A Price Premium for the District Heating System: An Empirical Investigation on South Korean Residents

Abstract

Representative heating methods in residential buildings in South Korea are the boiler-based individual heating system (IHS) and the district heating system (DHS). When constructing a large-scale new city or redeveloping an old one, the heating method must be determined in advance by reflecting consumers’ preferences. This article intends to explore the price premium that South Korean residents are willing to pay for DHS over IHS. The price premium means the consumer’s additional willingness to pay (AWTP). To obtain this, contingent valuation was employed and the data were gathered by conducting a nationwide survey of 1000 people. The one-and-one-half-bounded model was adopted as the method of inducing the AWTP. Comparison of the results from estimating the model with those from estimating other models revealed that there was no significant difference between the two. Moreover, the former held statistical significance. The price premium or AWTP was estimated as KRW 4353 (USD 3.88) per Gcal. This value corresponds to about 5.9% of the residential heat price, which was KRW 73,587 (USD 65.59) per Gcal in 2020. Heating prices are almost the same, with little difference between DHS and IHS. The results suggest that a large number of residents place a price premium on DHS over IHS.