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Pierre-Olivier Pineau, HEC Montréal (Canada)

Choosing to Pay More for Electricity An experiment to test the level of residential consumer cooperation in increasing electricity price in Québec. Pierre-Olivier Pineau, HEC Montréal (Canada) Jim Engle- Warnick , McGill University and CIRANO (Canada)

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Pierre-Olivier Pineau, HEC Montréal (Canada)

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  1. Choosing to Pay More for ElectricityAn experiment to test the level of residential consumer cooperation in increasing electricity price in Québec Pierre-Olivier Pineau, HEC Montréal (Canada) Jim Engle-Warnick, McGill University and CIRANO (Canada) Juan Robledo, McGill University and CIRANO (Canada) 31. Electricity Demand Modeling and Capacity Planning Tuesday, October 11, 2:00 - 3:30 pm, 2011 South American B Room, Capital Hilton 30th USAEE/IAEE North American Conference

  2. Average 2009 Sales per US Retail Consumer ID UT EIA (2010) Pineau / HEC Montréal

  3. Outline Public Goods The Context and the Experiment Results Pineau / HEC Montréal

  4. 1. Public Goods • Goods for which individual consumption is non-rival and non-excludable • Voluntary contribution are often observed • Pure public good (Corson, 2007): • N individuals endowed with an initial amount Ei • They can contribute xi (their choice) to the public good, • But only receive a share P of the collective contribution to the public good, with 1/N < P < 1 • Because P < 1: direct loss from all individual contributions • Because P > 1/N: there is a collective gain Pineau / HEC Montréal

  5. Some Known Results on Public Goods Reciprocity better explain contributions than commitment or altruism (Corson, 2007) Positive framing in the explanation of the situation increases contributions (Andreoni, 1995) Contributions decrease when the game is repeated (Andreoni, 1995 and Buckley and Croson, 2006). Heterogeneity(in endowment and preferences) increases contributions (Chan et al., 1999) Communication as well (Chan et al., 1999). Pineau / HEC Montréal

  6. Experiments in Electricity Focus on Market Design and Bidding Many studies on the willingness to pay for green-electricity … nothing on double public goods (economic and environmental) in low cost electricity jurisdictions Would people voluntarily accept to pay more if they were aware of these public goods and offered the possibility? Pineau / HEC Montréal

  7. 2. Context of the Experiment Québec is a province of Canada Hydro-Québec is a government-owned company producing about 192 TWh of hydropower every year (US total in 2010: 257 TWh) Retail consumers, on average, consumed 16.2 MWhin 2010 (retail price ≈ 7¢/kWh) The price is below the export price (NY, NE, ON and NB) In export markets, natural gas, coal and even oil are used Pineau / HEC Montréal

  8. The Experiment (1) • 200 participants in the Fall 2009 • $300 of experimental money (value set to ten times the real Canadian dollar value) • One single choice to make: • “Current Price Option” (same electricity price as in reality) • “Alternative price option” (a 50% price increase) Pineau / HEC Montréal

  9. The experiment (2): Four groups Type A households, detached houses with electric heating (35,472 kWh). Type B households, detached houses without electric heating (11,440 kWh). Type C households, apartments with electric heating (17,806 kWh). Type D households, apartments without electric heating (7,775 kWh) Pineau / HEC Montréal

  10. Current Price Option Alternative price option +3¢/kWh -10% kWh Pineau / HEC Montréal

  11. The experiment (3): Payoffs Ui = $300 - xi + S Where xi is the amount to pay, S is their share of the economic public good (additional income divided by the number of participants) Real purchase of carbon offsets in front of the participants, resulting from additional “hydro” exports (displacing fossil fuel): environmental public good. Pineau / HEC Montréal

  12. Summary of the Alternative Option Pineau / HEC Montréal

  13. The experiment (4): Three Settings for the environmental public good Ambiguity. GHG emission reductions resulting from their choices happen according to an unknown probability. Risk. GHG emission reductions resulting from their choices have a 0.5 probability to be realized, and a 0.5 probability to not be realized. Certainty. Their choice would result in specific GHG emission reductions with a probability of 1. Pineau / HEC Montréal

  14. Environmental Gain Resulting from the Alternative Price OptionAbout 0.5 ton of GHG reduction per 1,000 kWh of electricity saved Pineau / HEC Montréal

  15. 3. Results: Participants choosing the Alternative option Pineau / HEC Montréal

  16. 3. Results: Participants choosing the Alternative option Pineau / HEC Montréal

  17. Conclusion Evidence that consumers may choose to pay more for electricity No endowment effect observed Ambiguity on the environmental payoff decreases the “contribution” Under an adequate policy design, important welfare improvements could be voluntarily obtained in many jurisdictions. Pineau / HEC Montréal

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