Indonesia’s road to global EV dominance starts with green smelting

In May 2024, Indonesian Minister of Investment Luhut Pandjaitan he argued that a free trade agreement with the United States (US) to export refined nickel from Indonesia, even if produced by coal-fired smelters, could benefit US producers. Minister Pandjaitan emphasized that the objections of American senators omitted the importance of the so-called environmental trade-offs as part of the green transition, as nickel is essential in the batteries that will power it.

He attributed Indonesian nickel’s competitiveness to the country’s abundance of coal, noting that “renewable energy sources have not yet provided a viable option for powering steel mills in Indonesia“

Indonesia’s ambition to become a leading manufacturer of electric vehicle (EV) batteries is commendable. However, carbon intensity and the environmental impact of coal-fired electricity generation must be taken into account, which could threaten Indonesia’s electric vehicle aspirations.

Over the past few years, the Institute for Energy Economics and Financial Analysis (IEEFA) has noted several pieces of evidence that banks, metals traders and insurers are opposed to coal-fired steelmaking. Given that other countries have already made similar commitments, Indonesia should start using renewable energy sources in steel mills.

Increasing pressure on coal-fired metallurgy

Overwhelming evidence around the world, including research by the International Energy Agency, shows that solar and wind power are the cheapest solution in terms of marginal costs. However, Indonesia lags behind, having one of the lowest installed solar capacity in the world.

In the coming year, financial regulators around the world will require companies to disclose information about their emissions, including information about input materials for their products. Rating agencies are also signaling that they will begin to include climate impacts in their corporate risk calculations. With this development, Indonesia’s aluminum and nickel smelter will not be able to ignore its carbon intensity.

The problem has already affected the three-phase Adaro aluminum smelter project in Indonesia. In February 2023, Standard Chartered and DBS Bank reportedly declined financing design. In April 2024, Reuters reported that Hyundai Motors had completed its purchase of aluminum agreement with Adaro due to pressure.

The company has since updated the plan; Phase 2 of the aluminum smelter will be operated using a combination of coal and renewable energy sources.

Proven feasibility of renewable energy smelting

Increasing evidence supports the technological feasibility of using renewable energy in nickel smelting.

Melbourne-based mining company BHP Group has concluded an agreement renewable energy contracts on solar and wind farms for Nickel West’s operations in Western Australia, which produces 80,000 kilotonnes of nickel per year. This includes the Merredin Solar Farm, the largest solar farm in Australia.

Sydney-based nickel producer Nickel Industries has partnered with Indonesian renewable energy company SESNA provide solar energy to its mining and processing operations in Morowali, Central Sulawesi. The company started with an initial PV capacity of 396 kilowatts (kWp) and plans to expand its PV capacity to 200 megawatts (MWp) at 20 megawatt-hours (MWh) of battery storage as a solution to the problem of intermittent energy supply.

Contrary to popular belief, a large battery capacity is not always needed to power a solar power plant. The project demonstrates the feasibility of alternative solutions to capture coal plants for nickel smelting in Indonesia, even with small steps.

Whether driven by regulatory requirements or consumer expectations, the need for lower carbon intensity in both the production process and end products for aluminum and batteries is clear.

Renewable smelting can help mining companies achieve net zero emissions targets, unlock energy financing, increase stakeholder buy-in and encourage customer purchases. Renewable energy sources can also reduce vulnerability to price volatility and supply disruptions.

Indonesia’s dream of leading the global electric vehicle battery industry depends on its ability to accelerate the transition to renewable energy.