The economics of renewable energy support

Abstract: This dissertation consists of an introductory part and five self-contained papers, all related to the issue of promoting renewable power sources. Paper I provides an econometric analysis of the most important determinants of Swedish households’ willingness to pay a premium for “green” electricity. Methodologically we draw heavily on recent developments in the literature on integrating norm motivated behavior into neoclassical consumer theory. The analysis is based on postal survey responses from 655 Swedish households, which are analyzed within a binary choice framework. The results indicate that the impact of choosing “green” on the household budget largely influences the willingness to contribute to “green” electricity schemes, as do the degree of perceived personal responsibility for the issue and the felt ability to affect the outcome in a positive way. We find only limited support for the idea that perception about others’ behavior affect individual moral norms and behavior; stronger support is instead found for the presence of a prescriptive social norm. In paper II we perform an empirical test the overall hypothesis that the framing of renewable power support in a “conditional” and an “unconditional” scenario, respectively, will tend to trigger different types of moral deliberations. We approach this research task by analyzing the responses to dichotomous willingness to pay questions from two different versions of a postal survey sent out to 1200 Swedish house owners. The responses are analyzed within a random effects binary probit model and the estimated marginal effects support the notion that different types of factors tend to dominate choices depending on the support scheme considered. Paper III analyzes the attitudes towards wind power among residential electricity consumers, as well as the foundations of these attitudes. The results are based on a postal survey that was sent out to 1000 Swedish house owners, and these results suggest that the average Swedish house owner is in general positive towards wind power. The probability of finding an average individual in support of wind power decreases with age and income while people who act on environmental values are more likely to be positive. In addition, people that are more inclined to express public preferences are also more likely to be positive towards wind electricity than people who are less inclined to do so. Paper IV scrutinizes the Swedish households’ preferences over the environmental characteristics associated with wind power by applying a choice experiment approach. The results are based on a postal survey that was sent out to 1000 Swedish house owners. The non-monetary attributes included in the choice scenario were: the noise level, location, height, and the grouping of windmills. According to the results the location of wind turbines has the most pronounced impact on the utility of the average individual. If the environmental external costs are to be minimized the results suggest that new schemes should primarily be located offshore, and large wind farms located onshore should be avoided. Finally, paper V provides an econometric analysis of innovation and diffusion in the European wind power sector. The empirical results indicate that reductions in investment costs are an important determinant of increased diffusion of wind power, and these cost reductions are in turn explained by learning-by- doing activities but less so by knowledge accumulating as a result of public R&D support. Feed-in tariffs also play a role in the innovation and diffusion processes. The higher is the feed-in price the higher is, ceteris paribus, the rate of diffusion. High feed-in tariffs, though, also tends to have a negative effect on average cost reductions as they induce wind generators to choose high-cost sites and provide fewer incentives for cost cuts.