Skip to main content

Thank you for visiting nature.com. You are using a browser version with limited support for CSS. To obtain the best experience, we recommend you use a more up to date browser (or turn off compatibility mode in Internet Explorer). In the meantime, to ensure continued support, we are displaying the site without styles and JavaScript.

Effect of global warming on willingness to pay for uninterrupted electricity supply in European nations

Nature Energy volume 3, pages 37–45 (2018)Cite this article

Subjects

Abstract

Predicted changes in temperature and other weather events may damage the electricity grid and cause power outages. Understanding the costs of power outages and how these costs change over time with global warming can inform outage-mitigation-investment decisions. Here we show that across 19 EU nations the value of uninterrupted electricity supply is strongly related to local temperatures, and will increase as the climate warms. Bayesian hierarchical modelling of data from a choice experiment and respondent-specific temperature measures reveals estimates of willingness to pay (WTP) to avoid an hour of power outage between €0.32 and €1.86 per household. WTP varies on the basis of season and is heterogeneous between European nations. Winter outages currently cause larger per household welfare losses than summer outages per hour of outage. However, this dynamic will begin to shift under plausible future climates, with summer outages becoming substantially more costly and winter outages becoming slightly less costly on a per-household, per-hour basis.

Two forces are likely to have a negative impact on electricity supply security in Europe over the next decades. The first is increases in renewable generation capacity, which stresses the transmission and distribution grids with intermittent generation1. The second is climate change. The predicted climactic changes of increased temperatures, increased winds and storms, extreme high temperatures and ice storms can cause damage to the electricity grid and subsequent power outages2. However, there are numerous potential adaptations that could reduce the probability of power outages, such as rerouting transmission lines, installing external coolers to transmission components and enhancing stability standards for pylons. These adaptations will be costly and thus should be installed in regions where there is great risk of climate-related grid damage and/or regions where power outages will cause the largest costs to society. Furthermore, grid investments made today will affect supply security for years to come3. To ensure that the EU invests in measures to mitigate the risk of power outages to the socially optimal degree, an understanding of the costs of power outages and how these costs will change over time with global warming is necessary.

This is a preview of subscription content, access via your institution

Access options

Rent or buy this article

Get just this article for as long as you need it

$39.95

Learn more

Prices may be subject to local taxes which are calculated during checkout

Fig. 1: Monthly average temperatures across the EU.
Fig. 2: Hourly WTP across our sample of 19 European nations.

References

  1. Roepke, L. The development of renewable energies and supply security: A trade-off analysis. Energy Policy 61, 1011–1021 (2013).

    Article  Google Scholar 

  2. IPCC Climate Change 2014: Impacts, Adaptation, and Vulnerability (eds Field, C. B. et al.) Ch. 10 (Cambridge Univ. Press, Cambridge, 2014).

  3. Ten Year Network Development Plan 2014. Tech. Rep. (European Network of Transmission System Operators for Electricity, 2014).

  4. Nooij, M., Koopmans, C. & Bijvoet, C. The value of supply security. The costs of power interruptions: Economic input for damage reduction and investment. Energy Econ. 29, 277–295 (2007).

    Article  Google Scholar 

  5. Reichl, J., Schmidthaler, M. & Schneider, F. The value of supply security: The costs of power outages to Austrian households, firms and the public sector. Energy Econ. 36, 256–261 (2013).

    Article  Google Scholar 

  6. Reichl, J., Schmidthaler, M. & Schneider, F. Power outage cost evaluation: reasoning, methods and an application. J. Sci. Res. Rep. 2, 249–276 (2013).

    Google Scholar 

  7. Leahy, E. & Tol, R. An estimate of the value of lost load for Ireland. Energy Policy 39, 1514–1520 (2011).

    Article  Google Scholar 

  8. Praktiknjo, A., Haehnel, A. & Erdmann, G. Assessing energy supply security: Outage costs in private households. Energy Policy 39, 78257833 (2011).

