By William Jhanesta
The global push for sustainable energy solutions has ignited a race among key energy players in Indonesia, notably state-owned oil and gas firm PT Pertamina (Persero), through its renewable arm Pertamina New and Renewable Energy (PNRE), and state-owned electricity firm PT PLN (Persero), to establish dominance in the burgeoning hydrogen sector.
In this article, we will take a look into the strategic initiatives of these two state-owned energy companies, exploring their respective clean hydrogen production facilities and the competitive landscape surrounding hydrogen refueling stations, and also the challenges that must be addressed by relevant stakeholders.
Announced hydrogen project: Pertamina vs PLN
Pertamina
Pertamina has strategically positioned itself as a key player in the hydrogen market. According to Petromindo's Hydrogen Database, Pertamina has outlined plans to initiate eight projects for clean hydrogen and ammonia production, reaching a cumulative capacity of 0.57 million tons per annum (MTPA) of clean hydrogen equivalent, spread across various regions in Indonesia.
The company has meticulously identified potential collaborative partners, catering to both export markets and domestic consumption, for each designated location. These prospective projects are slated to commence operations between 2024 and 2030, encompassing both pilot-scale initiatives and more advanced stages, signaling Pertamina's commitment to making substantial contributions to the burgeoning hydrogen landscape.
Pertamina's initial foray into clean hydrogen development involves a geothermal-based hydrogen pilot at the Ulubelu geothermal complex in Lampung Province. The company envisions establishing a hydrogen facility with a daily capacity of 100 kg of green hydrogen, utilizing the 0.5 MW geothermal excess capacity managed by its subsidiary, PT Pertamina Geothermal Energy Tbk (PGEO).
However, Pertamina faces impediments related to regulatory issues and Power Purchase Agreement (PPA) contracts concerning the electricity used to power the electrolyzer. This initiative is currently limited to the pilot phase, with no certainty of advancing to the commercial stage due to regulatory constraints. Despite Pertamina's target for a Commercial Operation Date (COD) in 2027, the progression beyond the pilot phase remains uncertain as regulatory and contractual challenges pose obstacles to the project's commercial viability.
PLN
In contrast to Pertamina, PLN has been proactive in harnessing hydrogen as a cooling agent for generators in all of its coal-fired power plants (PLTUs) and combined-cycle power plants (PLTGUs) across Indonesia, predating the hydrogen-focused discourse.
In November 2023, PLN, through its subsidiaries – PLN Indonesia Power (PLN IP), PLN Nusantara Power (PLN NP), and PLN Tanjung B – marked a significant milestone by inaugurating the operations of 21 green hydrogen plants integrated within existing fossil-based power plants. This strategic move underscores PLN's commitment to incorporating sustainable practices within its power generation infrastructure, showcasing a forward-thinking approach to energy transition and environmental stewardship.
PLN claims that the company currently produces 191 tons of hydrogen annually, with approximately 124 tons per year having the potential for trade in various sectors, including fuel cell power plants, hydrogen refueling stations, and as feedstock for the production of clean ammonia.
According to PLN, the inauguration of the recently established 21 hydrogen production plants marks a pioneering initiative and the largest of its kind in Southeast Asia. However, this accomplishment might be considered coincidental, given that all the hydrogen plants inaugurated already serve as cooling generators for the existing fossil-based power plants.
PLN faces a significant challenge in expanding its green hydrogen production plant that is not associated with fossil power plants, primarily due to financial constraints. The utility company is currently grappling with a take-or-pay scheme that continues to burden its finances amid an oversupply condition.
As of today, PLN’s lifeline still relies on government financial support. In the 2022 fiscal year, PLN received in total IDR 122.48 trillion in financial support from the government in the form of subsidies and compensation. Without government support, PLN financially would be in trouble.
Race in hydrogen refueling station
The competition between Pertamina and PLN extends beyond the upstream sector, reaching into the midstream arena, particularly in the realm of hydrogen refueling station infrastructure to bolster decarbonization efforts within the country's transportation sector.
On January 17, 2024, Pertamina took a significant step forward, breaking ground on their hydrogen refueling station in Daan Mogot, Jakarta. In parallel the groundbreaking ceremony, featuring a Joint Development Agreement (JDA) with Toyota Motor Manufacturing Indonesia, symbolizes a united effort toward hydrogen-based transportation ecosystems in the country.
The Daan Mogot fuel station is expected to be Indonesia’s first integrated energy refueling hub, offering gasoline, gas, and hydrogen. The innovative high-speed hydrogen refueling station concept promises commercial-scale hydrogen refills in under five minutes, revolutionizing the refueling experience for hydrogen-powered vehicles and marking a significant stride towards a more efficient and sustainable transportation ecosystem.
Leveraging its well-established gasoline infrastructure, Pertamina is strategically positioned to distribute its hydrogen to prospective customers by seamlessly integrating hydrogen with existing gasoline stations. With more than 7,800 fuel stations across the country, Pertamina needs to conduct a detailed assessment to pinpoint the most feasible locations for developing hydrogen stations.
Pertamina has demonstrated extensive expertise in the fuel sector, asserting its dominance across the supply chain from upstream to downstream through its six sub-holdings, which is not something that other hydrogen players in Indonesia might have. This positions Pertamina strongly to cultivate strategic partnerships across diverse industrial sectors, encompassing hydrogen technology providers, off-takers, as well as automotive manufacturers and distributors.
