Willingness to Pay for Greener Electricity Among Non-Subsidized Residential Consumers in Indonesia : A Discrete Choice Experiment Approach

Abstract

By 2021, fossil fuels still dominated Indonesia’s energy source by generating 87% of electricity and constituting 88.5% of the national energy mix. This achievement is far from the government’s target of 23% renewables in the national energy mix by 2025. The main obstacle is the low electricity price that discourages investors from entering the green electricity business. Increasing the electricity price has been the government’s last option, socially and politically. Indonesia’s electricity industry is highly regulated, including the selling price at retail and upstream (independent power producers) levels. The current pricing is cost-based and does not thoroughly consider consumers’ preferences and willingness to pay (WTP). This research aims to estimate the WTP for greener electricity among non-subsidized residential consumers in Indonesia. Residential consumers have dominated the market by using 46% of the generated electricity. We use the discrete choice experiment assuming a mixed multinomial logit choice behavior model and employ the Bayesian method to estimate the model parameters. We found that more than 95% of respondents are willing to pay up to 40% higher than the current price for greener electricity. We also found that the WTP for greener electricity increases with the proportion of renewables. Using the latent class method, we identified three residential consumer segments: Status Quo, Greenie, and Unsatisfied Median, and found significant WTP differences among them. Considering the WTP alone, the result suggests that increasing the electricity retail selling price is justifiable. Further research is needed to develop a pricing strategy that considers the interrelatedness between retail and upstream pricing.