Transaction Cost of Economics: Understanding the Barriers of Financial Retrofitting in Indonesia’s Energy Problem

As one of the most populated nations in the world, Indonesia’s energy consumption has been growing at a rapid pace. While various programs have been promoted by the government in order to increase efficiency in energy consumption, effort to maximize its utility remains constrained due to limited awareness from the general public. Based on the theoretical concept of transaction cost economics, this study proposed a solution to understand retrofit financing in Indonesia, as seen from the perspectives of the end-user (consumers) and supplier (product provider). Using a working example from the lighting industry, the study found uncertainties and asset specificities as the main driver behind the customer’s intention to engage in retrofit financing. In order for them to gain maximum benefit of efficiency in energy savings, a sufficient understanding of retrofit financing and assurance of return on investment have to be primarily assured.