Willingness to pay for regional electricity generation – A question of green values and regional product beliefs?

Abstract

Reflecting a broader trend towards regional products in Germany, the recently established “System for Guarantees of Regional Origin” allows operators of subsidized renewable energy plants to market their generation as regional electricity. However, it remains unclear whether and why consumers are willing to pay a premium for regional electricity generation. While a few studies have examined the willingness to pay (WTP) of households for regional electricity generation, little is known about the underlying factors driving WTP. We fill this gap with a representative survey of 838 German households that includes both a choice experiment and questions capturing individual motivations. Data is used to estimate a comprehensive Hybrid Choice Model (HCM) that allows to determine respondents' WTP, explain their electricity tariff choices in the past, and integrate underlying individual motivations. Our model results show that, on average, German households are willing to pay a small premium of less than 2% for regional electricity generation. However, results also show that WTP differs between respondents. More specifically, we find that respondents with stronger regional product beliefs and green values have a higher WTP. Practitioners, such as energy suppliers, could use this information to explicitly address subgroups of consumers in order to more effectively market regional electricity. However, a substantial part of preference heterogeneity remains unexplained, leading to the conclusion that preferences for regional electricity generation are not solely driven by the aforementioned motivations. Future research could disentangle the factors driving WTP in more detail by incorporating more complex behavioral theories into HCMs.