Ep 15 Indonesia nickel and EV battery industry and the electrification of Indonesia’s roads with Putra Adhiguna

SEAP 15

Intro: Hi everyone. I'm Ben.

And I'm Yiou. Welcome to Sustainable Energy Asia podcast. Today we're receiving UNA energy technology need at Institute for Energy Economics and Financial Analysis, or afa a think Tank to discuss about Indonesia's, Nico and EV battery industry and electrification of Indonesia roads.

Yes, very happy to have footwear on the show to cover nickel battery and EV development in Indonesia. To me, they are very important topics, but unfortunately not so much cover in the media. PRA was extremely insightful on the broader range of subjects. My main takeaway is that despite the current narrative around Niel dance swimming in Indonesia, only one quarter of EV use Niel in the battery chemistry, mainly due to more cost competitive L F B chemistry alternative.

Yes. It was also interesting to hear about the role of Japanese car makers in Indonesia and how their inability to lead the global EV market development is now impacting the Indonesia's Road electrification story. As always, grateful if you could take the time to read and comment on the show. It helps listeners to find us. Thanks.

Ben: The Sustainable Energy Asia podcast. Uh, very pleased to have you on the show to speak about Indonesia, Nicole, and battery industry and the electrification of Indonesian's world. First of all, could you just introduce yourself and your career path before joining the Institute for energy Economics and financial Analysis.

Putra: Good morning. Thank you for having me. my name is Pra. I'm an energy technology lead for the I a, the Institute for Energy Economics and Financial Analysis. I'm based in Indonesia. Prior to joining afa, I spent, almost one and a half decades across the energy sectors, from oil, gas, geothermals as well, and various side policies. And then I joined AFA as a public think tank.

Yiou: Since you mentioned afa, we are also very interested in this organization. Could you please introduce about the organization goal and the think tense recent accomplishments,

Putra: Sure. So a a is a is an independent, public interesting tank., we're focusing on the energy transitions on the economics and financial side of it because we see that there is a lot of angle to cover it on that side. It's based out of the US We have about about 10 to 15 people based in Asia, but it's pretty much scattered all over the world.

We cover so many topics, you know, from power sector, coal, oil and gas, electric vehicles as well. Recently within the last, I think given the last four weeks, I guess in Asia, we released a few papers about the changing LNG demand in Asia. Some concerns on the credit rating agencies and climate risk, as well as some talks about taxonomy and investment.

Ben: So today we'll start first with, Indonesia's Nicole and Ev battery push, and then we move on to the electrification on Indonesian Road.

Yiou: So, in 2014, Indonesian government has imposed this, export ban of, and process metals. Essentially this ban has forced foreign companies to invest in Indonesia's smelters, to Kip outlets, the resources of Nico. So, could you explain Indonesia's role in this, global. Coal production escape and the reason for government to impose this export ban and essentially the practical steps government has taken to foster the industry, downstreaming.

Putra: So Indonesia has had a long history of mining, right? I mean, we are the world's largest coal exporter. We had quite a significant corporate sources as well. And when the policy went out in the 2010s and the 20 fourteens, as you mentioned, is that the intent was that to make sure. That there is a downstreaming, that's the term we like to call it, downstreaming of the nickel resources.

So instead of exporting the raw or and getting it processed in other countries. So there is that intent to get the overseas investment to invest in Indonesia on the processing side. Now the degree to which the investment will take place definitely will take some stage, but that was the intention. When we talk about the global nickel resources, Indonesia comprised about anywhere between 40 to 50% of the global production.

So it's by a significant margin, a leader in world nickel resources. But initially, most of these are pretty much exported in the raw form, and that was when the government policies start to step in to get the investments, , underground. Now, there are some concerns whether the investments is optimal or not, because what we did was practically banning the export of the, or.

 Some people would prefer to do it on a, for example, an export levy basis, you know, putting some kind of a balancing point. But what we did was to pretty much shut the door, stop the exports, and let's see who's gonna invest. So that's what took place. So in the last five to seven years, there's a lot of investment coming in on the mining side as well.

