Page 90 - SUSTAINABILITY ISSUES & COVID-19

09 Decision Of Willingness to Pay for Green

Electricity: a Contingent Valuation

Study in Indonesia & China

Ali Sandy Mulya, Kezia Murlie Janti

EXTENDED ABSTRACT

PURPOSE
Global energy needs have become an increasingly very important concern for all economics and the primary sources
include fossil fuels such as oil coal and natural gas, all of which contribute over 80% of the energy supply (Dogan, E. and
Muhammad, I., 2019). Energy resources are limited resources, which only last 50 to 70 years. If you run out of energy
resources, it will be too late and it will be very difficult to make improvements. For this reason, it is necessary to make
renewable resources, which are more environmentally friendly. Renewable energy has been as energy harnessed from
green electricity sources such as hydroelectric power, wind, tide, solar, and biomass power systems. Considering the
threats of climate change, sustainability has become an important issue and it calls for a reduction of the use of fossil
fuels like oil, coal, and natural gas (Parry, M., et al., 2007; Moriarty, P. and Honnery, D.,2009). Green energy aims to find
and develop ways to provide for human needs without causing environmental damage or reducing natural resources.

The Chinese government has committed to reducing carbon emissions, which previously China refused to limit the
level of energy consumption for the needs of industrialization and economic development. The industrialization
process in China has ultimately resulted in environmental damage that threatens the population. Therefore, the Chinese
Government sets out strategic steps to maintain its energy security by aligning it with climate change policies and its
economy. This is done to achieve a reduction in carbon emissions through energy conservation and the development
of a green economy by developing renewable energy such as nuclear energy, hydropower, wind power, solar power
and other alternative energy sources that have not yet been discovered.

The application of green electricity is closely related to the economic situation of the community, where people need to
pay more to implement green electricity in their homes. The concept of green electricity tariffs is built on the assumption
that consumers of green electricity voluntarily pay an extra premium, which covers additional production expenses of
generating electricity from renewable energy sources /RES (Oerlemans, L.A., Chan, K.Y. and Volschenk, J., 2016). This
additional premium is an expression of consumer’s willingness to pay (WTP) and is an appraisal of energy production
by RES, hence is an expression of consumer choice (Hanemann W.M., 1994). In other words, WTP is considered to be a
means of capturing public preferences (Oerlemans, L.A., Chan, K.Y. and Volschenk, J., 2016).

The application of green electricity using renewable energy sources will have high tariffs due to expensive technological
investment costs, so it becomes a material for consumers to consider using green energy. Individual customers, for
example, households willing to use green electricity are influenced by several factors that are taken into consideration
to use green electricity such as total income, education, gender, employment, public awareness of the importance of
protecting the environment. Therefore, WTP investigations for green electricity between different market segments
are needed to adjust preferential policies and set benchmark prices. Further analysis of the WTP driving factors can
help formulate an objective development plan for green electricity and promote reform of the power management
mechanism for the retail department (Xie, Bai-Chen and Wei Zhao, 2018), it’s also possible to claim a positive willingness
to pay more for green electricity.

The willingness to pay technique uses survey methods to estimate the price that people are willing to pay for a given
good (Bigerna, S and Polinori, P., 2011). The willingness to pay depends on altruistic attitudes and preferences of
consumers; their environmental concern, i.e. lower levels of exploitation and combustion of fossil fuel energy sources;
the socio-demographic characteristics of consumers, such as age, education, and income; the extent of the premium
for “green” electricity, and the portfolio of “green” electricity products; a package of a diversified services/products for

International Conference on Sustainability 89
(5 Sustainability Practitioner Conference)
Th