Ahead of Musk visit, Indonesia’s high carbon footprint could hamper its EV ambitions
Behind the headlines of Indonesian President Joko Widodo’s recent visit to Elon Musk’s Space X plant in Texas lies a deeper motive: the country has ambitious plans to become a major global producer of batteries for the electric vehicle (EV) industry.
Jakarta has been trying to woo Tesla, the US electric car maker founded by Musk, for several years already in an effort to get the carmaker to invest in a battery and EV manufacturing plant.
The meeting between Widodo and Musk took place after a round of working-level discussions on a potential investment in Indonesia’s nickel industry and supply of batteries for EVs.
Widodo’s visit seems to have had an impact as Tesla announced recently that it had agreed to invest in Indonesia, although the firm did not provide details. That could come when Musk makes his journey to the country some time in November, around the time that Indonesia hosts the G20 summit in Bali that month.
Musk had said in a statement issued by the Indonesian government last month that there could be room for “partnerships in many things, because Indonesia has a lot of potential”.
As the world moves at a greater speed towards adopting EVs, Indonesia sits in a sweet spot.
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According to Andrew Digges, a project finance partner at law firm Norton Rose Fulbright, one of Indonesia’s main advantages is that a “100 per cent of growth in nickel production for EV batteries in the next few years” is likely to come from South-east Asia’s largest economy.
Indonesia has been ramping up its production of processed nickel in recent years after the government imposed a ban on nickel exports. The country currently has a capacity to produce over 1 million tonnes of nickel a year, and this could more than double over the next decade depending on the demand.
Global EV manufacturers are taking notice of the country’s rich supply of nickel and the government’s strategic plan to develop its EV industry.
Last year, South Korean conglomerates Hyundai and LG Energy Solution began constructing a US$1.1 billion EV battery plant close to Jakarta. The plant is being constructed by a consortium of South Korean companies and PT Industri Battery Indonesia, a joint venture of state-owned energy and mining companies.
“The collaborative project will not only focus on the manufacture of conventional vehicles, but also aims to make Indonesia one of the centres for the development of a battery-based EV ecosystem,” said a statement by the Indonesia Investment Coordinating Board.
Indonesia’s Investment minister Bahlil Lahadalia also announced earlier this year that Taiwan-based Foxconn will build an EV and battery manufacturing plant in central Java with an investment value that could reach US$8 billion.
“Indonesia’s EV ecosystem could be worth billions of dollars, but investing in Indonesia poses its fair share of challenges too, said Digges.
One key barrier to the EV supply chain is the high carbon footprint that Indonesia’s nickel mining sector has. This could impact the country’s plans to export batteries and battery minerals, especially to Europe and the United States.
Digges noted that the European Union will soon introduce laws that require a carbon passport for all EV batteries imported into the EU. The UK appears to be on a similar path and other developed economies might follow suit, he added.
What this means for Indonesia is that it needs to find a way to decarbonise its nickel mining sector. Up to now, there has been little focus on doing so.
“Over the past few years, the majority of export of EV battery minerals has primarily been to China,” Digges noted. “But looking at the next 5 to 10 years, big changes will be needed, such as reducing the reliance on coal as the main source of energy for Indonesia’s nickel processing plants.”
But sources of base load renewable energy, such as hydropower and geothermal, are far from the remote nickel plants. Wind resource is limited as well. Solar power can provide at least part of the solution but heavy investments are required.
“Indonesia has the advantage of being a low-cost base so there is room to invest in technology that makes processing more efficient and less carbon-intensive,” said Digges.
Over the longer term, however, Indonesia will have to transition away from fossil fuels as the main source of power. According to a recent report released by the government, Indonesia will need around US$20 billion to build up its renewable energy capacity in order to achieve its stated target of 23 per cent by 2025.
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