Processing and so forth. At the moment, the products is still quite limited, but it did change from the raw order material into becoming an intermediary product of various form. And a lot of these, originate really from the Chinese investments. And the improvement in technology that came along, within the last decade, because that was actually a key changing, factor because the world was previously relying on nickel for stainless steel.

But then there's the new trend about the role of nickel toward the battery sector.

Ben: that's really interesting. if we just focus on the different industrial application for Nicole. You mentioned that it is used for stainless steel and also for the production of your battery. Could you just break it down a little bit further for us? Just. To understand what are the different processes around those two application.

Putra: , if we pull up a bit further behind is that globally, the stainless steel demand for nickel is still the dominant factor. I think about 70% is still directed for stainless steel production. So right now we're still at that 10% mark for the battery use from nickel, but this is planned to be growing exponentially higher in the next two decades.

Now, in terms of processing, I think it's worthwhile to understand first is that. The type of resource that exists in countries like Indonesia and a few other tropical places like New Caledonia and also Philippines are what we call the latter, or that's pretty much perhaps we can say it's a, a lower great materials now to process this it takes a little bit more effort than those that exist in other places like Canada, in Russia. Now in Indonesia, the later or can be processed into two main pathways, so to say. The first one is called the py methology using the smelters, and the second one is called the hydrometallurgy process, which ends up with the acid processing.

Now these ends up on different products now to look a bit of a context, Indonesia's current export in the nickel is mostly dominated by the nickel pig iron. Nickel Pig Island is a material that serve as a feed feed through for the stainless steel production. So a good 80% to 90% of Indonesia's current export is really based on the npi.

Now going forward, the intent is to move this into a more battery related metals. And that's really involving a lot of new technologies. New as in a relative terms, is that, sometimes they're using what we call the pressure asset leaching. This is more commonly known as the H Power. So what it does is basically, Processing this low grade nickel resources by asset leaching so that it can become, pre battery materials because for a battery materials, the material output that is needed is different from those for the stainless steel sector.

So there are two pathways, that can do it, in recent five years. People can either choose to run the H pile process or they can try to convert the existing rotary kiln, electric furnace into other kinds of materials. So without going into a lot of the weeds, so in a sense is that there's a lot of technological developments that is about to shift the material products from the stainless steel towards the battery sector because the battery sector will definitely gonna grow at 20%, 30% annual growth in the next two decades.

Ben: And we start to see actually some of the shift in some of this transaction that we've been following. If we look at the, Indonesian players in the nicar industry who are now the major local international players, in the processing sector? And what you've been observing, right now in the market?

Putra: Sure the growth has been very significant. You know, in the last five to 10 years, the growth, especially since the export ban has been very significant. Now on the processing side, there are too many companies, you know, most of them are Chinese companies. We can see anybody from related, who are you and whatnot.

And there's a lot of different kinds of pathways that they're pursuing. Those within the electric furnace side, which has been established for a long time, in relative terms because they've been producing a lot of NPIs. At the same time, there's a lot of new H bar projects that's coming online.

There's at least three that's been running, and there's planned for more, you know, more than five in the, in the coming future. A lot of Chinese companies have entered into the industrial park development kind of models. So there's a lot of new industrial park being developed in Indonesia. On the mining side, this is a combination of all the old people, you know, all, all the old companies and all the new companies as well.

Now we have the same old companies like Vale and also Anam is a local companies as well as the related mining companies. It's worthwhile to note that a lot of the mining also involves smaller scale miners, which provide a lot of feed through for the. Industrial parks and the nickel processing. Now there are plans to grow more on the downstream side of the processing.

We've seen investors like C A T L, lg, planning to build their battery facilities, although plan seems to be going back and forth. What is interesting to note is that since the launch of the United States Inflation Reduction Act last year, it somehow rattled the cages a little bit because, what the US did was essentially.

They give more incentives for companies that invest in the US side of the battery supply chain. So what it did is that it made a little bit of a complication for some companies, whether it's of Chinese origin or whether it's of South Korean origin, where they are a bit worried. That they may have some trouble to enter the US market.

