Attracting private investments into rural electrification — A case study on renewable energy based village grids in Indonesia

Abstract

Renewable energy based village grids (RVGs) are widely considered to be a sustainable solution for rural electrification in non-OECD countries. However, diffusion rates of RVGs are relatively low. We take the viewpoint that, as public resources are scarce, investments from the private sector are essential to scale-up the diffusion. While existing literature mostly focuses on engineering, development and techno-economic aspects, the private sector's perspective remains under-researched. As investment decisions by private investors are mainly based on the risk/return profile of potential projects we — based on literature reviews and field research — investigate the risk and the return aspects of RVGs in Indonesia, a country with one of the largest potentials for RVGs. We find that considering the potential of local, national and international revenue streams, the returns of RVGs can be positive. Regarding the risk aspect, we see that private investors could address many of the existing barriers through their business model. However, the findings also point to the need for government action in order to further improve the risk/return profile and thereby attract private investments for RVGs.