Companies are turning to energy efficiency in order to soften the economic blow suffered from the COVID-19 pandemic. An upcoming new regulation on renewable energy promised by the Indonesian government can accelerate these efforts.
The COVID-19 pandemic hit Indonesia鈥檚 industries hard. According to data from London-based consultancy firm IHS Markit, the country鈥檚 Purchasing Manager鈥檚 Index (PMI) fell the sharpest among other countries in the region when the pandemic hit, to 27.5 in April 鈥� the worst performance since 2011 - from 45.3 in March.
As in many other countries that saw their PMI levels drop, the downturn is caused by the various lockdown policies implemented by governments around the world to curb the spread of COVID-19. Indonesia economic growth rate was otherwise moving at a steady pace of around 5% annually.
However, Indonesia鈥檚 industries managed to bounce back. As of August, Indonesia's PMI touched the 50.8 mark, signaling that the country鈥檚 industries are expanding again. The reversal of the index has been attributed to the softening of Indonesia鈥檚 COVID-19 handling policies, but another factor also played a role in the rebound: energy efficiency.
Automatic Cost Saving
PT ASTRA INTERNATIONAL Tbk. is no stranger to energy efficiency efforts. Since 2014, the corporation - which has a portfolio that covers a wide range of business sectors, from automotive to agriculture - has obliged its various subsidiaries to reduce energy consumption by 1% per year, targeting energy savings of 17% by 2025.
From 2015 to 2019, this energy management system has resulted in an energy saving of about 4,078 Terajoule and an estimated carbon emission reduction of 320,000 tons. This, according to Benny Priyatna, Senior Manager of Environment and Social Responsibility at ASTRA, is equal to Rp 1.25 trillion (roughly US$81.7 billion) in cost savings.
So when COVID-19 forces factories across the archipelago to shut down operations, ASTRA was able to adapt its foundational energy management system to efficiently reduce the cost of the disruptions caused by the pandemic.
鈥淲e had a few options. We could lay off workers. Or we can reduce salaries. Or we can compromise on our product quality. These three things were not for ASTRA. The most attractive option for us was to save energy. We spend 1.1 billion dollars on energy. This is a major [savings] potential,鈥� Mr. Priyatna said at a webinar held by New and Renewable Energy Directorate General of the Ministry of Energy and Mineral Resources in July.
Another company that resorted to energy efficiency to fight the disruption caused by COVID-19 was state-owned chemical company Pupuk Kaltim.
The pandemic caused global demand for ammonia fertilizer to fall sharply, which further led to a price drop of as up to 48% for Pupuk Kaltim鈥檚 ammonia products, according to the company鈥檚 spokeswoman Ms. Mustanginah.
Having identified that 80% of its cost-of-goods-sold was made up of energy cost, Pupuk made the strategic decision to commit to energy efficiency methods to soften the economic blow, allowing it to sell its products at a reduced price.
Government support
The demonstrably effective solutions presented by the energy efficiency efforts of ASTRA and Pupuk did not escape the Indonesian government鈥檚 attention. Indeed, the government, as one of the signatories of the Paris Agreement, has already committed itself to meet its target of 23% renewables in primary energy mix by 2025.
The COVID-19 pandemic has presented a significant challenge to the effort. However, the Indonesian government seems to remain committed to meet the world鈥檚 energy-related sustainable development goals by making the market more attractive to new and renewable energy players.
Already earlier this year, the government issued Minister of Energy and Mineral Resources Decree No. 4/2020 that changed the requirement to develop project on a build, own, operate and transfer basis 鈥� which caused difficulties for developers in terms of land ownership and ability to obtain financing 鈥� and allow projects on build, own and operate basis. The decree also requires the state鈥檚 power company, PLN, to take renewable generation on a 鈥渕ust run鈥� basis.
There remain critical issues that the decree did not address, such as the renumeration mechanism and tariff level for renewables. However, these factors are expected to be included in an awated presidential decree said to issued later this year, which will set a (higher) feed-in tariff for renewable project below 20MW and competitive auction for larger projects (this would apply to solar, PV, wind, hydropower, biomass and biogas, according to a report from the International Energy Agency.
To further discuss this issue, The German 鈥� Indonesian Chamber of Industry and Commerce (EKONID) will hold a Webinar and online B2B meetings from October 19 to 23. Supported by the German Ministry of Economic Affairs and Energy (BMWi) and Eclareon, the webinar will see companies focusing on the manufacture and development of energy efficient technology, energy infrastructure, energy management systems and energy evaluation systems, as well as potential business partners in Indonesia gather to discuss the latest development regarding sector. For more information, click here