Transformation of fossil energy substitution to new and renewable energy in the emerging economy

Abstract

Fossil energy is getting less and less and this study aims to determine the effect of the substitution of fossil energy with new and renewable energy on the monetary value of electricity subsidies in Indonesia. Rezki (2012) stated that the level of gross domestic product (GDP) per capita in a country in Southeast Asia had a positive relationship with the level of energy consumption. Indonesia is a relatively small electricity user per capita, with consumption only equivalent to a quarter of the world average (Davis, 2013). The data used is time series data from 2011–2019 with a multiple linear regression analysis method. The regression results three of the four independent variables which include tariffs, cost of supply (CS), and electricity sales volume have a significant influence and have a positive correlation with the subsidy, while the margin variable has no significant effect against subsidies. Based on the F-test, all independent variables have a significant effect on the monetary value of subsidies. This simulation shows a positive relationship between CS and the monetary value of subsidies, it means that the substitution of fossil energy, including coal with new and renewable energy, which is environmentally friendly but is still relatively expensive, will result in an increase in energy subsidies. Thus, the implementation of the energy transition policy from fossil energy to new and renewable energy (NRE) in Indonesia must be carried out conservatively by taking into account the dynamics of the right time.