The Impact of Location and Proximity on Consumers' Willingness to Pay for Green Electricity: The Case of West Virginia

The Impact of Location and Proximity on Consumers’ Willingness to Pay for Green Electricity: The Case of West Virginia. Kofi Nkansah During the 2015 legislative session, West Virginia lawmakers passed a bill to repeal the Renewable and Alternative Energy Portfolio Standards Act of 2009 (ARPS). Legislators stated concerns about ARPS’s impacts on coal industry related jobs in the state as the major factor driving this repeal. However, no comprehensive study on public acceptance, opinions, or willingness to pay (WTP) for renewable/and or alternative sources of electricity within West Virginia was used to inform this repeal decision. As the state of West Virginia struggles to find the right path to expand its renewable energy portfolio, public acceptance of renewable electricity is crucial to establishing a viable market for these forms of energy and also ensure the long-term sustainability of any RPS policy that may be enacted in the future. This study sought to assess consumers’ preferences, attitudes and WTP for renewable and alternative electricity in West Virginia. The monetary values that consumers placed on proximity as an attribute of a renewable and alternative electricity generation source were also estimated. Two counties in West Virginia were selected as study areas based on the types of electricity generation facility that already exist in each county –one county with coal-fired power plants (Monongalia County) and another with both a coal-fired power plant and a wind farm (Grant County). A forced choice experiment survey was used with attributes that varied in source of energy (wind versus natural gas), proximity of the generation source relative to the respondent’s residence (near, moderate or far) and an additional premium per month on the electric bill (varying from $1 to $15). Respondents were asked to choose between generating 10% of the electricity supplied to them from wind or natural gas. Random samples of 1500 residents from each county were sent surveys and response rates were 27.0% (Monongalia) and 35.3% (Grant). A Mixed logit econometric models were used to analyze consumer choices with utility models. WTP for energy source and proximity attribute levels were computed using parameter estimates from these utility models. Statistically different models were developed for each county. Results from the study showed that respondents in both counties had preferences for electricity generated from wind compared to natural gas. A majority of the sampled populations chose the wind option, 62.0% in Monongalia County and 60.0% in Grant County. The sampled populations in Monongalia and Grant Counties were willing to pay a weighted mean of $21.59 and $9.87 per month, respectively, for 10% of their electricity to be generated from wind over natural gas. Despite this large difference, county level means were not statistically different. On aggregate, a positive social benefit per year would be derived from generating 10% of electricity supplied to consumers in Monongalia County ($2.5 million) and Grant County ($186 thousand) from wind relative to natural gas. Similarly, the most social benefit would be derived from siting wind turbines at “far” locations from residents in both counties. Both county level sampled populations were willing to pay a higher premium to site wind turbines or a natural gas-fired power plant at the farthest location relative to the baseline location (near a respondent’s current residence). Grant County respondents were willing to pay a slightly higher positive premium (mean of $11.71 per month) to site wind turbines at the farthest location than respondents in Monongalia County (mean of $10.14 per month). The mean WTP to site a natural gas-fired power plant at the farthest location in Monongalia County ($13.06) and Grant County ($13.47) were not statistically different from each other. Results from this study suggest that the decision for an outright repeal of the ARPS bill was flawed. Based on Monongalia and Grant County populations, there are social benefits derived from generating 10% of the electricity supplied to consumers in West Virginia from renewable and alternative energy sources, and wind is preferred to natural gas. This repeal implies there are few, if any, benefits. Given this repeal, I suggest that a voluntary green pricing program with a focus on wind energy serve as an alternative renewable energy policy in West Virginia. Under such a policy, consumers who are concerned about the environment and are willing to pay a positive premium for renewable electricity would be able to opt into the program. Premiums paid by participants of such a program can be used to increase the renewable energy share in West Virginia’s energy portfolio.