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How Different Electricity Pricing Systems Affect the Energy Trilemma: Assessing Indonesia’s Electricity Market Transition

Author

Listed:
  • Heffron, Raphael J.

    (Asian Development Bank Institute)

  • Marc-Fabian Körner, Marc-Fabian

    (Asian Development Bank Institute)

  • Sumarno, Theresia

    (Asian Development Bank Institute)

  • Wagner, Jonathan

    (Asian Development Bank Institute)

  • Weibelzahl, Martin

    (Asian Development Bank Institute)

  • Fridgen, Gilbert

    (Asian Development Bank Institute)

Abstract
Many countries have a clear policy objective of increasing their share of renewable energy sources (RESs). However, a major impediment to higher RES penetration often lies in the historically grown structures of a country’s electricity sector. In Indonesia, policy makers have relied on cheap fossil fuels and state control to provide the population with access to both reliable and affordable electricity. However, this focus on only two of the three horns of the energy trilemma, namely energy security and energy equity (and not sustainability), may put Indonesia at risk of missing its ambitious RES targets. In this context, a number of small-scale reform attempts to promote RES integration in recent years have proved to be relatively unsuccessful. Like many other countries, Indonesia needs clear policy directions to avoid an unsustainable lock-in into a fossil fuel future. In the last decades, several other countries have successfully restructured their electricity sectors, for example by introducing a wholesale market for electricity under different electricity pricing systems, including nodal, zonal, or uniform pricing. These countries may hold valuable experiences of overcoming the historically grown barriers to successful RES integration through a greater role for market mechanisms. We develop three generic models that allow policy makers to analyze the impact of introducing either a nodal, a zonal, or a uniform pricing system on the three horns of the energy trilemma in their country. We evaluate our model using a simplified network representation of the Indonesian electricity sector. Our results indicate that each of the pricing systems is able to foster specific horns of the energy trilemma. Considering that any major reform intended to improve energy sustainability in Indonesia will only be a success if it also addresses energy security and energy equity, we also discuss our results from the perspective of energy justice and the need to balance the country’s energy trilemma. Ultimately, we illustrate a transformation pathway for a more sustainable and just transition to a low-carbon economy in Indonesia.

Suggested Citation

  • Heffron, Raphael J. & Marc-Fabian Körner, Marc-Fabian & Sumarno, Theresia & Wagner, Jonathan & Weibelzahl, Martin & Fridgen, Gilbert, 2021. "How Different Electricity Pricing Systems Affect the Energy Trilemma: Assessing Indonesia’s Electricity Market Transition," ADBI Working Papers 1213, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:1213
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    References listed on IDEAS

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    3. Shirazi, Masoud, 2022. "Assessing energy trilemma-related policies: The world's large energy user evidence," Energy Policy, Elsevier, vol. 167(C).
    4. Körner, Marc-Fabian & Sedlmeir, Johannes & Weibelzahl, Martin & Fridgen, Gilbert & Heine, Moreen & Neumann, Christoph, 2022. "Systemic risks in electricity systems: A perspective on the potential of digital technologies," Energy Policy, Elsevier, vol. 164(C).
    5. Michaelis, Anne & Hanny, Lisa & Körner, Marc-Fabian & Strüker, Jens & Weibelzahl, Martin, 2024. "Consumer-centric electricity markets: Six design principles," Renewable and Sustainable Energy Reviews, Elsevier, vol. 191(C).
    6. Zhao, Congyu & Dong, Kangyin & Wang, Kun & Dong, Xiucheng, 2022. "How does energy trilemma eradication reduce carbon emissions? The role of dual environmental regulation for China," Energy Economics, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    electricity pricing system; electricity market liberalization; energy trilemma; energy justice; Indonesia; renewable energy sources;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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