Barriers to increase renewable share in domestic electrity: the role of switching providers

Abstract

In 2018, electricity represented 23.6% of final energy use in Spain with a renewable share of 7.2%. With residential electricity consumption representing 30.6% of electricity use, understanding how households react to increased renewable shares becomes key to reach its objective of 42% share of renewable in final energy use by 2030. This paper tries to understand household behaviour with regards to increased renewable share provided by electricity suppliers focusing on whether the increase involves or not changing the utility contract. Thus, we apply a discrete choice experiment delivered to 401 individuals in Aragon in 2020. We estimate an Error Component Random Parameter Logit model with correlated errors to incorporate preference heterogeneity. Our results confirm that households are willing to pay a premium for renewable electricity, however if this implies a change in electricity supplier it does not compensate for the negative WTP associated with that change. Services associated to utility contracts that providers can offer to make the change more attractive do not seem to help overcoming this reluctance to change. Thus, if an increase in renewable electricity for domestic consumption is to be achieved, incumbents should provide it or ease of change to new entrants should be enhanced.