Indonesia's national hydrogen strategy sets stage for pilot projects, new investment

Indonesia's recently released national hydrogen strategy provides policy signals to the state-owned and private energy companies to move ahead with pilot projects and frames the role of the new fuel in the country's long-term energy mix, according to analysts.

In mid-December, the Directorate General of New, Renewable Energy and Energy Conservation, under Indonesia's Energy and Mineral Resources Ministry, published the National Hydrogen Strategy report.

The document will serve as a reference for the hydrogen development in Indonesia, Andriah Feby Misna, the head of the directorate told S&P Global Commodity Insights Jan. 3.

Misna said that hydrogen is expected to be one of the main contributors to Indonesia's energy transition as well as become one of the government's main strategies in implementing the road map to Net Zero Emission by 2060.

Under the roadmap, demand growth starts from 2030, with the use of green hydrogen in the transportation sector in 2031, and in the industrial sector in 2041 to replace natural and fossil gas for high temperature heating processes.

Indonesia's strategy is to start with low-carbon hydrogen and gradually transition to green hydrogen when project economics can compete with other energy sources, with the goal of creating a hydrogen economy, Misna said.

Ambitious goals

The strategy expects low-carbon hydrogen to replace fossil fuels in all industries and power generation and become one of the main fuels in the transportation sector by 2060, along with electric vehicles that are also powered by low-carbon electricity.

"It's significant to see such bold confidence in the potential of hydrogen as a fuel to decarbonize, even if the timing is quite far," Johan Utama, principal research analyst, Gas, Power and Climate Solutions at S&P Global Commodity Insights said.

"The strategy will serve as a reference framework for other organizations across the government to formulate supportive policies. The nearest-term impact would be to enable state-owned entities such as national oil company Pertamina, fertilizer company Pupuk Indonesia and state utility PLN to move forward on pilot projects to produce and consume low-carbon hydrogen," Utama said.

He said while the strategy is looking to export, decarbonization and meeting domestic energy demand is the focus.

Additionally, while no firm target is mentioned, a demand forecast from Pertamina under two scenarios ranges from 0.9 million mt/year to 8 million mt/yr for low-carbon hydrogen by 2040, and a demand forecast from IEA shows about 800 Peta Joule (approximately 5.6 million mt) by 2060, Utama said.

Total electricity generation from hydrogen production is expected to be around 220 terawatt‐hours by 2060, almost as much as the current total demand in all sectors, according to the IEA.

The IEA said in its September 2022 report that hydrogen and hydrogen‐based fuels are technologies that are currently not commercially available in Indonesia, but will meet around one‐quarter of emissions reductions by 2050. Hydrogen‐based fuels refer to ammonia and synthetic hydrocarbons, such as synthetic methane and synthetic oil products.

Three strategic pillars

Indonesia's hydrogen strategy has three pillars: reduce reliance on fossil fuels to ensure energy security, develop the domestic hydrogen market, and export hydrogen and its derivatives to the global market, Misna said.

Indonesia currently consumes around 1.75 million mt/year of hydrogen, primarily as a raw material for the fertilizer, ammonia, and oil refining sector, according to the report.

Misna said hydrogen development in Indonesia is still at the research and pilot-project stage, and the industry is projected to grow after 2030 with wider usage in vehicles, power generation, energy storage, and decarbonizing hard-to-abate sectors like shipping, aviation, steel production, manufacturing and long-haul transportation.

The document also cited Indonesia's strong potential for abundant renewable energy resources to produce hydrogen, with a total potential for new and renewable energy (NRE) at around 3,689 GW, out of which only 0.3% has been utilized so far.

According to the NZE modeling provided by the Ministry of Energy and Mineral Resources, demand for low-carbon hydrogen from various industries is expected to increase between 2031 and 2060.

Low-carbon hydrogen transportation will begin with 26,000 barrels of oil equivalent (or 0.04 TWh for road trucks) in 2031 and grow to 52.5 million barrels of oil equivalent (89 TWh for shipping and trucking) in 2060, the report said.

The usage of low-carbon hydrogen in the industrial sector will begin with 2.8 TWh in 2041 and expand to 79 TWh in 2060. Out of this, the metal, ceramics, and paper industries are expected to reach 29 TWh by 2060. The hydrogen strategy reasserts PLN and IEA's decarbonization roadmap, where 220 TWh of electricity generation through hydrogen by 2060 will replace gas-based plants and coal co-firing.

The document also stated that the main obstacles were unpredictable supply-demand and the usage of low-carbon hydrogen is still restricted due to regulatory ambiguity.

Until now, Indonesia had no low-carbon hydrogen production and no long-term strategy or market, and there are currently no formal regulations for the sector. There are infrastructure challenges as hydrogen production has to be transported to its final destination.

Hydrogen storage infrastructure is also required to balance hydrogen supply and demand, and low infrastructure investment will stymie hydrogen development, analysts said.