A survey of 1,797 residents was used to determine the willingness to pay for low-carbon residential heating in the Netherlands. On average, respondents were willing to pay a premium of 33% for electricity-based heating. Policy recommendations were also provided as part of the study.
August 30, 2024 Lior Kahana
Researchers from the Netherlands’ University of Groningen conducted a poll of 1,797 Dutch residents about their willingness to pay (WTP) for low-carbon residential heating systems. The results may be valid not just in the Netherlands but also for other European Union countries and the United Kingdom due to the similarity of the markets, noted the scientists.
“Many studies on finding solutions for residential heat typically adopt a top-down perspective, where the primary objective is to minimize the total system cost, consumer cost or environmental impact of heating systems,” said the academics. “However, a drawback of these top-down approaches is their limited attention to consumers’ preferences for different types of heating. In order for energy transition policies to be effective, consumers should find the changes in their heat provision acceptable and must be willing to adopt low-carbon heating systems.”
The experiment
For their analysis, the team conducted a discrete-choice experiment, analyzing the results with the latent-class logit (LCL) model. A discrete-choice experiment studies preferences through choice options, while LCL identifies different preference groups. The participants were asked to answer questions regarding six attributes: the type of heating system, energy source, CO2 emissions per kWh, energy-retailer choice, installation costs, and monthly energy bill. For each question, two identical systems were presented, only changing in the relevant attribute.
“In our choice experiment, we ask participants to imagine a situation where their current heating system is no longer functioning and needs replacement. Subsequently, respondents are asked to consider which option for a new heating system is most preferred for installation in their homes,” the group explained. “Respondents must choose between the presented heating systems in each choice set; they do not have the option to retain their current heating system or to abstain from making a choice altogether.”
As for the type of heating system, the responders could choose between home appliances or district heating system. The energy source was gas, electricity, or hydrogen, the two latter produced from either renewable or non-renewable sources. The CO2 emissions per kWh, including emissions from energy production, were either 0 g, 200 g, or 400 g. As for the retailer, responders could choose between markets where it is possible to switch companies or not. The two last attributes helped the scientists calculate the WTP: in the initial installation cost, they had to choose between prices of €2,000 ($2,218), €5,000 and €7,500; while in the monthly energy bill, they could decide between 50%, 100%, or 150%, of the current payment.
The results
“Our results indicate that, on average, Dutch households are willing to pay a premium on their current monthly energy bill of 33% for electricity and 29.4% for hydrogen, relative to using gas for heat production,” said the researchers. “They are willing to pay a premium of 15.3% for reducing the amount of CO2 emissions per kWh of heat with 100 grams; and 16% for having the option to switch between energy retailers. In contrast, they require a discount of 28.4% for district-heating systems relative to standalone home appliances.”
The respondents’ socio-economic characteristics were known to the institute that manages the spread of the poll, and therefore, a class-profile analysis was possible. Per its results, individuals with higher education and income levels in the northern Netherlands have the highest WTP for low-carbon electricity and hydrogen. Furthermore, according to this analysis, homeowners in higher income brackets are more likely to demand compensation for a district heating system, while less educated renters in low-income brackets in small family households value district heating the most.
“Relatively younger individuals in larger family households tend to be more price sensitive, exhibiting a lower WTP for all heating-system attributes,” the academics added. “Our analysis also indicates that elderly individuals in rural areas are most sensitive to upfront capital expenditures, as indicated by their relatively high implicit discount rates, and are less likely to have a positive WTP for attributes other than those already familiar to them, suggesting that status quo or familiarity effects are particularly strong in this group.”
The policy implications
Concluding the article, the scientists have also provided recommendations for policy makers. Among them, to compensate individuals for transforming to a district-heating network, provide electricity and hydrogen rather than gas, and allow clients to switch between providers. They also suggest specifically targeting the elderly with compensation for transforming to renewable heat. “In the end, a more consumer-focused approach can lead to a more sustainable and widely accepted transition to low-carbon residential heating,” they highlighted.
The results were presented in “Willingness-to-pay for low-carbon residential heating systems: A discrete choice experiment among Dutch households,” published in Energy and Buildings.
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