Understanding the risk perception of energy efficiency investments: Investment perspective vs. energy bill perspective

Abstract

Promoting energy efficiency is an important element of environmentally friendly energy policy and necessary to avert climate change. In this context, understanding the investment decision-making of individuals is important to develop and implement effective policy instruments. Literature analyzing decision-making of energy efficiency investments and especially the influence of connected risk finishes with two different conclusions, i.e., analyzes risk from two different perspectives. First, studies within the investment perspective describe investment risk, caused by volatile future energy bill savings, as a key barrier for energy efficiency investments. Second, studies within the energy bill perspective argue that energy efficiency is reducing energy price exposure and the resulting decrease of overall risk is described as investment promoting. This dichotomy in risk perception is the focus of our study. With the help of a theoretical model as well as a case study based on real-world data of the German retrofitting market, we analyze how the contrary perspectives influence expected utility, i.e., decision-making. Thereby, we find that decision-makers invest more in energy efficiency when evaluating from the energy bill perspective and derive important implications for environmentally friendly energy policymaking.