Is renewable energy investment benefit manufacturing?

Renewable Energy Investment in The Manufacturing Sector

  • InCorp Editorial Team
  • 12 December 2023
  • 6 minute reading time

The importance of renewable energy investment must be balanced in the manufacturing sector. As industries increasingly prioritize sustainability and cost-effective energy solutions, this article delves into why investing in renewable energy is vital for manufacturing.

The Importance of Renewable Energy in the Manufacturing Sector

There is a growing demand for environmental standards from exporting countries and multinational companies that emphasize the Indonesian government’s speed up the shift to cleaner energy sources in the manufacturing domain.

Indonesia’s industrial sector is the second-largest energy user, right after transportation. The anticipation of accelerating the manufacturing sector’s energy transition seems imminent.

Especially when the European Union has demonstrated its intention to apply a carbon border adjustment mechanism (CBAM) with its trade partners. It could affect Indonesian exports if the government doesn’t fast-track the move to renewable energy within the manufacturing sector.

How Can Renewable Energy Benefit the Manufacturing Sector?

Is Renewable Energy Investment Benefit Manufacturing?

Utilizing renewable energy in manufacturing can benefit manufacturers in several ways. Among others are:  

1. Reducing Own Emission

The most straightforward and impactful way for a business to reduce its emissions is by opting for renewable energy sources over fossil fuels. Manufacturers operating heavy machinery during daylight hours can lower their emissions tied to electricity generation by up to 80%.

When considering costs, renewable energy is rapidly gaining competitiveness against fossil fuels. It matches and surpasses cost-effectiveness in certain instances, making it an attractive option for manufacturers committed to reducing their environmental impact.

2. Reduce Supply Chain Emissions

The third parties, which usually provide several manufacturers, are often located at a distance, which can result in emissions being produced during transportation. By encouraging their supply chain partners to adopt renewable energy, manufacturers can decrease emissions and contribute to the fight against climate change. 

3. Attract Employees

Employees are growing concerned about how their work can affect the environment. A survey conducted by the Carbon Trust found that almost half of the employees would think about leaving their current jobs if they knew it was harming the planet. 

Therefore, employers who show concern for the environment are seen as more trustworthy and appealing to potential employees. This approach attracts better talent and will likely retain valuable staff for longer.

4. Outperform Competitors with ESG Policy

Developing and implementing a comprehensive ESG policy helps companies stand out from competitors and positions them for lasting success. Companies with transparent ESG policies are seen as ethical and socially responsible. They are shifting to clean energy sources like wind and solar, addressing climate change, air quality, and community health concerns. 

5. Manage Price Hikes and Save Long-Term Costs

Getting energy from a large-scale renewable source can shield manufacturers from potential increases in electricity costs and make their input expenses more foreseeable. This stability arises from the consistent pricing of renewable energy.

As technology advances, renewable energy becomes more economical, while the expense of traditional fossil fuels keeps rising. 

Renewable Technologies for Manufacturing

Manufacturers are innovatively developing renewable energy methods to enhance the competitive edge of clean energy across different sectors. There are some examples of renewable energy technologies applicable to the manufacturers.

1. Solar Thermal Systems

Solar thermal systems hold substantial potential for global industrial process heating. Although these systems are mainly utilized for lower-temperature needs, recent innovations have extended their usage to applications demanding temperatures of up to 400°C.

Sectors with smaller-scale plants and less energy-intensive industries, such as textiles and food production, have considerable opportunities for embracing renewable energy via solar thermal systems, both from a technical and financial standpoint.

2. Electrification

Decarbonizing the power industry is crucial, but alternative ways exist to boost the electricity sector’s renewable capacity. Some practical approaches involve moving industries closer to renewable power plants and generating electricity from renewable sources on-site.

These techniques are applied in different ways in commercial manufacturing. It includes energy-efficient and autonomous facilities and plants that operate entirely on renewable energy, like wind turbines and solar panels.

3. Biomass

Biomass can replace fossil fuels effectively, fueling local energy production and generating heat at various temperatures. Regarding the economic side, biomass offers advantages like lower production costs, high energy concentration, shorter transportation distances, and more choices for transportation methods.

Opportunities in Renewable Energy Investment

The growing demand for renewable energy also provides businesses with investment opportunities in Indonesia. Among others are:

1. Electrification

Indonesia has a significant chance to make its mark in the worldwide shift towards renewable energy and transitioning to electrification. This opportunity stems from its abundant nickel reserves, the largest globally at 21 million tonnes.

Nickel is vital in developing electric vehicle (EV) batteries and is used in numerous solar panel setups. Indonesia has used this advantage, along with other eco-friendly minerals like copper and bauxite, to entice investment in manufacturing.

2. Energy-Intensive Industries

Industries like steel and cement can adopt eco-friendly construction materials powered by renewable energy. Electric cars can significantly cut their carbon footprint by 70% when their batteries are charged using renewable electricity, while the reduction is only 10-20% with coal-generated power.

Opportunities exist in untapped software areas like energy management, trading, and asset management. The financial sector will gain, too, if policymakers establish a reliable environment for green financing.

3. Making Renewable Energy Reliable

Indonesia is the world’s largest archipelago country, leading to a fragmented national grid and off-grid systems. This situation allows companies to introduce effective technologies for producing, storing, and transmitting energy.

Efficient transmission technology is crucial for clean energy implementation. Since solar and wind power generation is dispersed, companies can provide solutions to create a versatile and practical grid. This approach minimizes energy loss and enables new business models in the future.

The Challenges

There are some challenges in the energy transition for the manufacturing industry.

1. Infrastructure

Inadequate infrastructure, including high emissions from the power grid and limited capabilities for natural gas transmission and waste management, poses significant challenges.

2. Technological Readiness

The high cost makes it difficult to embrace established energy-efficient options compared to traditional choices. 

Moreover, the challenge adds to the need for established standards like Minimum Energy Performance Standards (MEPS) and Conservation Labelling (CL) for industrial motors.

3. Skill Gap

A lack of skills comes from inadequate education and limited teamwork among universities, industries, the government, and users.

4. Government Commitment

Indonesia’s primary focus on environmental responsibilities is directed toward the power plant industry, resulting in the manufacturing sector needing more emissions reduction goals.

5. Institutional Limitation

The government’s limited involvement in offering technical support, advocacy, and incentives contributes to institutional limitations. At the same time, unclear incentive methods and illegal activities undermine trust in regulatory procedures.

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With the increasing emphasis on renewable energy adoption, the manufacturing sector should aim to accelerate its energy transition efforts.

InCorp Indonesia can assist with ESG advisory and business license services for those manufacturers that wish to stay ahead of competitors and gain better trust from customers by applying green business practices.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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