IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v16y2023i8p3406-d1122039.html
   My bibliography  Save this article

Review of Policies for Indonesia’s Electricity Sector Transition and Qualitative Evaluation of Impacts and Influences Using a Conceptual Dynamic Model

Author

Listed:
  • Teuku Naraski Zahari

    (Energy Economics Research Group, Department of Socio-Environmental Energy Science, Graduate School of Energy Science, Kyoto University, Kyoto 606-8501, Japan)

  • Benjamin C. McLellan

    (Energy Economics Research Group, Department of Socio-Environmental Energy Science, Graduate School of Energy Science, Kyoto University, Kyoto 606-8501, Japan)

Abstract

Indonesia’s final energy demand is projected to increase by 70% in the next decade, with electricity expected to account for 32%. The increasing electricity demand poses a potential threat to national emissions reduction targets since fossil fuels generated 86% of the electricity in 2018, associated to 50% of the national CO 2 emissions. Indonesia plans to reduce its CO 2 emissions by 29% by increasing the total electricity generated from renewables, using a set of market-based and regulatory policies. However, economic, social, and environmental issues may arise from the widespread adoption of renewable energy. This study explores the economic, social, and environmental effects of renewable energy policies in the electricity sector. Our work presents an advance over previous studies that attempted to understand the electricity sector energy transition from a system perspective by exploring the structural feedback between it and economic, energy, and environmental systems. This enables the assessment of different energy policies using more macro indicators, which further emphasize the novelty of our work. A combination of system dynamics modelling and a policy analysis framework was applied to explore these issues. Our study proposes a dynamic hypothesis that the price of energy increases over time, in the absence of substitution, becoming a limiting factor in the transition to renewables in the electricity sector. The fiscal budget was found to be a bottleneck for renewable energy adoption in the electricity sector in Indonesia. We found that a fossil fuel depletion premium could be a potential supporting policy to enable the smooth phasing-out of fossil fuels and support a sustainable energy transition.