So we are seeing some discussions and some developments where companies like Ford just going straight into Indonesia and this development, I think going forward will become more pronounced because at the end of the day, being Indonesia is one of the largest, uh, nickel reserves, I think going forward there's gonna be more investments and hopefully it's gonna be more balanced out, you know, like the existing Chinese as well as other companies, whether it's from South Korea. Japan, or even from the United States and Europe.

Yiou: One of your findings. in your article indicates that 3/4 of the EVs sold in Indonesia do not use nickel in their battery chemistry. Can you explain what are the main battery chemistries use for four wheelers and two wheelers in indonesia And why nickel batteries are not dominant in the indonesia market

Putra: this is interesting. initially everybody keep on talking about nickel base batteries, right? But in the last five years, there's a lot of developments of looking for alternatives and the LFP said the iron base battery. Surfaced quite quickly in the last, in the recent, you know, four to six years.

And what happened was that the LFP batteries gained traction because of multiple advantages. It's cheaper, that's one. Secondly, it's also safer, and then it has a longer cycle life for recharging and discharging as well. There is a disadvantage is that it's heavier. Now this, for critical applications, like if you're using it on vehicle with a long range, target, it's gonna be difficult because you're gonna have a heavier vehicle.

Now what happens is that Indonesia seems to be replicating what's happened in Chinese market. To give an anecdote is that in 2021 half of Tesla Q1 productions. Of their new cars are using Lfe batteries., some of these are responding to the changing and fluctuating, market in the mineral prices.

So they're kind of like, okay, let's have a second pathways. And this is gaining traction quite a bit, especially in Chinese market. Indonesia being that most of the vehicles are in the class of the medium and a lower range. You know, in terms of pricing, you're looking at below USD 20,000 for example.

The price becomes a significant factor. So the LFP has had a significant, push into the Indonesian market. Compound into that is that Chinese companies such as wooing, you know, entered Indonesia and they bring all these, lower priced batteries into their vehicles. Now, we still don't know what's gonna happen in the next few years because, this ev boom, if I would say, is a boom, only it take place about one to two years.

So it's not, what we are looking at is not really an exact trend of what's gonna happen moving forward. But given the price sensitivity, it would not be surprising to see that Lfe will dominate the Indonesian market and also the Southeast Asia. One complication for Indonesia, just to add, is that this may come as a bit of a incoherence in the political narrative because the story of Indonesia's nickel development was supposed to be about EV But now most of the EV doesn't use a nickel, so this may cause a bit of a, I would guess, a bit of a political confusion in the, in the coming year and, and let's see how that's gonna evolve.

Ben: One point I want also to discuss is if you could explain to us what is the environment dilemma that we're facing when coming to mining and processing Nico in Indonesia? Because this is something that we are asking ourself quite often whether we should, help the supply critical mineral for the donation. But mining and processing, Niel in Indonesia has some environmental costs.

Putra: This is indeed an interesting one because I think that the transition toward electric vehicle is unstoppable. As in 2022, I think last year is about 15% or so of global sales on cars are electric. So that's gonna potentially grow the complications for the mineral producing countries like Indonesia as the processing as you mentioned.

 Let's break it down into these three components. The first one is on the mining side, and the second component is about the emission side and also about the other implications. On the mining sides, there is a lot of challenges in terms of keeping proper environmental standards. Indonesia ramp up the capacity of our mining significantly.

And anybody who is involved in a quick ramp up would know there's a lot of challenge, whether we talk about permitting, whether we talk about, you know, how do you distance yourself from the shoreline and so forth. So there's a lot of, complications on the mining side. Now we look into the processing side.

Nearly all nickel production will involve quite a lot of energy intensive process. And a lot of opposition will come from the fact that most of this, if not all today, will be powered by coal-powered in Indonesia, like for example, in the Mowa Industrial Park, one of the most prominent nickel processing facility, we're looking at multi gigawatts of coal-powered capacity of course this makes the discussion about if EV becomes complicated because on one hand, you know, people in China, in EU and the US want to say if is green. On the other hand, you see the repercussions of having the high emissions in countries like Indonesia. So there's, of course, there's the life cycle discussion of how big is emissions that can be handled.

