Public Demand for Green Energy May Eliminate the Need for Renewable Energy Price-Equivalency

The relatively high cost of renewable energy sources, like wind and solar power, is a major hurdle to reducing greenhouse gas emissions and meeting green energy goals. While wind power has relatively low operating costs, the initial costs of wind projects are quite high. This is especially true when new transmission lines are required in order to connect wind farms to the grid. Though other sources of power may be cheaper, Yoo and Kwak (2009) suggest that consumers are willing to pay more for clean energy. This willingness to pay (WTP) is enough to foster investments in renewable energy that can increase green energy production while reducing future costs. Consequently, the current high cost of wind power may not be a problem for the industry. Noah Proser
Yoo, S.H., Kwak, S.Y, 2009. Willingness to pay for green electricity in Korea: a contingent valuation study. Energy Policy 37, 5408–5416.

The researchers performed a dichotomous choice contingent valuation survey to determine the WTP for green energy of individual households in South Korea. Participants in the survey were first given information about renewable energy sources, as well as governmental policies on green energy. They were then asked whether they would accept a specified surcharge on their monthly energy bill in order to increase South Korea’s renewable energy from 0.2% to 7% of total energy consumption (a goal that has been set by the South Korean Government). Following a ‘yes’ or ‘no’ answer the researchers would offer another bid to arrive at a more specific WTP. They used a total sample of eight hundred households with varying starting bids to insure the amount originally specified did not affect the responses.
On average, households offered a monthly WTP of about 1681 (South Korean Won), or roughly $1.8. Though this amount may seem small, when multiplied by the number of households it translates to about $160 million per month. This amount should provide a large incentive for energy corporations and governments alike to supply renewable power.
It is important to note that this result is an average of the responses offered. In reality, the large majority of participants showed no willingness to pay whatsoever. There are many reasons for this outcome. Contingent valuations are often criticized for depending on easily influenced responses rather than actual behavior, which can be studied through revealed preference valuation. Furthermore, Yoo and Kwak found that only 19.5% of participants had a thorough knowledge of renewable energy. Though the survey included basic information on the subject, it is unlikely that this information alone would be enough to sway a response. With a more educated public there may have been a higher WTP.
Nonetheless, a significant amount of the population was willing to pay extra for renewable energy. Even if a surcharge like the one described in the survey was purely voluntary, it seems a substantial amount of money could be raised for green energy sources. Governments and energy providers should take note of this WTP when creating energy policies and building new power plants. Essentially, the price disparity between renewables and cheaper sources may not matter if the public is willing to pay for cleaner energy.

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