Indonesia

An analysis estimated that Indonesia requires blue and green hydrogen of about 4 million tonnes per year in 2025; this number is projected to be more than doubled in 2030 and more than quadrupled in 2040 to 17 million tonnes [1]. Drivers behind the increase are the transportation sector, followed by power generation, ammonia, steel, methanol, refinery, and cement industry.

Green hydrogen development in the Indonesian energy sector will start gradually in 2031 and increase rapidly beyond 2050. Its hydrogen generation capacity will significantly increase by 328 MW from 2031 to 2035, 332 MW from 2036 to 2040, 9 GW from 2041 to 2050, and 52 GW from 2051 to 2060. Such tremendous growth can only be satisfied with huge amounts of investment, which are projected to range from USD 0.8 billion in 2031 to USD 25.2 billion by 2060 cumulatively.

Indonesia has yet to set up necessary policies and regulations to develop its green hydrogen industry. Green hydrogen utilization has only been discussed in the net-zero roadmap set up by the Ministry of Energy and Mineral Resources (MEMR). Nevertheless, there are no official key policy documents on hydrogen development except for a few mentions in the general national energy plan (RUEN). Since green hydrogen production requires renewable electricity, regulations on the electricity sector will also apply to green hydrogen production.

Summary of relevant policy and regulatory framework of green hydrogen development in Indonesia

Regulation	Title	Description
Law 30/2007	Energy Law	Puts the emphasis on energy security, sustainable development, energy resilience, and environmental preservation.
Government Regulation No.79/2014	National Energy Policy (KEN)	Targets an increase of NRE share in primary energy mix to 23% in 2025 and 31% in 2050
Presidential Regulation No.22/2017	National Energy Plan (RUEN)	Sets up a NRE development plan until 2050, including a general action plan for hydrogen development, such as preparation of regulatory frameworks, technological and manufacturing capacity development, and incentives provision
Law No. 30/2009	Electricity Law	Regulates the electricity sector planning and governance. It also stipulates the prioritization of new and renewable energy.
New and renewable energy bill	New and renewable energy bill	Regulates NRE development, including pricing, incentives, etc. In the latest draft, hydrogen is mentioned as a new energy.

Supporting policies and regulations in different sectors Investment and fiscal policies Carbon pricing and taxation: In 2021, Indonesia stipulated a regulation on Carbon Economic Value (CEV) and incorporated carbon tax into the taxation law. CEV could be implemented in the form of carbon trading, result-based payment, and carbon levy/tax. The carbon tax will be set by the Ministry of Finance at a minimum of USD 2 per kgCO2e. The implementation of carbon tax is currently limited to coal-fired power plants, but is expected to expand to other sectors (i.e. transportation and industry). The timeline for implementation in each sector is developed by the respective ministries. Fiscal incentives for green hydrogen projectsAccording to Indonesia Investment Guidebook, there are several fiscal incentives that green hydrogen projects could potentially benefit from:

• Import duty exemption for import of capital goods for power plant developers.
• Tax holiday for pioneer industries with at least USD 7 million investment at 50-100% for 5 to 20 years, depending on the amount of investment. The pioneer industry list (BKPM Regulation no. 7/2020) has yet to include green hydrogen industries, although it includes related industries i.e. ammonia production and renewable energy power plants. An application for tax holiday for green hydrogen could potentially be granted as it fits the criteria of pioneer industries.
• Tax allowance (PP 78/2019) that includes reduction in net income of 30% of investment value, accelerated depreciation and amortization, reduced withholding tax rates on dividends distributed to nonresident, and enhanced tax loss carried forward period. It covers small power plants with capex of less than USD 7 million and geothermal power plants.
• Tax deduction of up to 300% reduction on gross revenues for the cost incurred in R&D activities. New and renewable energy is among sectors that could receive such deduction. Industry sector policies National standard on hydrogen fuel safety. There is a national standard on hydrogen fuel safety, which specifies hydrogen requirements for industrial use (SNI 7928:2013). The standards are based on ISO/TR 15916:2004.

Transportation sector policies - Automotive industry roadmap by Ministry of IndustryThe roadmap for the automotive industry by the Ministry of Industry plans for fuel-cell electric vehicles (FCEV) development to take place beyond 2030, after the development of BEV. Luxury tax exemption for fuel-cell vehicles: According to PMK 141/2021, luxury tax is exempted for BEV and FCEV, aimed to foster demand for them. The normal luxury tax rate is 10%-30% of the vehicle initialprice, depending on the CO2 emissions and engine displacement.

Indonesia is an archipelagic country, with different levels of economic development in each island. Currently, most industrial activities, hence energy demand, are located on Java island. For example, Java island currently contributes to 60% of the national GDP and 80% of the national energy demand. Therefore, it is expected that future demand for green hydrogen will mainly come from Java. However, the best locations for renewable energy generation are not always in Java. For example, the area with highest solar power potential is in East Nusa Tenggara, where the year average capacity factor could reach 18%. Meanwhile in Java, the capacity factor in most areas is closer to 15-16%. Similarly, for onshore wind, best potentials are located in South Sulawesi and East Nusa Tenggara. Therefore, inter-island transportation might be needed to transport hydrogen from production sites to demand centers.

With the geographical condition of Indonesia, pipelines could be the cheapest method for most inter-island hydrogen transportations. The distances from Java island as demand center to renewable hotspots such as East Nusa Tenggara and South Sulawesi are less than 1,000 km. Meanwhile, transporting hydrogen from the eastern region such as Maluku and Papua by shipping might be more suitable as they are located relatively further and the seas are deeper. However, reflecting on the existing natural gas transportation that is mostly by shipping, it could also be the case for hydrogen. A deeper research should be conducted to understand the cheapest way to transport hydrogen in Indonesia. Nevertheless, in the short term, shipping for transmission and trucking for local distribution will be the option to go since there is no pipeline infrastructure available or even planned yet. Blending into natural gas infrastructure could be an option for inner island transportation in Sumatra and Java where the infrastructure is more established.

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There are a few notable ongoing green hydrogen projects, mostly still in the preliminary phase:

• Pertamina is developing a pilot project of green hydrogen production from its geothermal plant in Ulubelu, with a production capacity of 100 kg per day. It is expected to start operation by the end of 2022 at 20 Percent capacity to supply Pertamina’s refinery in Plaju. It is still uneconomical, but the goal of the project is for research and development.
• HDF Energy is developing a green hydrogen project for power storage in Sumba. It combines the use of solar PV for power generation, batteries for short-term storage, and hydrogen system (electrolysis and fuel-cell) for overnight storage. It is claimed to be cost competitive with diesel generators currently used in the region (USD 20.8 cents per kWh). The project is still under feasibility study and expected to start operation in 2024.