It is expected, and it is hope that this will improve in the future. But we also need to take into account that it's not easy to create any kind of smelting with variable renewable energy. We have heard plans for some companies to install a few hundred megawatts of solar ppv, for example, but probably it can compliment whether it can displace.

It's gonna be difficult unless you've got, for example, a good big hydro resource. That can run to power electric furnaces. So that's, uh, on the, you know, on the emission side and the processing. Now, one thing that add a bit of complexity is when we do the asset leaching process, is that there is a lot of waste materials, and a lot of these contains quite a lot of pollutants.

So how to deal with the tailing will become another complication. Now, for, for clarity, the HBO process has a lower carbon emissions than the electric furnaces. But the complication would then comes into the how do we deal with asset, you know, asset leached and tailings and so forth. So all of this will become a critical factor going forward.

, I do think at least it's partially addressable. I. And it need to begin with all the parties that's involved. Number one is gonna be the government because in the end, they're the one that's giving permit away. Number two is gonna be the producers. And we expect that moving forward producers will become much more responsible in how they source their materials.

And number three is the users. The users as in the final. Car producing companies. So it is, hope that the involvement of companies like Ford, European companies, and even Chinese companies with a higher standard can push the standards to become better in the future. Because the complication is, is that we are going to produce a lot of nickel, but countries like Indonesia will get a lot of the pollutions, a lot of the complication environments and socials, but we don't adopt a lot of EV if we don't go fast enough.

Ben: I think we covered quite a fair bit of ground on the Nicole in newspaper se. So now I'd like to move, to the electrification of Indonesian Road. So could you give us to start with an introduction Of the state of the electrification of Indonesian Road, whether it's for four wheelers or two wheelers, and then maybe compare this with other country and also explain why electrification of the road transportation is so critical for indonesia's, energy transition and reduction of carbon footprint.

Putra: Sure the electrification we're still on a very, very early stage, you know, probably in Southeast Asia. In terms of two-wheeler market, we're still behind Vietnam, who's have been adopting quite significant share of electric, uh, two-wheelers in terms of four-wheelers. Indonesia is a bit close tie with Thailand.

Now if we talk about why is it important, it's important, at least on two factors. Number one is that in terms of emissions, the transport sector is actually the biggest sector that's contributing emissions. In Indonesia, it is even bigger than the industries. So it is quite significant, especially in our archeologic, kind of, state.

So there's a lot of emissions coming from the transport that will need to be addressed. At a second level is that Indonesia imports a lot of oil. And like many countries such as India and China, this becoming quite a complications. Right now, more than half of Indonesia's oil consumption is important, and this will probably grow into 70 to 80% in the coming decade.

So unless there is a step change in how to deal with this, because in the end it will slowly destabilize, you know, the stability of economics as well and the currency. So the. Role of EV is important on multiple layers, so it's important on the decarbonization. It's important in terms of reducing oil import.

But one other thing is that it's important to make sure that the nickel that Indonesia produce does end up into becoming a leverage because the worry is that. What tends to happen is that the nickel industry develops, you know, and the EV industry develop overseas, but the one in Indonesia doesn't develop, which pose another risk for the country.

Yiou: So in your report you warned that the lack of investment in EV production from the legacy automakers, could hinder the EV development in Indonesia. So could you describe who this legacy auto, makers are and why you have this concern? And second, maybe briefly introduce the new market entrance.

Putra: the existing players are mostly Japanese industrial related, companies like Toyota, Suzuki, dsu, and so forth, combine the top five companies controls about 92, 90 3% of the market share and the four wheelers. If we go into the two-wheeler side, 96 to 99% is dominated by two to three Japanese companies, you know, namely Honda Kawasaki and Suzuki.

So it's a very well entrenched industry, but this is expected, right? I mean, these companies, has had a long relationship with Southeast Asian countries, including Indonesia. As their production base. The complications in Indonesia at least, is that we have quite a significant excess capacity of the existing internal combustion engine car and two-wheeler productions.

