Jakarta—The Institute for Essential Services Reform (IESR) believes that the 2023 National Hydrogen Strategy (SHN) does not focus enough on accelerating green hydrogen production as part of a sustainable energy transition. Indonesia has a renewable energy potential of 3,687 gigawatts (GW), which can be a major capital in developing green hydrogen, which is hydrogen produced through water electrolysis using renewable energy.
IESR considers green hydrogen an important factor in decarbonising the industrial and transportation sectors. However, to date, hydrogen development in Indonesia is still dominated by grey hydrogen derived from natural gas, which has a high carbon footprint.
“Indonesia already has an SHN, but the strategy designed is still broader and has not specifically targeted the acceleration of green hydrogen development. This is key to realising the net zero emission (NZE) target by 2060 or sooner,” said IESR Executive Director Fabby Tumiwa in a discussion on “Identifying the Green Hydrogen Market in Indonesia”, Thursday, January 30.
Fabby explained that green hydrogen still faces the challenge of high production costs compared to grey hydrogen. To improve competitiveness, he emphasised the importance of reducing the cost of electricity from renewable energy to below USD 0.05/kWh and building hydrogen infrastructure close to consumption centres.
“Currently, the subsidised gas price for the industry is set at USD 6 per MMBTU. This makes green hydrogen less competitive than grey hydrogen, which is produced at a lower price. For this reason, reducing gas subsidies and implementing a carbon price can be a strategy for the industry to switch to green hydrogen,” Fabby said.
By 2023, national hydrogen consumption is estimated to reach 1.75 million tons per year, of which 88 per cent is used for urea production, 4 per cent for ammonia, and 2 per cent for oil refineries. The majority still use carbon-intensive gray hydrogen.
Fabby added that the first step in developing green hydrogen can be started by meeting the needs of the fertiliser industry, cement, and difficult decarbonised sectors. “We must start from sectors that already have stable demand so that green hydrogen production can grow and achieve economies of scale,” he said.
Lessons from the UK and Indonesia’s potential
To accelerate the development of a green hydrogen ecosystem, IESR is working with the British Embassy in Jakarta on the Green Energy Transition Indonesia (GETI) project. IESR’s GETI Manager, Erina Mursanti, highlighted how the UK has successfully driven the green hydrogen market through policies such as the Low Carbon Hydrogen Standard and the GBP 240 million Net Zero Hydrogen Fund (NZHF).
“The UK government is targeting the production of 10 GW of low carbon hydrogen by 2030. This is supported by various incentives, cooperation with industry, and research and development. Indonesia can adopt a similar strategy to attract investment and accelerate the energy transition,” Erina said.
Indonesia has identified 17 potential sites for green hydrogen production. According to the Indonesia Energy Transition Outlook (IETO) 2025 report, the cost of green hydrogen production in Indonesia is estimated to range from USD 1.9 to USD 3.9 per kg by 2040. This is more competitive than the current global average cost, which is USD 2.7 to USD 12.8 per kg.
However, without the right incentives, green hydrogen remains challenging to compete with fossil hydrogen. “Clearer regulations, policy support, and more ambitious targets are needed to accelerate the transition to green hydrogen,” Erina said.
IESR emphasised that the government needs to show a more substantial commitment to developing green hydrogen through clear policies, fiscal incentives, and strengthening the investment climate.
“Reliance on fossil fuels in hydrogen production will increase carbon emissions and risks hindering the energy transition. On the other hand, dependence on natural gas threatens energy security due to dwindling domestic gas reserves,” Erina concluded. (Hartatik)
