Estimating the Impacts of Financing Support Policies Towards Photovoltaic Market in Indonesia: A Social-Energy-Economy-Environment (SE3) Model Simulation

Abstract

This study estimates the impacts of four solar energy policy interventions on the photovoltaic (PV) market potential, government expenditure, economic growth, and the environment. An agent-based model is developed to capture the specific economic and institutional features of developing economies, citing Indonesia as a specific case study. We undertake a novel approach to energy modelling by combining energy system analysis, input-output analysis, life-cycle analysis, and socio-economic analysis to obtain a comprehensive and integrated impact assessment. Our results, after sensitivity analysis, call for abolishing the existing PV grant policy in the Indonesian rural electrification programs. The government, instead, should encourage the PV industry to improve production efficiency and to provide after-sales service. A 100-watt peak (Wp) PV under this policy is affordable for 33.2 percent of rural households without electricity access in 2010. Rural PV market size potentially increases to 82.4 percent with rural financing institutions lending 70 percent of capital cost for five years at 12 percent annual interest rate. Additional 30 percent capital subsidy and 5 percent interest subsidy slightly increase the rural PV market potential to 89.6 percent of PV adopters. However, the subsidies are crucial for creating PV demands by urban households but the most effective policy for promoting PV to urban households is the net metering scheme. Several policy proposals are discussed in response to these findings.