Willingness to pay for green electricity: evidence from a contingent valuation survey in Indonesia

Abstract

The Government of Indonesia has set a target of 23% renewables in the national energy mix by 2025. Until August 2021, the achievement in the electricity sector was only 12.77%. The low electricity selling price and lack of incentives for renewable electricity investment are considered the main obstacle to attaining that goal. This research addresses the first issue by measuring the consumer's willingness to pay (WTP) for greener electricity. We use the contingent valuation method (CVM) with dichotomous choice with follow-ups (DCF) elicitation technique. The CVM questionnaire asks if residential consumers are willing to pay a specific price for electricity with 50% renewables. Data from 520 respondents were collected through an online survey targeting non-subsidized households in Java, the main island of Indonesia. We used the survival analysis to analyze the data by assuming a lognormal distribution and came up with the electricity price-response function, which shows that 80% of respondents are willing to pay up to 13% higher than the current price. We also found that the WTP increases with the electrical capacity, where households with an electrical capacity of greater than 2,200VA are willing to pay 17% higher than those with an electrical capacity of up to 2,200VA.