The capacity excess is anywhere between 35 to 50%, and what worries me is that the government seems to be focusing mostly of their attention just on the EV side. Without any mention of what are we going to do with the existing industry players, and it is important that in Indonesia at least, it is important to shift the attention that this is well established existing industries.

In terms of contribution to the economy, it's significant. It comprise about three point x percent of the industrial production. G D P. It comprised nearly 4% of industry's export in Indonesia. So these are gigantic sector in terms of GDP contribution and export. And it is strange to see that the government of Indonesia was talking mostly about EV adoption, while completely dismissing the fact that these companies, mostly, you know, between five to eight companies, literally have no plan to electrify their fleet.

Because as some of us may be familiar, is that the Japanese may have a different views on how they see the electric transition. You know, they may have a lot of merit. But what I'm trying to highlight is that there is a disconnect in narration on what's happening on the ground. So when people say on Monday, you know, we're gonna develop the nickel for ev, right?

But nobody seems to mention what are we going to do with the existing capacity. So it's really about. We need to pay attention into both sides because it's impossible to displace a 96% market share solely by giving a few incentives to get people to buy electric vehicles.

Ben: This is a very interesting point, and I think we understand better now why Indonesia's World Transportation is so interestingly linked to the Japanese players. Maybe if we focus a bit more on these Japanese players, could you present the choices as these players has made regarding decarbonizing. Road transportation, you know, especially about the use of hybrid and fuel cells in the vehicles and who now these choices are actually impacting Indonesia, via the presence, in this markets.

Putra: So the Japanese is leaning heavily toward the hybrid vehicle, which is a combination of. Electric motors with a regular ice combustion engine. And this has a lot of positive impacts, to be frank, right? I mean, if Indonesia can adopt a lot of hybrid, it can bring some improvement in terms of reducing emissions and reducing oil inputs.

But the question I think we need to ask is that hybrid is not new. It's been around for 20, 20 plus years, but globally, the uptake is really concentrated on a few regions. Mainly in the United States, in Japan, and a few countries. So the question is really what's gonna be different this time? Because hybrid cars are usually a bit more expensive, and it's also a bit more complicated because you have both the engines and also the motors to be addressed in maintenance, and it's also on the purchase price.

the question is really to be asking why hasn't hybrid took off in the last 20 years and what will be different this time, especially when we're dealing with market with price sensitive like Indonesia and Southeast Asia. Now, the electric vehicles, if we look at the b e V, they do have some weaknesses as we know today, at least number one, it's still on par, a bit more expensive, anywhere between 20 to 30 to 40% more expensive today.

But the trend is clear is that the adoption rate is at the scale of millions. While the others are at the scale of thousands. If I'm jumping topic a little bit, for example, Japan is also putting a be on the hydrogen fuel cell cars. It has been around since the 1990 sevens, I believe. The first release of the car, has always been more than a decade long, and the total population of fuel cell car globally is somewhere between 40 to 50,000.

That's the cumulative population in the entire world. Now we need to be critical in seeing what's the learning curve that's possible. When you have something that's only adopted a thousand vehicle a year versus those that's been selling at anywhere between one to 10 million a year. So these are the comparison.

So on hybrid, if it can bring benefits, if it can be brought into the market with sufficient price, it can displace, a lot of the conventional ice and it can have a lot of benefits. But the critical question remains, it has been around for 20 years. Can we get it to the market at the right price?

And what is the learning curve that we're gonna see in the next one, five to 10 years? Can it actually drop the price because we're seeing the different trend on the battery electric vehicles because with the large adoption, a lot of innovations that's coming in across many countries, although mostly China, this will likely be related to the decrease in price in the future.

So in short, the hybrid is beneficial, but there's still a lot of question mark of how beneficial it will be. We do know that the European Union that was previously promoting a lot of hybrids right now is scaling back their supports because they don't actually believe that the emissions reduction. Are that significant. Countries like Southeast Asia obviously will be different, but as long as hybrid cannot enter the right price priority, I think it'll be difficult for it to be adopted in Southeast Asia.

