothermal brine also can be applied in Indonesia as an alternative source of lithium in the future after the discovery of lithium content in one of its geothermal source. Not to mention the fact that Indonesia has big potential in geothermal.
Pushing ASEAN towards global EV hub
Indonesia continues to showcase its strong position in the EV industry and encourage the region to become global EV-manufacturing centre as the ASEAN Chairmanship 2023. Indonesia has enticed a load of investment from global companies and may end up becoming the largest hub for the production of batteries and component parts in the region. Moreover, there are encouraging indications for electric vehicle (EV) markets in the region as Thailand and Indonesia are leading the path. 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, in ASEAN Summit 2023, all leaders agreed to explore close cooperation and collaboration for building ASEAN as a global production hub and harmonizing regional standards for the EV ecosystem.