Distributed Photovoltaic Economic Impact Analysis in Indonesia

Distributed Photovoltaic Economic Impact Analysis in Indonesia

TitleDistributed Photovoltaic Economic Impact Analysis in Indonesia
Publication TypeReport
Year of Publication2020
AuthorsNaïm R Darghouth, James McCall, David Keyser, Alexandra Aznar
Date Published02/2020

Like other countries in the region, the Government of Indonesia aims to increase its use of renewable energy in the near term from various technologies, including grid-connected distributed photovoltaics (DPV). While little DPV has been installed to date, the policy landscape has been shifting over the past few years with recent pronouncements from the state-run utility Perusahaan Listrik Negara (PLN) and the Ministry of Energy and Mines (MEMR) that have begun to provide a more supportive policy framework for the deployment of DPV. Nonetheless, many questions remain as to how DPV impacts customers, the utility, and the economy as a whole.

This report presents a holistic view of DPV economic impacts in the Java-Bali region of Indonesia by assessing customer economic impacts, utility revenue impacts, and jobs and economic development impacts. It includes three interrelated analytical undertakings:

  • The customer economic impact analysis assesses how current electricity tariffs, metering, and billing arrangements for DPV compensation, DPV system prices, and solar energy resources influence commercial and industrial customer decisions to invest in DPV technology. Results demonstrate that, overall, the economic incentive for residential, commercial, and industrial customers to deploy DPV is low given the long payback periods and often negative net present values over the lifetime of the DPV investment. Small residential and commercial customers are expected to face very long (>20 years) payback periods for DPV investments under various compensation mechanisms, primarily due to low electricity rates and relatively high minimum monthly bills. Larger residential, commercial, and industrial customers, on the other hand, face shorter payback periods than the smallest customers; however, almost all customers considered in the analysis have payback times longer than about 10 years under current regulations and retail electricity tariffs.
  • The utility revenue impact analysis assesses the short-term financial impacts of DPV generation, with a focus on state-owned utility PLN’s net revenues. Both costs and benefits of DPV generation to the utility under net energy metering and net billing scenarios are quantified. Results demonstrate that overall, the net revenue impacts to PLN are relatively low—a 0.2% reduction in total revenue collection for 3 GW of DPV deployed in the next 5 years in the Java-Bali grid.
  • The jobs and economic impact analysis assesses the direct and indirect workforce and economic impact of DPV deployment in Indonesia. The gross economic impact of the theoretical deployment of one thousand 4.9 kW and one thousand 4.2 kW residential solar PV systems in 2019 would support approximately 710 job-years and a total of $4.9 million in gross domestic product (GDP). Results indicate that the construction and manufacturing industries see the greatest job growth and increase in GDP because of DPV installations compared to other economic sectors.

Taken as a whole, these results indicate that the current set of tariffs and regulations governing DPV in Indonesia—used as inputs to our analyses—would not induce strong deployment among commercial and industrial utility customers. Nonetheless, in the near-term, even if up to 3 GW of DPV deployment were to occur, it would have a minimal impact on PLN’s revenue collection. DPV deployment, however, would have an initial and ongoing positive effect on jobs and economic development, primarily accruing to the Indonesian construction and manufacturing sectors. Decision makers can use this information to determine how to balance DPV customer, utility, and broader social priorities going forward.