Quality uncertainty and the market for renewable energy: Evidence from German consumers

Highlights

Renewable energy is modeled as a “Market for Lemons” [1].

We use a discrete choice experiment to estimate willingness-to-pay for renewables.

Our sample consists of 2000 randomly selected German electricity consumers.

WTP is higher for power if supplied by public firms and cooperatives.

Public firms and cooperatives reduce information asymmetries for renewables.

Abstract

Consumers can choose from a wide range of electricity supply contracts, including green power options. Electricity produced from renewable energy involves information asymmetries. With a sample of more than 2,000 German electricity consumers, we tested the proposition of a “lemon market” for renewable energy in a discrete choice experiment. Specifically, we found that, compared to investor-owned firms, additional willingness-to-pay for renewable energy is approximately double when offered by cooperatives or municipally-owned electricity utilities. Consumers who are experienced with switching suppliers have an additional willingness-to-pay of one Eurocent per kilowatt hour for cooperatives and two Eurocents for public enterprises. The results demonstrate that organizational transformation in dynamically-changing electricity markets is not only driven by political initiatives but also by consumers’ choices on the market. Public policy may reduce information asymmetries by promoting government labeling of green energy products.

Graphical abstract

Keywords

  • Cooperatives;
  • Discrete choice experiment;
  • Energy transition;
  • Germany;
  • Willingness-to-Pay

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