Suggested Citation

  • Teuku Naraski Zahari & Benjamin C. McLellan, 2023. "Review of Policies for Indonesia’s Electricity Sector Transition and Qualitative Evaluation of Impacts and Influences Using a Conceptual Dynamic Model," Energies, MDPI, vol. 16(8), pages 1-22, April.
    • Handle: RePEc:gam:jeners:v:16:y:2023:i:8:p:3406-:d:1122039
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/16/8/3406/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/16/8/3406/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blankenship, Brian & Aklin, Michaël & Urpelainen, Johannes & Nandan, Vagisha, 2022. "Jobs for a just transition: Evidence on coal job preferences from India," Energy Policy, Elsevier, vol. 165(C).
    2. Shahbaz, Muhammad & Khan, Saleheen & Tahir, Mohammad Iqbal, 2013. "The dynamic links between energy consumption, economic growth, financial development and trade in China: Fresh evidence from multivariate framework analysis," Energy Economics, Elsevier, vol. 40(C), pages 8-21.
    3. Narayan, Paresh Kumar & Smyth, Russell, 2008. "Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks," Energy Economics, Elsevier, vol. 30(5), pages 2331-2341, September.
    4. Tantisattayakul, Thanapol & Kanchanapiya, Premrudee, 2017. "Financial measures for promoting residential rooftop photovoltaics under a feed-in tariff framework in Thailand," Energy Policy, Elsevier, vol. 109(C), pages 260-269.
    5. Shahbaz, Muhammad & Tang, Chor Foon & Shahbaz Shabbir, Muhammad, 2011. "Electricity consumption and economic growth nexus in Portugal using cointegration and causality approaches," Energy Policy, Elsevier, vol. 39(6), pages 3529-3536, June.
    6. Lamperti, F. & Dosi, G. & Napoletano, M. & Roventini, A. & Sapio, A., 2018. "Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-based Integrated Assessment Model," Ecological Economics, Elsevier, vol. 150(C), pages 315-339.
    7. Batalla-Bejerano, Joan & Trujillo-Baute, Elisa, 2016. "Impacts of intermittent renewable generation on electricity system costs," Energy Policy, Elsevier, vol. 94(C), pages 411-420.
    8. Madlener, Reinhard & Stoverink, Simon, 2012. "Power plant investments in the Turkish electricity sector: A real options approach taking into account market liberalization," Applied Energy, Elsevier, vol. 97(C), pages 124-134.
    9. Burke, Paul J. & Widnyana, Jinnie & Anjum, Zeba & Aisbett, Emma & Resosudarmo, Budy & Baldwin, Kenneth G.H., 2019. "Overcoming barriers to solar and wind energy adoption in two Asian giants: India and Indonesia," Energy Policy, Elsevier, vol. 132(C), pages 1216-1228.
    10. Setiawan, Andri D. & Dewi, Marmelia P. & Jafino, Bramka Arga & Hidayatno, Akhmad, 2022. "Evaluating feed-in tariff policies on enhancing geothermal development in Indonesia," Energy Policy, Elsevier, vol. 168(C).
    11. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    12. Sadorsky, Perry, 2012. "Energy consumption, output and trade in South America," Energy Economics, Elsevier, vol. 34(2), pages 476-488.
    13. Burke, Paul J. & Kurniawati, Sandra, 2018. "Electricity subsidy reform in Indonesia: Demand-side effects on electricity use," Energy Policy, Elsevier, vol. 116(C), pages 410-421.
    14. Hines Jr., James R. & Keen, Michael J., 2021. "Certain effects of random taxes," Journal of Public Economics, Elsevier, vol. 203(C).
    15. Julian di Giovanni & Andrei A. Levchenko, 2012. "The Risk Content of Exports: A Portfolio View of International Trade," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 97-151.
    16. Lucas W. Davis, 2014. "The Economic Cost of Global Fuel Subsidies," American Economic Review, American Economic Association, vol. 104(5), pages 581-585, May.
    17. Zhang, Xiaoli & Cui, Xueqin & Li, Bo & Hidalgo-Gonzalez, Patricia & Kammen, Daniel M & Zou, Ji & Wang, Ke, 2022. "Immediate actions on coal phaseout enable a just low-carbon transition in China’s power sector," Applied Energy, Elsevier, vol. 308(C).
    18. Steven A. Gabriel & Andy S. Kydes & Peter Whitman, 2001. "The National Energy Modeling System: A Large-Scale Energy-Economic Equilibrium Model," Operations Research, INFORMS, vol. 49(1), pages 14-25, February.
