Economics Analysis of Coal to Biomass Subtitution: System Dynamics Approach

Abstract

Biomass utilization has been promoted by Government of Indonesia to subtitute coal as source of energy for electricity production through co-firing method. Yet, the higher price of biomass compared to coal and fair puchase price of electricity from biomass hinders its subtitution. In this paper, we examine the dynamics of biomass to coal subtitution and economics factors that affect subtitution of coal to biomass. We propose integration of economic analysis and Sytem Dynamics approach to examine reasonable subsidy, electricity price and GHG emission. We find that without implementation of policy to consider coal externalities, utilisation of biomass will likely unsucessfull in implementation.