Price volatility and residential electricity decisions: Experimental evidence on the convergence of energy generating source

Abstract

The recent trend in most developed countries has been toward greater reliance on renewable or “green” energy sources. This paper investigates how price volatility in residential electricity rates impacts consumers' preferences for green power. Using a choice-based experiment, we present respondents with choice scenarios that feature two electric utility plans: (i) a conventional plan where electricity is generated from either coal or natural gas, and (ii) a green plan where electricity is generated renewably from either wind or solar. We then systematically vary the monthly price volatility of each plan across choice scenarios. Our results suggest that price volatility in monthly rates significantly impacts respondents' plan choices and, specifically, their decision to adopt the green power plan. In particular, increased volatility in the green power plan reduces the likelihood of respondents choosing the green plan, while increased volatility in the conventional plan increases the likelihood of respondents choosing the green plan. Moreover, the documented effects of price volatility are robust across different price premiums for the green power plan.