Electricity subsidy reform in Indonesia:
Demand-side effects on electricity use
Paul Burke
Sandra Kurniawati
Australian National University
IAEE, June 2017
[email protected]
Image: http://www.rambuenergy.com/file/2014/10/PT-PJB-500x330.jpg
Indonesia’s recent electricity subsidy
reforms
One of the world’s largest episodes of
electricity subsidy reform
Large tariff increases since 2013, differing by
consumer group
Exemption for poor households
Move to monthly automatic adjustment
Electricity subsidies as % of central
government expenditure & transfers:
• 6% in 2012
• 2% in 2016
Image: http://nasional.kompas.com/read/2013/06/22/1411126/Faisal.Basri.Harga.BBM.Naik.Imbas.Ulah.Masa.Lalu.SBY, http://www.bloomberg.com/news/articles/2015-06-16/widodo-to-switch-off-middle-class-power-subsidy-in-budget-reform
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Research question
What are the demand-side effects of
Indonesia’s recent electricity subsidy reforms?
Method
Econometrically estimate electricity demand
functions using data of up to three dimensions
Identification strategy
• Control for non-price factors, including
multiple dimensions of fixed effects
• Instrumental variable approach
Image: http://blog.worldagroforestry.org/index.php/2016/02/17/bioenergy-can-bring-clean-power-to-remote-areas-of-indonesia/
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Average electricity price, by consumer group
1500
Recent
reforms
1250
1000
750
500
250
0
1995
2000
Residential
Industry
Government buildings
2005
2010
2015
Business
Social services
Public street lights
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Estimation equation (3D)
′
∆ln𝐸𝑔,𝑟,𝑦 = 𝛼 + 𝛽∆ln𝑃𝑔,𝑟,𝑦 + ∆𝑿𝑔,𝑟,𝑦
𝜽 + 𝜂𝑔,𝑟 + 𝜂𝑟,𝑦 +𝜂𝑔,𝑦 + 𝑢𝑔,𝑟,𝑦
Twodimensional
fixed effects
Same-year
price
elasticity of
demand
Electricity
use
g = consumer group
r = region
y = year
Error
Average
price
Controls
•
•
•
•
•
Ln GDP per capita
Ln Population
Ln Diesel price
Temperature
+++
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Results
Same-year price elasticity of
electricity demand: –0.15 to –0.2***
Four-year elasticity: –0.4***
Negative; inelastic
Similar to evidence from other
countries
Robustness checks: similar results
Image: https://commons.wikimedia.org/wiki/File:Jakarta_cityscape_during_night_time,_taken_from_27th_floor;_2013.jpg
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Same-year price elasticity of demand by
consumer group
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Effects of electricity subsidy reform
7%
200
2012
150
100
~ 14 million
tonnes of
avoided CO2
emissions
p.a.
50
0
1995
2000
2005
2010
2015
Actual
Scenario: No subsidy reform during 2013–2015
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Discussion
Government has plan to phase out almost all
remaining electricity subsidies
Completing the reform process
=> additional electricity savings of ~ 6%
Benefits:
• Improved efficiency
• Reduced emissions
• Free up resources for other priorities
• Better incentives for the electricity utility
There are more efficient pro-poor policies than
electricity subsidies
Image: http://www.powermag.com/indonesia-inaugurates-three-coal-plants/
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Comments welcome
Paul Burke
[email protected]
Image: http://www.powermag.com/indonesia-energy-rich-and-electricity-poor/
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