Yiou: That's an interesting point. So to develop EV industry in Indonesia and to maximize the benefit of countries or reserves and build a comprehensive value chain, I think it's very essential that supportive government policies should be in place. So can you introduce the policies that the Indonesia government has, put in place currently to foster the electrification of the country's road?

Putra: right now it's still fairly limited. Just within the last three months, the government released an incentive program for two wheelers I think about 30% of purchase price, which is quite a significant amount, but it has some limitations on who can buy and who can apply to it.

In terms of four wheelers, the government released some discount on the taxation relaxation of going from 11% v a t going to 1%. So that's also significant, but the price difference are still quite large and I think that's something that the government will also need to address going, going forward.

There have been other incentives in terms of building recharging facilities on the road and tall road, but those are still very limited. So in terms of. Incentives. Really most of the incentives have been going onto the upstream to the downstream nickel processing. So the government have been using the electric vehicle narrative to give a lot of taxation relaxations, you know, give tax holidays export levy free and whatnot, to the upstream, to the midstream processing.

And this is why, coming back to my earlier point is that. If Indonesia doesn't use a lot of nickel on its ev, I'm sure that a lot of people will be asking questions because, then where's all those benefit for the upstream processing will end up.

Ben: And maybe to conclude, if you had three policy advice, regarding, downstreaming the NICO industry, and fostering the AV adoption, what will be your top three policy advice for Indonesia?

Putra: in terms of electric vehicles, number one, I think the current incentive plan will need to be much more sophisticated because right now what we did was practically giving a flat incentive for all kinds of vehicles. So it's practically saying, we'll give you a few hundred dollars if you buy any electric motorcycle.

that doesn't endorse any kinds of progression in the market because what we need to remember in Indonesia is that incentives need to be made in a progressive fashion. You know, it need to incentivize, for example, longer driving range so that it can answer questions that the users usually have doubt about shifting from the ice vehicle into the electric vehicle.

So instead of a giving of a flat rate, it should be progressed based on technologies, you know, any particular features. Need to be incentivized, whether it's distance safety, whether it's something else. Because what Indonesia needs to be careful is that at this early process we have the possibility of building trust or destroying trust from the users.

You know, if we gonna start, incentivizing any random electric two-wheelers that used, for example, an old type lead asset, batteries that's no longer used in other countries. Indonesia will become a dumping ground of technologies. So when technologies are no longer used in China or India, it's gonna end up in Indonesian shore.

It's gonna be incentivized and it's going to destroy the consumer market confidence. So that's one about the sophistication, about the incentives. Number two, it's very important to look at the nickel related processing. Indonesia has always claimed a great leverage about its nickel, but so far the. Concerns about the environmental and social implications still runs very strong, and I believe that this will need to be addressed. How it need to be addressed, it will need to involve all the parties involved, whether it's the car manufacturers, the intermediary processing, and especially the government as well.

Because the complexity is that if Indonesia keep on saying, well, we own a third or 40% of the world's nickel. But at the same time, it doesn't have the leverage, or at least it seems, it allows anything to go, you know, whether it's dumping tailings, whether it's other kinds of processing pollution. And this will need to be addressed for Indonesia to have a long-term competitiveness, whether it's on the export market, and also to gain the public trust on the ground.

 Lastly is that it is impossible to adopt EV only looking at the EVs. What tend to happen right now in Indonesia is that the EV adoption is focusing solely on incentives for the EV sector. If we look at what's happening in other countries, whether it's China, whether it's India, whether it's Europe, it's always going to be combined with. Incentives for the other parts, whether it's about limiting the amount of emissions coming from the combustion engines, whether about limiting the access of purchasing new combustion engine cars and so forth. So right now, this has not been explored yet, and I believe that in order for Indonesia to seriously adopt ev it is impossible to turn a blind eye on these topics, is that we need to be able to address.

All the other aspects, whether it's fuel economy, emission standards, you know, restriction on other sides of the vehicle market.

Ben: Thank you for coming on the show, PRA. It was really insightful. thanks so much.

Putra: Thank you, Ben, and you.