Assessing electric boiler investment in Indonesia’s textile industry

Executive summary

Indonesia’s textile sector supplies global fashion brands but runs on coal-fired boilers. This study builds a detailed financial model for a representative Tier 2 supplier in West Java and finds that electric boilers only become viable when three support mechanisms—brand price premiums, electricity subsidies, and stronger carbon credit markets—are all in place at the same time. Pull any one of those levers out, and the investment case collapses.

Coal still wins on cost. But not for long

Indonesia’s textile and apparel sector employs nearly four million workers and is one of the world’s top ten exporters of textile products. It is also one of the most carbon-intensive parts of the global fashion supply chain. The problem is in the wet-processing stage—dyeing, bleaching, and finishing—where coal-fired boilers supply the steam these processes depend on. Heating alone can account for more than half of total energy use at this stage.

Global brands including H&M, Nike, Adidas, and Uniqlo have made net-zero commitments that require their Tier 2 suppliers to decarbonise. Electric boilers exist that could eliminate on-site emissions from industrial heat entirely. But for the typical small supplier in West Java, operating on margins of 7–8%, burning cheap domestic coal, and selling into price-sensitive export markets, the financial case for switching does not currently exist. This study builds that case from the ground up and identifies exactly what combination of support would make it work.

Data and method

• Project-level discounted cash flow (DCF) model for a representative Tier 2 textile SME in West Java, using primary data from a semi-structured interview with one supplier: production volumes (3,000 tonnes/year), boiler steam demand (10 tonnes/hour), selling prices, and staffing.
• Secondary data from Indonesia’s Ministry of Energy on coal and electricity tariffs, carbon credit prices from the Indonesia Carbon Exchange, and technical specifications for four electric boiler models (one Japanese: EB1; three Chinese: EB2, EB3, EB4).
• Two scenarios modelled over a 25-year project life: Business-as-Usual (coal boiler, stress-tested with a carbon tax and selling price decline from 2031 as brands sever ties with coal-dependent suppliers) and Transition (each electric boiler model under default conditions, then with three potential interventions applied).
• Three interventions tested: a 33% price premium from brands to Tier 2 suppliers; a 20% increase in carbon credit prices; and an electricity tariff subsidy of 55–65% depending on green electricity procurement method.
• Key metrics: NPV, IRR, profitability index, and discounted payback period, assessed against a 12% discount rate appropriate for SME project finance in emerging markets.
• Sensitivity analysis testing the effect of inflation, discount rate, and corporate tax on NPV for each Chinese-brand electric boiler model.

Findings

• Coal is viable today, but only just. Without a carbon tax and assuming stable selling prices, a coal boiler investment yields an NPV of roughly USD 19,900 and an IRR of 12.35%—barely above the hurdle rate, with a 23-year payback. Once a minimum carbon tax is applied and brand-driven selling price declines are factored in from 2031 onwards, the investment turns decisively negative: NPV falls to −USD 59,600 and IRR drops to 10.94%. The coal comfort zone is real, but it depends on regulation staying weak and brand enforcement staying soft.
• Without support, electric boilers produce deep financial losses. Across all four models, NPVs without any intervention range from −USD 29.8 million (EB2) to −USD 33.6 million (EB1). No model produces a calculable positive IRR. The root cause is a structural cost gap: electricity costs nearly five times more per unit of energy than coal, and selling prices do not rise to absorb the difference.
• Energy efficiency is the single most important factor in investment viability. The Japanese-brand boiler (EB1) remains unviable even when its capital cost is removed entirely, because its electricity consumption is so high that operating costs cannot be covered. Among the Chinese brands, EB2’s lower energy consumption drives an IRR of 26.24% under full interventions, compared to 12.75% for EB4. The difference between models is almost entirely explained by energy load, not policy environment. This makes kilowatt-hours per unit of steam output a primary investment criterion, not a secondary technical specification.
• No single lever is enough—all three must be in place simultaneously. Applying any one or two of the three interventions in isolation fails to bring any Chinese-brand model above the 12% hurdle rate. When all three are in place, EB2 achieves an IRR of 26.24% with a seven-year payback, EB3 reaches 16.46% with a 13-year payback, and EB4 achieves 12.75% with a 22-year payback. Viability requires multi-stakeholder coordination: government on electricity subsidy, brands on price premiums, and carbon markets on pricing methodology.
• Inflation, not tax, is the real financial risk. Sensitivity analysis consistently identifies inflation as the most powerful driver of NPV—well ahead of discount rate and corporate tax. A 10% shift in the inflation rate moves EB2’s NPV by approximately 36%, and produces NPV swings of over 600% for EB4. Corporate tax changes, by contrast, have minimal impact. For policy design and project finance, macroeconomic stability and access to affordable lending matter far more than tax incentives.

Bottom line: electric boilers will only become viable when brand price premiums, electricity subsidies, and stronger carbon credit markets are all in place

Electric boilers offer a technically viable route to deep decarbonisation in Indonesia’s textile sector, but the financial conditions for investment do not yet exist. Coal remains the rational commercial choice as long as carbon pricing is delayed and brands fail to factor sustainability into their purchasing. When regulatory and market conditions tighten—as expected—the window for a managed transition will narrow. Making electric boilers work requires all three support mechanisms at once, and across all viable options, energy efficiency is the non-negotiable starting point.

Implications for decision-makers

For the Indonesian government

• Build the subsidy case now. A 55% electricity subsidy for transitioning textile manufacturers is ambitious but consistent with precedents in Germany and Indonesia’s own gas subsidy scheme. The sector’s scale of employment strengthens the case for inclusion. Lead also on developing domestic carbon credit methodologies for industrial electrification to unlock an additional revenue stream for switching manufacturers.

For global brands

• A 33% price premium passed through to Tier 2 suppliers requires only a 13.2% increase at the brand-to-Tier 1 level—a manageable ask for brands already carrying net-zero commitments. Eco-conscious or premium product lines, backed by consumer education on sustainability costs, offer a credible route to absorbing it. Without brands acting, the intervention bundle cannot close.

For lenders and development finance institutions

• The discount rate has a stronger effect on investment outcomes than corporate tax. Concessional green lending targeted at industrial electrification in emerging-market textile supply chains can shift the investment case materially, particularly for technologies like EB4 that currently sit on the edge of viability.

For textile manufacturers

• Under current conditions, coal-fired boilers remain marginally viable—but the financial window is closing. Co-firing biomass with coal offers a credible transitional step. Manufacturers who map their boiler capacity, steam demand, and green electricity options now will be positioned to move quickly when the full intervention package becomes available.

Author

Talitha Hendawanto

Talitha is a recent graduate from the MSc Climate Change Finance and Investment at the University of Edinburgh Business School. She is now the Climate Advisory Lead at Think Policy in Indonesia, where she helps organisations translate climate and energy priorities into practical policies, strategies, and implementation frameworks.