THE IMPORTANCE OF ENERGY TRANSITION IN THE INDUSTRIAL SECTOR
Indonesia is one of 196 countries that signed the Paris Agreement. Indonesia then ratified it into national law through Law Number 16 of 2016, concerning the ratification of the Paris Agreement on the United Nations Framework Convention on Climate Change. The Paris Agreement is an international agreement on climate change agreed at COP21 in Paris in December 2015, and came into force on November 4, 2016.
The Paris Agreement was agreed to strengthen the global response to the threat of climate change, with the aim of holding the global average temperature rise to well below 2°C above pre-industrialization levels, and continuing efforts to reduce the temperature rise to 1.5°C above pre-industrialization levels. As a statement of commitment to implement the Paris Agreement, Indonesia has made a Nationally Determined Contribution (NDC) with a target of reducing emissions by 29% by its own efforts and to 41% with international cooperation by 2030. This commitment can be achieved through the involvement of various sectors, one of which is the energy sector.
Emissions reduction in the energy sector is something that needs to be done immediately. In 2017, the energy sector contributed the most to national greenhouse gas (GHG) emissions, amounting to 48%, followed by forestry and peat fires (26%) and agriculture (11%).
Energy Consumption in the Industrial Sector
The Industrial sector is a sector that is highly dependent on energy use, in 2019 the industrial sector consumed more than 30% of total electricity consumption in Indonesia. It is estimated that electricity demand until 2050 will still be dominated by the industrial sector, among others.
As a country with the fifth largest coal reserves in the world, it is inevitable that most of the electrical energy in Indonesia is generated through coal processing. Indonesia's coal reserves to date, are estimated at 38.84 billion tons. And the utilization of coal to generate electricity in Indonesia, is expected to continue to increase to meet domestic needs, especially for the needs of power plants and industry.
The depletion of fossil energy reserves in Indonesia is also revealed in the National Medium-Term Development Plan (RPJMN) IV 2020-2024, which states that domestic energy supplies in 2030 are estimated to be able to meet only 75% of national energy demand, and will continue to decline to only about 28% in 2045. With the expectation of high economic growth, the reduced ability of domestic energy production will certainly cause an imbalance between supply versus national energy demand in the future. Why does the industry need to transition? On the other hand, Indonesia actually has abundant renewable energy potential. As compiled in the National Energy General Plan (RUEN), Indonesia's renewable energy potential reaches 443 Giga Watts (GW), which comes from geothermal, water, mini and micro hydro, bioenergy, solar, wind and sea. This potential is now used as a reference by the government as the basis for the target of developing new renewable energy (EBT), which is at least 23% of the total primary energy mix in 2025, and at least takes up as much as 31% of the primary energy mix in 2050. Unfortunately, until now the capacity of renewable energy-based power plants in Indonesia has only reached 10.3 GW. As a further commitment, the Government of Indonesia is currently drafting Indonesia's Grand National Energy Strategy (GSEN) to realize national energy security. In the GSEN, the development plan for renewable energy power plants in Indonesia, has a target of adding capacity up to around 38 GW by 2035. The abundance of renewable energy potential in Indonesia needs to be utilized by the industrial sector if it wants to avoid dependence on fossil energy. Moreover, the emissions produced by coal in the power sector are quite high, reaching 1.24 tons of CO2 / MW. Furthermore, the vulnerability of current coal supplies has led to vulnerable predictions for the future of the industry. The industrial sector, which still relies on coal as its main energy source, needs to start re-evaluating its decisions. The uncertain availability of coal in the next few decades has the potential to threaten the sustainability of industrial manufacturing activities. An International Energy Agency report revealed that the use of renewable energy will contribute to 50% of carbon reduction by 2050, plus 45% from energy efficiency and electrification. As one of the sectors with a very large electricity utilization, the industrial sector needs to immediately start energy efficiency, while switching to the use of renewable energy. The synergy between the two is critical, as it can result in a higher renewable energy mix, faster energy intensity reduction, and lower costs to the energy system. If the development of renewable energy or energy efficiency is done in isolation, it will be very difficult to achieve favorable results. There are many benefits that industries can gain from switching to renewable energy, including green marketing, energy cost savings, and positive consumer sentiment. The good efforts of various companies in using renewable energy, need to be supported to help reduce the rate of global warming and release dependence on fossil energy. Development of Energy Transition in Industrial Sector The good news is that the transition to the use of renewable energy is now starting to be carried out by industries in Indonesia, especially by companies that are part of multinational corporate networks. One of them has been carried out by a bottled mineral water producer located in Klaten, Central Java. The move to reduce dependence on fossil fuels was carried out by installing more than 8,300 units of solar panels, which is claimed to be the largest solar power system (PLTS) installed on the roof of a factory. The solar rooftop with a capacity of 2.91 megawatt peak (mWp) can produce 4 GWh of electricity annually. The output can contribute at least 15-20% of the factory's total electricity demand. The installation of the rooftop solar power plant was done so that the company can increase the use of renewable energy derived from nature, namely sunlight, which will certainly have a positive impact on reducing GHG emissions. Regarding emission reduction, the company stated that it is able to reduce CO2 emissions by 314 tons of CO2e every month or the equivalent of planting around 29,776 trees. Not only that, there are now multinational initiatives related to the transition to renewable energy, such as the Clean Energy Investment Accelerator (CEIA), Renewable Energy Buyer Alliance (REBA), Renewable Energy 100 (RE100), and others. These initiatives open up space for industry sectors to collaborate, in developing and implementing the use of renewable energy in their businesses. There are at least 3 main reasons that can motivate industries or companies to start using renewable energy-based electricity, namely GHG emission management, Corporate Social Responsibility (CSR), and meeting customer expectations. In addition to the direct role of the industrial sector to utilize renewable energy, Financial Services Institutions (FSIs) play an important role in the energy transition. Financial institutions as financial intermediaries have a role to play in encouraging the energy sector to transition. Article 2 of the Paris Agreement mandates that financial flows are consistent with low-carbon and climate-resilient development, including to encourage the shift from fossil fuels to renewable energy. Examples include large investment managers that are members of the Principle of Responsible Investment (PRI) and banks in the EU and Singapore that are implementing policies and targets to transition away from fossil fuels such as coal. While in Indonesia itself, investment in transitional energy is still very limited. Currently, members of the Indonesian Sustainable Finance Initiative (IKBI) provide financing in the renewable energy sector only reaching 17.5 trillion rupiah in 2020. The renewable energy sector portfolio is still limited due to several main challenges, including policies related to costs that are not yet conducive, large transaction costs, tenor periods that mismatch with the availability of financing facilities and the average small and medium scale players who do not have much experience. The complexity of this energy transition condition requires a multi-stakeholder solution to accelerate renewable energy investment to be realized. Especially to achieve the renewable energy mix target set by the government and mitigate the risks associated with a possible temperature rise of more than 1.5 degrees that could occur in 2021-2040.