Choice of self-generation in the industrial firm: A case study of Indonesia

Anggito Abimanyu, University of Pennsylvania


This dissertation investigates economic factors that industrial firms consider when deciding how much electricity to self-generate. The study develops and econometrically tests a simultaneous Tobit model explaining the relative importance of several key economic factors. The empirical result, based on data from the cigarette, spinning-textile, paper, fertilizer, crumb-rubber, cement and metal works industries in Indonesia, has demonstrated the interaction of several independent variables that determine the firm's decision to self-generate. The key variables that affect the decision are cost of self-generation, electricity demand of the public utility, and reliability of the public utility. The evidence suggests that for most firms, over a five year period, low levels of reliability of the public utility play the most important role in determining the quantity of electricity produced. The results indicate that an alternative government policy action related to the improvement of the quality of service should focus on utilizing firms' excess power generation. Under this option, the public utility, PLN, would purchase excess power from the industrial firms. The price should be on a level such that neither party is a financial losers. The benefit-cost analysis shows that this type of a private provision is beneficial not only for the utility and the firms, but also the nation. Furthermore, the establishment of a private provision market would help create more reliable and economical electric supply facilities. As a result, this could produce better energy resource allocation, especially in the electricity market, with minimum interruptions and decreases in outage cost. This study has several direct and indirect implications for industrial firms and the utility. For the industrial firms, the study helps to produce a better analysis of the strategy of cost minimization with the possibility of profiting from the power transaction. The utility, with a knowledge of the behavior of the industrial firms, would gain a better understanding concerning decisions on how to improve the electricity service. One way to do that, in the short or medium term, would be to promote potential self-generators to augment the public supply through appropriate price policies and regulations.

Subject Area


Recommended Citation

Abimanyu, Anggito, "Choice of self-generation in the industrial firm: A case study of Indonesia" (1993). Dissertations available from ProQuest. AAI9413784.