    19. Wagner, Liam & Molyneaux, Lynette & Foster, John, 2014. "The magnitude of the impact of a shift from coal to gas under a Carbon Price," Energy Policy, Elsevier, vol. 66(C), pages 280-291.
    20. Björn Nykvist & Måns Nilsson, 2015. "Rapidly falling costs of battery packs for electric vehicles," Nature Climate Change, Nature, vol. 5(4), pages 329-332, April.
    21. Ueckerdt, Falko & Hirth, Lion & Luderer, Gunnar & Edenhofer, Ottmar, 2013. "System LCOE: What are the costs of variable renewables?," Energy, Elsevier, vol. 63(C), pages 61-75.
    22. Abdelradi, Fadi & Serra, Teresa, 2015. "Food–energy nexus in Europe: Price volatility approach," Energy Economics, Elsevier, vol. 48(C), pages 157-167.
    23. Gamboa, Gonzalo & Munda, Giuseppe, 2007. "The problem of windfarm location: A social multi-criteria evaluation framework," Energy Policy, Elsevier, vol. 35(3), pages 1564-1583, March.
    24. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
    25. Frederick van der Ploeg & Steven Poelhekke, 2009. "Volatility and the natural resource curse," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 727-760, October.
    26. Galli, Carlo, 2021. "Self-fulfilling debt crises, fiscal policy and investment," Journal of International Economics, Elsevier, vol. 131(C).
    27. Henckens, M.L.C.M. & van Ierland, E.C. & Driessen, P.P.J. & Worrell, E., 2016. "Mineral resources: Geological scarcity, market price trends, and future generations," Resources Policy, Elsevier, vol. 49(C), pages 102-111.
    28. Lean, Hooi Hooi & Smyth, Russell, 2010. "Multivariate Granger causality between electricity generation, exports, prices and GDP in Malaysia," Energy, Elsevier, vol. 35(9), pages 3640-3648.
    29. Rahman, Mohammad Mafizur, 2021. "The dynamic nexus of energy consumption, international trade and economic growth in BRICS and ASEAN countries: A panel causality test," Energy, Elsevier, vol. 229(C).
    30. Afgan, Naim H. & Carvalho, Maria G., 2002. "Multi-criteria assessment of new and renewable energy power plants," Energy, Elsevier, vol. 27(8), pages 739-755.
    31. Lesser, Jonathan A. & Su, Xuejuan, 2008. "Design of an economically efficient feed-in tariff structure for renewable energy development," Energy Policy, Elsevier, vol. 36(3), pages 981-990, March.
    32. Yuan, Jiahai & Li, Xinying & Xu, Chuanbo & Zhao, Changhong & Liu, Yuanxin, 2019. "Investment risk assessment of coal-fired power plants in countries along the Belt and Road initiative based on ANP-Entropy-TODIM method," Energy, Elsevier, vol. 176(C), pages 623-640.
    33. Menegaki, Angeliki N., 2011. "Growth and renewable energy in Europe: A random effect model with evidence for neutrality hypothesis," Energy Economics, Elsevier, vol. 33(2), pages 257-263, March.
    34. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Liu, G.Q., 2016. "Optimal feed-in tariff for solar photovoltaic power generation in China: A real options analysis," Energy Policy, Elsevier, vol. 97(C), pages 181-192.
    35. Destek, Mehmet Akif & Aslan, Alper, 2017. "Renewable and non-renewable energy consumption and economic growth in emerging economies: Evidence from bootstrap panel causality," Renewable Energy, Elsevier, vol. 111(C), pages 757-763.
    36. Cavallaro, Fausto & Ciraolo, Luigi, 2005. "A multicriteria approach to evaluate wind energy plants on an Italian island," Energy Policy, Elsevier, vol. 33(2), pages 235-244, January.
    37. Bazilian, Morgan & Rogner, Holger & Howells, Mark & Hermann, Sebastian & Arent, Douglas & Gielen, Dolf & Steduto, Pasquale & Mueller, Alexander & Komor, Paul & Tol, Richard S.J. & Yumkella, Kandeh K., 2011. "Considering the energy, water and food nexus: Towards an integrated modelling approach," Energy Policy, Elsevier, vol. 39(12), pages 7896-7906.
    38. Gyimah, Justice & Yao, Xilong & Tachega, Mark Awe & Sam Hayford, Isaac & Opoku-Mensah, Evans, 2022. "Renewable energy consumption and economic growth: New evidence from Ghana," Energy, Elsevier, vol. 248(C).
    39. Lee, Chien-Chiang & Chang, Chun-Ping, 2008. "Energy consumption and economic growth in Asian economies: A more comprehensive analysis using panel data," Resource and Energy Economics, Elsevier, vol. 30(1), pages 50-65, January.
