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40th IAEE International Conference
Singapore
21.06.2017
Heterogeneous preferences and the individual change
to alternative electricity tariffs
Andreas Ziegler
University of Kassel
Germany
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1. Background
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Limited changes
ofKlicken
electricity
tariffs
• After several energy market liberalizations, households
can freely choose electricity tariff in many countries
• However, in spite of high preferences for tariff changes,
only few households regularly use possibility
• For example, switching to green electricity tariffs is limited, although many households favor renewable energy
and are even willing to pay a premium for it
→ This can lead to inefficiencies if households do not comply with own tariff preferences (e.g. to save costs)
→ Insufficient changes to green electricity tariffs can also
lead to externalities if households do not internalize benefits from green electricity generation for other individuals
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Content of study
• Important barrier for limited electricity tariff changes is unwillingness or inability to evaluate tariffs and providers
• Economically, condition for electricity tariff changes is that
all benefits of switching exceed costs (including search
and information costs)
• Errors in perception of benefits and costs, i.e. underestimation of benefits and overestimation of costs can discourage tariff changes
• It can be assumed that households are heterogeneous
with respect to perceived benefits and costs
• Study empirically examines how heterogeneity in individual preferences and values affects differences in switching
to other electricity tariffs
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Contribution of
study
• Analysis of large number of determinants including values
(i.e. environmental preferences, political orientation, religious identification) and behavioral economics factors (i.e.
social, time, risk preferences, trust attitudes)
• Identification of social and time preferences with artefactual field experiments on basis of large-scale survey
• Not only analysis of general electricity tariff changes, but
also specific real (not stated) switches to green tariffs
→ Part of research project “Energio”, funded by German Federal Ministry of Education and Research (co-operation
partners in Germany: ifo Institute, University of Hamburg,
Institute of Energy Economics at University of Cologne)
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2. Data and variables
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Data
• Basis: Large-scale computer-based survey among 3705
German citizens
• Survey was carried out in June and July 2016 by German
market research company Psyma
• Population: Citizens who are responsible for electricity
bills and choice of electricity providers and tariffs (mostly
heads of household)
• Stratified sample in terms of age, gender, place of residence, religious affiliation
• Questionnaires comprised several groups of questions
including personal values and behavioral factors, details
about electricity consumption and costs, and choice experiment for different electricity tariffs
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Dependent variables
• Dummy variable for at least one active electricity tariff
change in last ten years (based on question for number of
changes)
• Dummy variable for (change to) current completely green
electricity tariff (self-evaluated on basis of request to pick
up last yearly electricity bill and to indicate electricity provider and tariff directly from it)
• Multinomial variable for three alternatives, i.e. changes to
green electricity tariffs, changes to other electricity tariffs
(but not to green electricity tariff), and no changes (base
category)
→ Application of binary probit and multinomial logit models
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Behavioral factors
• Time and social preferences on basis of two incentivized
artefactual field experiments (about 1% of respondents
were randomly selected to be paid)
• “Patience” is measured with 12 choices of receiving 80
Euros in one month or higher amount in seven months
(ratio between 80 Euro and value at which amount in seven months is chosen for first time)
• “Social preferences” is measured in dictator game for distribution of 100 Euro (amount allocated to another person
in sample divided by 100)
• “Risk taking preferences” is dummy variable for willingness to take risks, “trust” is index measured on five-stage
scale, based on validated SOEP questions, respectively
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Individual values
• Environmental preferences: “NEP” is index on basis of six
standardized statements on five-stage scale from social
and behavioral science
 “Humans have the right to modify the natural environment to suit their needs”
 “Humans are severely abusing the planet”
 “Plants and animals have the same right to exist as humans”
 “Nature is strong enough to cope with the impacts of modern industrial nations”
 “Humans were meant to rule over the rest of nature”
 “The balance of nature is very delicate and easily upset”
• Multidimensional indicators for political identification:
Dummy variables “conservative identification”, “liberal
identification”, “social identification”, “ecological identification”
• Religiosity: “No religious affiliation” is dummy variable for
not belonging to any religious group
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Control variables
• “Relocation” (in last ten years)
• “Household housing ownership”
• “Higher household income (higher than 2500 Euros)
• “Household electricity costs” (yearly costs in Euro divided
by 1000)
• “Age” (in years)
• “Female”
• “High education” (highest level of education is at least secondary)
• “Eastern Germany”
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Descriptive statistics
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3. Econometric results
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General electricity
tariff changes
• Patience has robust significantly positive effect
→ In line with hypothesis that patient individuals are rather more ready to bear costs like search and transaction costs in present when benefits like cost reductions
occur in future
• Citizens with social or ecological political identification significantly more often change electricity tariff
• High relevance of relocations in past
• Also high relevance of socio-demographic and -economic
factors (housing ownership, household income, age, gender, region)
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Estimation results
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Changes to green
tariff
• Social preferences have significantly positive effect
→ In line with hypothesis that higher social or fairness
preferences lead to higher propensity to internalize
externalities
• Trust has significantly positive effect
→ In line with hypothesis that trust in provider and quality
of product is important (e.g. trust that electricity is
really generated from renewable energy sources)
• Significantly positive effect of ecological identification and
significantly negative effect of liberal identification (in line
with political landscape in Germany)
• Weak significantly negative effect of religiosity
• No significant effect of NEP
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Estimation results
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Multinomial logit
• Reason for analysis: Identification of possibly different determinants for belonging to three relevant groups
• Estimation results are widely in line with results in binary
probit models:
 Significantly positive effect of patience on general electricity tariff changes, but not changes to green tariffs
 Significantly positive effect of trust on specific change
to green electricity tariffs
 Significantly positive effect of ecological identification
and significantly negative effect of liberal identification
on specific change to green electricity tariffs
 Significantly negative effect of religiosity on specific
change to green electricity tariffs
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Estimation results
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4. Conclusions
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Summary
• In sum, strong relevance of behavioral factors and individual values
• Important role of patience, social preferences, and trust
• Important role of political identification, i.e. ecological and
liberal orientation
• Empirical analysis provides new explanation patterns for
phenomenon that only few households change electricity
tariff and specifically switch to green tariffs in spite of high
preferences for such changes
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• Empirical results suggest several directions for policy and
electricity providers to increase switching rates
• For example, high importance of patience for changing
tariffs suggests further reduction of switching costs such
as search and transaction costs
• High importance of trust attitudes for change to green
electricity tariffs suggests transparency initiative to decrease reservations against green power
• Significant effects of several socio-demographic and socio-economic variables suggest targeted marketing efforts
for specific population groups
• Methodologically, empirical analysis contributes to previous studies that transfer laboratory experiments to field
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Thank you