Measuring willingness to pay for electricity: The case of New Brunswick in Atlantic Canada

Abstract

Recently, electricity markets around the world have been going through transformation process that eventually leads to a higher competition among electricity providers. In this regard, the role of consumer preferences increases, especially if new electricity products are offered. Traditionally, consumer preferences have been expressed in terms of customers’ willingness to pay. Therefore, the goal of this study is to provide a practical framework for estimation of customers’ willingness to pay for electricity. Specifically, dynamics of regional residential willingness to pay for electricity in the province of New Brunswick in Atlantic Canada is analyzed. First, theoretical framework to evaluate consumer preferences is developed followed by empirical approach to define willingness to pay over period of 1991–2013 on the basis of revealed preferences method. Finally, dynamics of the residential willingness to pay for electricity is analyzed with the help of advanced time series analysis. Our study shows that residential willingness to pay for electricity in the province of New Brunswick had been increasing over study period. Moreover, it has accelerated significantly since 2005. The designed methodology and empirical work will help electricity providers identify new electricity products with the highest willingness to pay by consumers. Overall, implementation of the results of this study can improve economic efficiency of provincial electricity market.