    40. Monasterolo, Irene & Raberto, Marco, 2019. "The impact of phasing out fossil fuel subsidies on the low-carbon transition," Energy Policy, Elsevier, vol. 124(C), pages 355-370.
    41. Tran, Bao-Linh & Chen, Chi-Chung & Tseng, Wei-Chun, 2022. "Causality between energy consumption and economic growth in the presence of GDP threshold effect: Evidence from OECD countries," Energy, Elsevier, vol. 251(C).
    42. Scheinkman, Jose A, 1990. "Nonlinearities in Economic Dynamics," Economic Journal, Royal Economic Society, vol. 100(400), pages 33-48, Supplemen.
    43. Gunnarsdottir, I. & Davidsdottir, B. & Worrell, E. & Sigurgeirsdottir, S., 2022. "Indicators for sustainable energy development: An Icelandic case study," Energy Policy, Elsevier, vol. 164(C).
    44. Pyrgou, Andri & Kylili, Angeliki & Fokaides, Paris A., 2016. "The future of the Feed-in Tariff (FiT) scheme in Europe: The case of photovoltaics," Energy Policy, Elsevier, vol. 95(C), pages 94-102.
    45. Yıldırım, Ertugrul & Sukruoglu, Deniz & Aslan, Alper, 2014. "Energy consumption and economic growth in the next 11 countries: The bootstrapped autoregressive metric causality approach," Energy Economics, Elsevier, vol. 44(C), pages 14-21.
    46. Madlener, Reinhard & Stagl, Sigrid, 2005. "Sustainability-guided promotion of renewable electricity generation," Ecological Economics, Elsevier, vol. 53(2), pages 147-167, April.
    47. Wang, Shuguang & Sun, Luang & Iqbal, Sajid, 2022. "Green financing role on renewable energy dependence and energy transition in E7 economies," Renewable Energy, Elsevier, vol. 200(C), pages 1561-1572.
    48. Koyamparambath, Anish & Santillán-Saldivar, Jair & McLellan, Benjamin & Sonnemann, Guido, 2022. "Supply risk evolution of raw materials for batteries and fossil fuels for selected OECD countries (2000–2018)," Resources Policy, Elsevier, vol. 75(C).
    49. Samper, M. & Coria, G. & Facchini, M., 2021. "Grid parity analysis of distributed PV generation considering tariff policies in Argentina," Energy Policy, Elsevier, vol. 157(C).
    50. Koopmans, Carl C. & te Velde, Dirk Willem, 2001. "Bridging the energy efficiency gap: using bottom-up information in a top-down energy demand model," Energy Economics, Elsevier, vol. 23(1), pages 57-75, January.
    51. Chatzimouratidis, Athanasios I. & Pilavachi, Petros A., 2008. "Multicriteria evaluation of power plants impact on the living standard using the analytic hierarchy process," Energy Policy, Elsevier, vol. 36(3), pages 1074-1089, March.
    52. Diakoulaki, D. & Karangelis, F., 2007. "Multi-criteria decision analysis and cost-benefit analysis of alternative scenarios for the power generation sector in Greece," Renewable and Sustainable Energy Reviews, Elsevier, vol. 11(4), pages 716-727, May.
    53. Hidayatno, Akhmad & Setiawan, Andri D. & Wikananda Supartha, I Made & Moeis, Armand O. & Rahman, Irvanu & Widiono, Eddie, 2020. "Investigating policies on improving household rooftop photovoltaics adoption in Indonesia," Renewable Energy, Elsevier, vol. 156(C), pages 731-742.
    54. Rye, Craig D. & Jackson, Tim, 2018. "A review of EROEI-dynamics energy-transition models," Energy Policy, Elsevier, vol. 122(C), pages 260-272.
    55. Solow, Robert, 1993. "An almost practical step toward sustainability," Resources Policy, Elsevier, vol. 19(3), pages 162-172, September.
    56. Dyner, Isaac & Larsen, Erik R., 2001. "From planning to strategy in the electricity industry," Energy Policy, Elsevier, vol. 29(13), pages 1145-1154, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jakub Grabowski & Jarosław Ropęga & Anna Walecka & Marta Wiśniewska, 2023. "Using Energy Policies to Shape Local Competitive Advantages," Energies, MDPI, vol. 16(22), pages 1-23, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shmelev, Stanislav E. & van den Bergh, Jeroen C.J.M., 2016. "Optimal diversity of renewable energy alternatives under multiple criteria: An application to the UK," Renewable and Sustainable Energy Reviews, Elsevier, vol. 60(C), pages 679-691.
    2. Strantzali, Eleni & Aravossis, Konstantinos, 2016. "Decision making in renewable energy investments: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 885-898.
