Public preferences for district heating system over individual heating system: a view from national energy efficiency

Abstract

The price of residential heating from the district heating system is similar to that from the individual heating system in Korea. However, the former is known to be more efficient in terms of national energy consumption than the latter in urban areas with high population density. Because district heating system reduces the total amount of energy consumption by 24% compared to individual heating system. This paper attempts to assess the public preferences for substituting consumption of residential heating produced from individual heating system with that produced from district heating system in terms of national energy efficiency. To apply contingent valuation method, a contingent valuation survey of 1000 households was implemented. Public preferences can be provided price gap, which is willingness to pay (WTP) and the findings can be interpreted as external benefits. For the purpose of mitigating the response effect in eliciting their WTP and increasing statistical efficiency in analyzing the WTP data, we employ a one-and-one-half-bounded dichotomous choice question format. Furthermore, we use the spike model so as to model zero WTP responses. The results show that the mean additional WTP for district heating system over individual heating system is estimated to be KRW 8544 per KRW 100,000 of residential heating. The WTP estimate is statistically significant at the 1% level. Thus, the external benefit of the district heating system over individual heating system in terms of national energy efficiency amounts to about 8.5% of the price for residential heating.