The momentum continues unabated as PLN's President Director, Darmawan Prasodjo, unveiled a sneak peek into the advanced construction of what is claimed to be Indonesia's first hydrogen refueling station located in Senayan, Jakarta. The construction progress of the hydrogen station has currently reached an impressive 98%, with a targeted operational commencement set for February 2024. This station is designed to feature filling stations with capacities of 150 bar, 300 bar, and will progressively escalate to 700 bar.
In contrast to Pertamina, PLN may encounter challenges in expanding its hydrogen refueling stations to other locations. PLN's viable options include opening up new plots of land or, more pragmatically, leveraging available space from its existing power plants, strategically situated in proximity to the demand center. This approach ensures an efficient and feasible expansion strategy for PLN's hydrogen refueling infrastructure.
In terms of hydrogen sources, PLN shows a distinct advantage over Pertamina. PLN has pushed ahead by operating 21 environmentally friendly hydrogen plants and has a strategic plan for hydrogen distribution to refueling stations via trucking. Notably, PLN leverages its surplus electricity supply to produce the environmentally friendly green molecule. This multifaceted approach positions PLN as a leader in the dynamic landscape of hydrogen production and distribution.
Conversely, Pertamina seems poised to depend on its existing grey hydrogen plant within its refineries, facing constraints as the company awaits permits to commence hydrogen production from its established renewable power plants. This discrepancy underscores the strategic differences between PLN and Pertamina in navigating the evolving hydrogen industry, where PLN's diversified initiatives and resource utilization offer a robust foundation for sustainable hydrogen.
Competition is good for innovation
Lessons learned from the national electricity business monopoly underscore the challenges it poses, which are often problematic for developers and the market. A market monopoly lacking competition inevitably results in inefficiencies, limited innovation, and elevated prices. The experience with the electricity sector monopoly highlights the importance of fostering competition to drive efficiency, encourage innovation, and maintain reasonable pricing.
Market dynamics, shaped by the interplay of supply and demand, inherently steer resources toward areas of necessity. In a market-driven scenario, hydrogen projects that demonstrate economic viability and efficiency take precedence. This natural allocation encourages optimization and cost-effectiveness within hydrogen projects, aligning with the principles of market-driven economies.
Market competition, particularly between Pertamina and PLN in this scenario, catalyzes innovation. As businesses and entrepreneurs vie for market dominance, the drive to capture market share incentivizes the development of more efficient and environmentally friendly hydrogen technologies. This competitive landscape fosters an environment conducive to breakthroughs that ultimately benefit society, something at hydrogen project will fit into perfectly.
In the end, competition in technological innovation within the hydrogen sector will play a pivotal role in significantly reducing hydrogen production costs, making the selling price more affordable and competitive in the market. Feasible hydrogen will drive the utilization and expansion of a broader hydrogen ecosystem, accelerating the achievement of the government's decarbonization targets.
However, challenges remain on the table
In shaping the upstream-downstream hydrogen ecosystem, the competition between Pertamina and PLN is poised to be a captivating spectacle, predicted to serve as a key catalyst for hydrogen penetration across power generation, industrial, and automotive sectors. Yet, the government needs to consider some of the challenges that need to be overcome to open up a wider "'arena'" beyond Pertamina and PLN:
Supply-demand uncertainty
As of now, low-carbon hydrogen production remains limited, with PLN taking the lead in its initiation. In contrast, the national hydrogen demand is still supplied by carbon-intensive hydrogen produced using steam-methane reforming (SMR) technology without significant carbon abatement efforts.
This uncertainty can also impact investment decisions in hydrogen infrastructure. Stakeholders, including Pertamina and PLN, need to address these challenges by enhancing clean hydrogen production capacity and seeking innovative solutions to ensure an adequate supply.
The government's role in crafting policies supportive of clean hydrogen production and utilization is crucial. Fiscal incentives, research and development support, and regulations promoting sustainable hydrogen production and consumption can help create an environment conducive to the growth of an environmentally friendly hydrogen market.
Lack of regulatory clarity
Despite the early-stage competition between Pertamina and PLN, both are still betting on uncertainty in the absence of a legal framework that specifically regulates hydrogen development in the country. Policy support has primarily skewed towards production, yet clarity is lacking on whether utilizing excess power from existing renewable power plants to produce the green molecule is permitted or prohibited. This grey area hampers developers, particularly Pertamina, from creatively advancing green hydrogen by leveraging their excess supply to mitigate production costs.
PLN is unlikely to immediately allow Independent Power Producers (IPPs) or Pertamina to produce hydrogen from contracted power plants, even if these facilities can generate more electricity than stipulated in the PPA. The heightened risk of resource management concerns seems to be a significant factor for PLN, ensuring operators can reliably supply electricity as outlined in the power contract.
Nevertheless, it is essential to note that auctions for geothermal working areas (WKPs) or other renewable energy projects have thus far been solely based on the quantity of electricity IPPs must provide to PLN. This implies that PLN does not hold authority over controlling renewable resources or dictating that IPPs manage all resources exclusively for electricity generation. Therefore, IPPs in this context should have the flexibility to monetize renewable energy in the form of hydrogen, as long as they adhere to the agreed-upon electricity quantities supplied to PLN.