    3. Camarero, Mariam & Forte, Anabel & Garcia-Donato, Gonzalo & Mendoza, Yurena & Ordoñez, Javier, 2015. "Variable selection in the analysis of energy consumption–growth nexus," Energy Economics, Elsevier, vol. 52(PA), pages 207-216.
    4. Smyth, Russell & Narayan, Paresh Kumar, 2015. "Applied econometrics and implications for energy economics research," Energy Economics, Elsevier, vol. 50(C), pages 351-358.
    5. Hottenroth, H. & Sutardhio, C. & Weidlich, A. & Tietze, I. & Simon, S. & Hauser, W. & Naegler, T. & Becker, L. & Buchgeister, J. & Junne, T. & Lehr, U. & Scheel, O. & Schmidt-Scheele, R. & Ulrich, P. , 2022. "Beyond climate change. Multi-attribute decision making for a sustainability assessment of energy system transformation pathways," Renewable and Sustainable Energy Reviews, Elsevier, vol. 156(C).
    6. Saša Obradović & Nemanja Lojanica, 2019. "Does environmental quality reflect on national competitiveness? The evidence from EU-15," Energy & Environment, , vol. 30(4), pages 559-585, June.
    7. Tiba, Sofien & Frikha, Mohamed, 2018. "Income, trade openness and energy interactions: Evidence from simultaneous equation modeling," Energy, Elsevier, vol. 147(C), pages 799-811.
    8. Ahmad, Nisar & Aghdam, Reza FathollahZadeh & Butt, Irfan & Naveed, Amjad, 2020. "Citation-based systematic literature review of energy-growth nexus: An overview of the field and content analysis of the top 50 influential papers," Energy Economics, Elsevier, vol. 86(C).
    9. Tiba, Sofien & Omri, Anis, 2017. "Literature survey on the relationships between energy, environment and economic growth," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 1129-1146.
    10. Shrestha, Anil & Mustafa, Andy Ali & Htike, Myo Myo & You, Vithyea & Kakinaka, Makoto, 2022. "Evolution of energy mix in emerging countries: Modern renewable energy, traditional renewable energy, and non-renewable energy," Renewable Energy, Elsevier, vol. 199(C), pages 419-432.
    11. Sofien, Tiba & Omri, Anis, 2016. "Literature survey on the relationships between energy variables, environment and economic growth," MPRA Paper 82555, University Library of Munich, Germany, revised 14 Sep 2016.
    12. Doytch, Nadia & Narayan, Seema, 2021. "Does transitioning towards renewable energy accelerate economic growth? An analysis of sectoral growth for a dynamic panel of countries," Energy, Elsevier, vol. 235(C).
    13. Ozturk, Ilhan & Al-Mulali, Usama, 2015. "Natural gas consumption and economic growth nexus: Panel data analysis for GCC countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 51(C), pages 998-1003.
    14. Lean, Hooi Hooi & Smyth, Russell, 2014. "Disaggregated energy demand by fuel type and economic growth in Malaysia," Applied Energy, Elsevier, vol. 132(C), pages 168-177.
    15. Kurka, Thomas & Blackwood, David, 2013. "Selection of MCA methods to support decision making for renewable energy developments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 27(C), pages 225-233.
    16. Dedeoğlu, Dinçer & Kaya, Hüseyin, 2013. "Energy use, exports, imports and GDP: New evidence from the OECD countries," Energy Policy, Elsevier, vol. 57(C), pages 469-476.
    17. Shahbaz, Muhammad & Zakaria, Muhammad & Shahzad, Syed Jawad Hussain & Mahalik, Mantu Kumar, 2018. "The energy consumption and economic growth nexus in top ten energy-consuming countries: Fresh evidence from using the quantile-on-quantile approach," Energy Economics, Elsevier, vol. 71(C), pages 282-301.
    18. Paresh Narayan & Russell Smyth, 2014. "Applied Econometrics and a Decade of Energy Economics Research," Monash Economics Working Papers 21-14, Monash University, Department of Economics.
    19. Farhani, Sahbi & Shahbaz, Muhammad & Sbia, Rashid & Chaibi, Anissa, 2014. "What does MENA region initially need: Grow output or mitigate CO2 emissions?," Economic Modelling, Elsevier, vol. 38(C), pages 270-281.
    20. Shahbaz, Muhammad & Mallick, Hrushikesh & Mahalik, Mantu Kumar & Sadorsky, Perry, 2016. "The role of globalization on the recent evolution of energy demand in India: Implications for sustainable development," Energy Economics, Elsevier, vol. 55(C), pages 52-68.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:16:y:2023:i:8:p:3406-:d:1122039. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.