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

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Gestion et conomie du cycle de vie Faire voluer les pratiques

Choosing to Pay More for ElectricityAn experiment to test the level of residential consumer cooperation in increasing electricity price in QubecPierre-Olivier Pineau, HEC Montral (Canada)Jim Engle-Warnick, McGill University and CIRANO (Canada)Juan Robledo, McGill University and CIRANO (Canada) 31. Electricity Demand Modeling and Capacity PlanningTuesday, October 11, 2:00 - 3:30 pm, 2011 South American B Room, Capital Hilton30th USAEE/IAEE North American ConferencePineau / HEC Montral2

Average 2009 Sales per US Retail ConsumerEIA (2010)Price/kWhMWh/consumerMean11.1811.48Min2.29WA1.03TXMax102.14AK38.38ID# of utilities: 3118UTIDTable 6. Class of Ownership, Number of Consumers, Sales, Revenue, and Average Retail Price by State and Utility: Residential Sector, 2009 Residential Sector by State and Utility Release Date: January 2010| Data from: Electric Sales, Revenue, and Price http://www.eia.gov/electricity/data.cfm#sales 2OutlinePublic GoodsThe Context and the ExperimentResultsPineau / HEC Montral31. Public GoodsGoods for which individual consumption is non-rival and non-excludableVoluntary contribution are often observedPure 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 < 1Because P < 1: direct loss from all individual contributionsBecause P > 1/N: there is a collective gainPineau / HEC Montral4Some Known Results on Public GoodsReciprocity 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 Montral5Experiments in ElectricityFocus on Market Design and BiddingMany studies on the willingness to pay for green-electricity

nothing on double public goods (economic and environmental) in low cost electricity jurisdictionsWould people voluntarily accept to pay more if they were aware of these public goods and offered the possibility?Pineau / HEC Montral62. Context of the ExperimentQubec is a province of CanadaHydro-Qubec 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 MWh in 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 usedPineau / HEC Montral7The 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 Montral8The experiment (2): Four groupsType 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 Montral9Pineau / HEC Montral10MonthlyConsumption (kWH)Fixed Charge: $12.36Price of first 912 kWH: $0.0545Price of Additional kWH: $0.0746Total A 2,956$49.73$152.45$214.54 B953$49.73$3.05$65.14 C1,484$49.73$42.62$104.71 D 645$35.31$0.00$35.31Monthly Consumption (kWH)Fixed Charge: $12.36Price of first 912 kWH: $0.0845Price of Additional kWH: $0.1046Total A 2,660$77.11$182.83$272.30 B858$72.50$0.00$84.86 C1,335$77.11$44.24$133.71 D 583$49.27$0.00$61.64Current Price OptionAlternative price option+3/kWh-10% kWhThe experiment (3): PayoffsUi = $300 - xi + SWhere 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 Montral11Summary of the Alternative OptionPineau / HEC Montral12Individual Cost (higher electricity price)Per Person Economic Benefit STotal Economic BenefitDollar Value of Environmental Benefit A $57.76$22.20$88.80$5.92 B$19.72$7.20$28.80$1.88 C$29.00$11.10$44.40$2.96 D $13.96$4.90$19.60$1.32The experiment (4): Three Settings for the environmental public goodAmbiguity. 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 Montral13Environmental Gain Resulting from the Alternative Price OptionAbout 0.5 ton of GHG reduction per 1,000 kWh of electricity savedMonthly Electricity Saved (kWh): 10%GHG Reduction(ton of CO2)Dollar Value of Carbon Offsets A 2960.148 $5.92 B950.048$1.88 C1490.074$2.96 D 620.033$1.32Pineau / HEC Montral143. Results: Participants choosing the Alternative optionPineau / HEC Montral15Type and consumptionCertain.RiskAmbig.# altern. choicen=A (35,472 kWh)787225044%C (17,806 kWh)8118275054%B (11,440 kWh)1099285056%D (7,775 kWh)11115275054%# altern. choice363929104200n=64686820052%56.25%57.35%42.65%Pineau / HEC Montral16

3. Results: Participants choosing the Alternative optionConclusionEvidence that consumers may choose to pay more for electricityNo endowment effect observedAmbiguity on the environmental payoff decreases the contributionUnder an adequate policy design, important welfare improvements could be voluntarily obtained in many jurisdictions.

Pineau / HEC Montral17

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