Exploring Alternative Policies to Reduce Electricity Subsidies in Indonesia

Abstract

Electricity subsidies in Indonesia remain high and tend to increase. Existing studies generally propose electricity subsidy reform through economic price adjustment; however, this option potentially arises political and social conflicts. The government and the State Electricity Company have also undertaken several measures to decrease electricity supply costs but those measures remain ineffective due to increasing energy prices needed as fuels for power generations. Our study analyses the effectiveness of two alternative grants for LED lamps and rooftop photovoltaic (PV), to reduce electricity subsidies for low-income residential customers with 450 VA and 900 VA electricity capacity limits. The analysis result is that replacing existing lamps with LED lamps for all those customers will cost the government US$ 313.7 million but potentially decrease electricity subsidies to US$ 208.7 million/year for 15 years. On the other hand, installing the rooftop PV system is ineffective to bring down the electricity subsidies. The investment cost of the on-grid rooftop PV system is between US$ 827.6 and US$ 1,310.3 per house, while the electricity subsidy savings for 20 years are between US$ 724.1 and US$ 744.8.