Are They Willing to Pay Higher Prices for Greener Electricity? A Discrete Choice Experiment on Non-Subsidized Households in Indonesia

By May 2020, fossil fuel dominated the energy source in Indonesia by generating 85% of the electricity. The government has targeted 23% of renewables in the national energy mix by 2025, but until 2020 the achievement was only 11.51%. The main obstacle is the relatively low electricity price that prevents investors from joining the green electricity generation business. The current pricing is mainly cost-based and does not thoroughly exploit the heterogeneity in consumers’ preferences and willingness to pay (WTP). This research uses the discrete choice experiment to measure the WTP for greener electricity among non-subsidized households in Indonesia. We use the mixed multinomial logit choice behavior model and estimate the parameters using the Bayesian method. The share of preference function is derived using randomized first choice simulation. Using data from 324 households, we found that the WTP for greener electricity increases with the proportion of renewable. Using the latent class method, we identified three segments: Status Quo, Greenie, and Unsatisfied Median, and found significant WTP differences among them. Future research should focus on the price differentiation strategy that considers the interrelatedness between retail and upper stream business pricing to solve the unattractive investment climate in Indonesia’s green electricity generation business