Energy Efficiency in Industry


This article provides a short teaser to companies in the fields of production and development of energy-efficient technology, energy infrastructure, energy management systems and energy evaluation systems for the application of energy efficiency technologies and services in Indonesian industry.  


Indonesia, the fourth largest country in the world with around 275 million inhabitants, has been experiencing continuous economic growth of around 5% per year for several years. Thanks to this positive economic development, the poverty rate has been more than halved within the last 20 years. With a GDP of 1,003 billion euros (2019), Indonesia is already one of the 20 largest economies in the world. By 2030, Indonesia is even expected to rise to seventh place. Despite the current massive effects of the corona crisis on the economy, the Indonesia's economy will grow by 2.1% this year, according to the World Bank. 


This general positive economic development goes hand in hand with a continuously increasing energy demand of Indonesia, especially of industry. Energy efficiency technology is not yet very widespread in the Indonesian industry. This results in great savings potential, which the Indonesian Ministry of Energy (MoEMR) estimates at 10-30% for the key industries of chemicals, agricultural products, steel, textiles, pulp and paper and cement production. Overall, a wide range of energy efficiency technology is required. This includes automation and control technology, lighting, air conditioning and refrigeration technology, motors and heat management. 


In addition to the generally positive overall situation, there are some aspects that make it difficult to sell energy efficiency technology. This includes Low awareness of the benefits and necessity of energy efficiency technology in Indonesian industry. In addition, it is unclear to what extent the Covid-19 pandemic will affect the willingness of Indonesian companies to invest. 





Primary energy generation Indonesia by 2050 (in Mtoe)


Source: (Center for Energy Resources Development, Agency for the Assessment and Application of Technology (BPPT), 2015) 


In 2015, the Indonesian Agency for the Evaluation and Application of Technology (BPPT) forecast an enormous increase in Indonesian primary energy generation over the next few decades. According to this, production would quadruple to 1,009 Mtoe by 2050. The forecast value for 2020 was already achieved in 2017.26 


Forecast energy consumption of key Indonesian industries by 2050


Depending on the industry, the energy requirement is very different. The key industries were food (5.4 Mtoe), paper (3.3 Mtoe), metal (9.4 Mtoe), cement (10.4 Mtoe), fertilizer (4.9 Mtoe) and ceramics (1.4%) responsible for 34.8 Mtoe alone in 2018. That corresponds to more than four fifths of the total energy consumption in industry. With a growth scenario of 5%, significant increases would be expected by 2050. 


Energy-saving potential in Indonesia's industry



There is a significant energy saving potential in every sector. The textile industry in particular stands out with a minimum savings potential of 20% and a maximum savings potential of 35%. Even the food industry, with the lowest total of 13% (minimum savings potential) to 15% (maximum savings potential), offers great opportunities for reducing energy consumption. 





Despite the generally very positive overall situation for energy efficiency technology in Indonesia, there are a number of factors that have a negative impact on market opportunities. These include the existing Legal Framework, wherein some of the market participants expressed their wish in the direction of the government for improved regulation of the energy sector as a whole and for energy service providers in particular. This is especially true for Government Ordinance No. 70/2009. As already mentioned, Government Ordinance No. 70/2009 is the most important regulation in the field of energy efficiency. It is criticized that the regulation does not create enough incentives or is sometimes a hindrance. 


Furthermore, the Ministerial Ordinance MoEMR No. 14/2012 is criticized. As already mentioned, the regulation stipulates that corporations with a consumption of more than 6,000 toe per year must introduce an energy management system. For some market participants this regulation does not go far enough. In this regard, an expansion of regulation is suggested so that companies with lower energy consumption are also obliged to use an energy management system. In line with this concern, the government plans to lower the reference value from 6,000 toe to 4,000 toe in 2021 


Another factor is the domination of state electricity supplier (PT. Perusahaan Listrik Negara / PLN) in the Indonesian market with a share of 70% of the total electricity generation. Despite higher energy prices in the past, the state electricity supplier PLN naturally has an interest in generating and selling as much electricity as possible. For this reason, there is a conflict of objectives on the part of the government between promoting energy efficiency and increasing the sales of the state-owned company and thus increasing state revenues. 


One re-occuring concern is the perceived prevalence of corruption and nepotism within the Indonesian economic system. Unfortunately, as in many other countries in the world, corruption is still widespread in Indonesia. According to Transparency International's corruption perception index, Indonesia ranks 85th out of 180 participating countries worldwide in 2019. In 2009 Indonesia was still in 111th place. As a result, Indonesia has made remarkable progress in the fight against corruption in recent years. 


Lastly, many Indonesian companies are simply not very aware of the energy efficiency sector. Energy saving measures are perceived as an environmental measure and not as a means of reducing costs. Indonesian companies are often initially skeptical about new technologies, especially when these technologies are not yet widely used by other Indonesian companies. However, these concerns can often be overcome through personal contact and persuasion. 


A number of other factors do not have a positive effect on market opportunities. These include regular exchange rate fluctuations in the Indonesian currency (Indonesian rupiah) and unattractive conditions from Indonesian banks for the financing of energy efficiency projects. 





With a GDP of 1,003 billion euros (2019), Indonesia is now the sixteenth largest economy thanks to continuous growth rates of 5% in recent years. The current global economic cuts, brought about by Covid-19, will not affect Indonesia as hard this year the countries of the European single market. While a massive slump in GDP is expected in Europe, the Indonesian government expects growth of -0.4% to 2.3% for its own country. The World Bank is assuming growth of 2.1 %. 


According to the McKinsey Global Institute, the Indonesian economy should show constant growth of between 5 and 6% per year up to 2030 and move into seventh place in the ranking of the largest economies. If these forecasts come true, the largest country in Southeast Asia would also overtake Germany. Only China, the USA, India, Japan, Brazil and Russia would then position themselves ahead of Indonesia in this ranking. 


The positive economic development of the last few years can be seen among other things can be traced back to a prosperous industrial sector. Despite the steadily increasing energy demand associated with the economic rise, the industry has hardly taken any energy-saving measures, which is why there is a great need for energy efficiency technology. The Indonesian Ministry of Energy forecasts for the industries of petro-chemical (17%), food (15%), steel (32%), textiles (35%), pulp and paper (20%) and cement (22%) considerable maximum savings potential. 


Indonesia offers excellent opportunities for the sale of energy efficiency technology to industrial companies due to the size of the Indonesian economy and the considerable savings potential. The economic strength and potential for savings more than outweigh the risks and disadvantages of the Indonesian market.