How Consumers Trade Off Supply Security and Green Electricity: Evidence from Germany and Great Britain

Abstract

The expansion of renewable energies requires infrastructure investments to at least maintain the stability of electricity grids. Using survey data from residential consumers in Germany and Great Britain, we infer in pecuniary terms the extent to which people are prepared to reward the presence of renewable resources in electricity production and how they trade off this change in the fuel mix against supply reliability. We rely on random-parameter econometric techniques to capture various degrees of heterogeneity among the respondents. Our central finding is that the vast majority of respondents (a) value a higher percentage of renewables in electricity generation and (b) penalize interruptions to supply. The trade-off between capacity expansion and supply security is such that the reported penalties for outages easily crowd out the willingness-to-pay for renewables.