Renewable Energy: willingnesstopay by households for microgeneration technologies

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Renewable Energy willingness-to-pay by
households for micro-generation technologies
Centre for Research in Environmental Appraisal
and Management , University of Newcastle

• K.G. Willis1 and Riccardo Scarpa2
• 1Centre for Research in Environmental Appraisal
  Management
• School of Architecture, Planning and
  LandscapeNewcastle University
• 2Department of Economics, Waikato Management
  School, Waikato University
• Paper presented at the International Energy
  Workshop,
• Venice, 17th-19th June 2009

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Outline

• UK and EU policy on renewable energy
• Stated preference theory and choice experiments
• Experimental and survey design
• Questionnaire and data
• Primary heating choice
• Discretionary micro-generation adoption CE
• Conclusions

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and Management , University of Newcastle
3
UK and EU Policy

• EU Directive 2001/77/EC
• Set indicative target of 21 of electricity from
  renewable energy by 2010
• UK target 10
• 2008 EU proposed 20 of all energy sources from
  renewables by 2020
• UK target 15. In 2005 UK renewable energy only
  1.3 of all energy
• Sustainability policy instruments
• Awareness measures
• CC instruments building regulations
• Market based instruments feed-in tariffs, CCL,
  RO, EST subsidies
• Micro-generation strategy
• 47 of CO2 emissions in UK from built environment
  
• BERR and Energy Saving Trust grants to households
  2,500 towards installation of
• Biomass heaters and stoves
• Ground source heat pumps
• Heat pumps (air)
• Small scale hydro
• Solar thermal
• Solar electric

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and Management , University of Newcastle
4
Installations of micro-generation
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and Management , University of Newcastle
5
Existing studies

• Elk (2005) Swedish hholds ve attitude to wind
  power
• Bergman, Hanley Wright (2006) wind turbine
  attributes
• Martinsson and Scarpa (2006) wind power in Chile
  
• Longo, Markandya Petrucci (2006) WTP for green
  energy
• Borchers, Duke and Parsons (2006) WTP for green
  energy from specific sources wind, biomas,
  solar, farm methane
• Rivers and Jaccard (2005) capital cost and fuel
  costs significant determinants of boiler choice
  
• Banfi, Farso, Filippini Jakob (2008) WTP for
  windows and insulation
• OXERA (2006) loft, cavity wall insulation, light
  bulbs

Centre for Research in Environmental Appraisal
and Management , University of Newcastle
6
Stated preference theory and choice experiments

• Revealed preference v stated preference
• Stated preference (SP)
• consumer demand theory (Lancaster, 1966)
• and random utility theory
• Utility function Uij Vij eij
• Prob choosing alternative j among those in
  choice set C facing individual i is conditional
  logit
• Pi(j) exp (xij'ß)/Sk exp (xik'ß), j,k?C
• Panel mixed logit
• Uij ?ßi xij eij
• where taste parameters ?ß depend on some
  underlying distribution

Centre for Research in Environmental Appraisal
and Management , University of Newcastle
7
Choice experiment 1

• replacement of primary heating
• 6 attributes
• Capital cost or new system
• Energy bill
• Maintenance cost
• Recommended by none, friend, heating engineer,
  both
• Contract length 0, 1, 2, 4 years
• Inconvenience garden dug up, refuelling space
  for fuel storage, space for hot water tank.

Centre for Research in Environmental Appraisal
and Management , University of Newcastle
8
Choice experiment 2

• Discretionary choice additional micro-system
• 5 attributes
• Type of technology solar power, solar water,
  wind turbine
• Capital cost
• Maintenance cost
• Recommended by none, friend, heating engineer,
  both
• Monetary energy savings
• Respondents given choice of no purchase option

Centre for Research in Environmental Appraisal
and Management , University of Newcastle
9
Questionnaire and sample

• Sample comprised 1279 households across Britain
• Sample chose to represent
• Population age, gender, social class, employment
  status, income, location
• Dwelling types, housing age, and existing heating
  
• Each respondent completed 8 choice cards 4
  primary and 4 discretionary CE cards

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and Management , University of Newcastle
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Results primary CE
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and Management , University of Newcastle
11
Results discretionary CE
Centre for Research in Environmental Appraisal
and Management , University of Newcastle
12
Primary heating system choice

• RPL panel model best fit, but results similar to
  MNL
• information increases prob. of micro-gen
  installation
• Inconvenience decreases prob. of installation
• contract length negative
• WTP 244 (GBP) for heating engineer
  recommendation, and 144 for that of friend
• WTP -545 (GBP) if garden is dug-up -446 for
  fuel storage, and -221 for hot water tank space

Centre for Research in Environmental Appraisal
and Management , University of Newcastle
13
Discretionary heating system choice

• RPL model best fit, but results largely similar
  to MNL
• Information has mixed effect of prob. of
  installing micro-gen
• Energy savings increase prob. choice
• Maintenance costs decrease prob.
• People WTP
• Solar electricity 2,831
• Solar thermal 2,903
• Wind turbine 1,288
• Heterogeneity in tastes with respect to
• capital cost
• Energy savings

Centre for Research in Environmental Appraisal
and Management , University of Newcastle
14
Conclusions

• Renewable energy significantly valued by
  households
• But not enough
• to offset higher capital costs of micro-gen
  technologies
• in relation to annual energy savings
• Costs of micro-gen gt WTP
• 10,638 2kWh solar PV unit gt 2,831
• 4,998 for 1 kWh micro-wind unit gt 1,288
• 3,904 for 2kWh solar thermal unit gt 2,903
• WTP 2.91 in capital costs to save 1 on annual
  fuel bill
• Implies time horizon 3 to 5 years
• 34 discount rate
• Explains slow uptake of micro-gen technologies
• Sustainable development policy is running ahead
  of evidence

Centre for Research in Environmental Appraisal
and Management , University of Newcastle
15
Thank you

• Thank you for attending this session
• Do you have any questions, comments, or
  suggestions on the research?

Centre for Research in Environmental Appraisal
and Management , University of Newcastle