In the not-so-distant past, most people fell into the narrative that coal is dead. The Indonesian government issued Presidential Regulation No. 112 in 2022 to enforce a moratorium on new-build coal-fired power plants.
We are moving forward to the era of renewables and cleaner energy. We are in a rush to electrify everything, especially vehicles, with the hope of reducing emissions in cities.
The vision to contribute to the future of electrification actually started a decade ago. The government banned nickel export in 2014 and initiated the wave of downstreaming in Indonesia. The government pushes all miners in Indonesia to add values of Indonesian nickel by having the ores to be processed here in Indonesia into battery-grade nickel. We have seen Indonesia now as the big player in the nickel industry as we can produce more nickel at a lower cost and force other nickel players in Australia to shut down.
In big cities like Jakarta, nowadays, it's easier to see more cars and motorbikes with blue-marked license plates, indicating that the vehicles are battery-powered. We expect that decarbonization is truly happening and that we are truly reducing emissions. Is that true? Or are we probably just moving the emissions elsewhere?
According to the Handbook of Energy and Economic Statistics of Indonesia 2023, coal production in 2023 amounted to 775 million tons (an increase of 13%), while exports were 518 million tons or an increase of 11%. There was a slight decline in domestic coal sales, which amounted to 212 million tons (down 1.3% compared to the previous year).
The International Energy Agency (IEA) noted that despite heavy rains in Sumatra and South Kalimantan in the first quarter of 2024, coal production in the first four months of 2024 has already gained 8.6%. In October 2024, Indonesia has already passed 600 million tonnes of coal production.
Image 1: Indonesia Coal Production and Consumption Summary.
Source: Handbook of Energy and Economic Statistics of Indonesia 2023 - Indonesia Ministry of Energy and Mineral Resources (ESDM).
Digging more into the ministry's Handbook, the data revealed interesting growth that should be related to the ongoing increase of downstreaming in Indonesia. Following the acceleration of the downstream mineral industry, coal sales to iron, steel, and metallurgy segments in Indonesia have increased 6 (six) times in the short span of just four years.
From 10 million tons in 2019 to 60 million tons in 2023, it's more than 50% of CAGR.
Image 2: Domestic Coal Sales to Iron, Steel, and Metallurgy Segment (in million tons)/Source: Processed Data.
This data is actually not really surprising. In 2021, S&P Global reported that several analysts and industry participants already published an article explaining how nickel processing is energy-intensive.
“Most of the existing High-Pressure Acid Leach (HPAL) facilities are coal-fed, and the process emits up to three times more greenhouse gasses than nickel production from high-grade sulfide deposits. This raises concerns that the benefits of increasing nickel supply for “green” purposes such as batteries might not be enough to cover its environmental costs.”
The data shows that, in most cases, we are still reliant on coal as one of the cheapest energy sources. Nickel industrial parks are mainly dependent on captive coal, meaning coal is burned solely to feed industrial operations and does not connect to the government's electricity grid.
As more nickel smelting facilities are built, more captive coal plants are being built in Indonesia. Based on the data from Kemenperin in Q1 2024, 44 nickel smelters are already operating in Indonesia. In comparison, other smelters for other metals counted up to 10 smelters.
Table 1: Operating Smelters in Indonesia As per March 2024.
Source: Kemenperin.
This reality can actually be a hint for investors on the importance of understanding coal, especially how energy sources can connect to other industries and how it can be valuable for many people. This data again emphasizes coal as an important sector that Indonesian investors should pay more attention to.
Should we be worried that coal might be dead soon? Or will we need more coal to ensure we can have more batteries? Who will get the benefits? The miners or probably the pick-and-shovel players in the coal value chain?
What's happening between the downstream and coal-powered power plant moratorium also shows that there is always a trade-off in many decisions, especially political decisions.
Even though we thought we didn't need coal anymore, we cannot lie that we need cheap energy. Even though we thought electrification would provide cleaner air, we need to understand that our batteries might not be as clean as we think they are.
Table 2: Indonesia Domestic Coal Sales.
Source: Handbook of Energy and Economic Statistics of Indonesia 2023 - Indonesia Ministry of Energy and Mineral Resources (ESDM).