    Article  Google Scholar 

  9. Ozbafli, A. & Jenkins, G. P. Estimating the willingness to pay for reliable electricity supply: A choice experiment. Energy Econ. 56, 443–452 (2016).

    Article  Google Scholar 

  10. Bessec, M. & Fouquau, J. The non-linear link between electricity consumption and temperature in Europe: A threshold panel approach. Energy Econ. 30, 2705–2721 (2008).

    Article  Google Scholar 

  11. Blazquez, L., Boogen, N. & Filippini, M. Residential electricity demand in Spain: new empirical evidence using aggregate data. Energy Econ. 36, 648–657 (2013).

    Article  Google Scholar 

  12. Lee, C. C. & Chiu, Y. B. Electricity demand elasticities and temperature: Evidence from panel smooth transition regression with instrumental variable approach. Energy Econ. 33, 896–902 (2011).

    Article  Google Scholar 

  13. Lapillonne, B., Pollier, K., & L. Gynther. Energy Efficiency Trends and Policies in the Household and Tertiary Sectors. ODYSSEE-MURE project Tech. Rep. (2014).

  14. Haylock, M. et al. A European daily high-resolution gridded data set of surface temperature and precipitation for 1950–2006. J. Geophys. Res. 113 (2008).

  15. Ten Year Network Development Plan 2016. Tech. Rep. (European Network of Transmission System Operators for Electricity, 2016).

  16. Sonnier, G., Ainslie, A. & Otter, T. Heterogeneity distributions of willingness-to-pay in choice models. Quant. Mark. Econ. 5, 313–331 (2007).

    Article  Google Scholar 

  17. Scarpa, R., Thiene, M. & Train, K. Utility in willingness to pay space: a tool to address confounding random scale effects in destination choice to the Alps. Am. J. Agric. Econ. 90, 994–1010 (2008).

    Article  Google Scholar 

  18. IPCC. Special Report on Emission Scenarios (eds Nakicenovic, N. & Swart, R.) (Cambridge Univ. Press, Cambridge, 2000).

  19. Gutierrez, F. G., Schmidthaler, M., Reichl, J., Voronca, S. & Roman, T. E. Public Effects Knowledge Base - Deliverable D2.2 of the Project SESAME (Securing the European Electricity Supply Against Malicious and Accidental Threats). Tech. Rep. (Transelectrica and Politecnico di Torino; 2013); https://www.sesame-project.eu/publications/deliverables.

  20. Layton, D. F. & Moeltner, K. in Applications of Simulation Methods in Environmental and Resource Economics (eds Alberini, A. & Scarpa, R.), 35–54 (Springer, New York, 2004).

  21. Carlsson, F. & Martinsson, P. Does it matter when a power outage occurs? – A choice experiment study on the willingness to pay to avoid power outages. Energy Econ. 30, 1232–1245 (2008).

    Article  Google Scholar 

  22. Carlsson, F. & Martinsson, P. Willingness to pay among Swedish households to avoid power outages – A random parameter tobit model approach. Energy J. 28, 75–89 (2007).

    Article  Google Scholar 

  23. Baarsma, B. E. & Hop, J. P. Pricing power outages in the Netherlands. Energy 34, 1378–1386 (2009).

    Article  Google Scholar 

  24. Huber, J. & Zwerina, K. The importance of utility balance in efficient choice designs. J. Mark. Res. 39, 214–227 (1996).

    Google Scholar 

  25. Burgess, L. & Street, D. J. Optimal designs for choice experiments with asymmetric attributes. J. Stat. Plan. Inference. 134, 288–301 (2005).

    Article  MathSciNet  MATH  Google Scholar 

  26. 5th Benchmarking Report on the Quality of Electricity Supply 2011. Tech. Rep. (Council of European Energy Regulators, 2012).

Download references

Acknowledgements

We gratefully acknowledge funding for this project through the Austrian Climate and Energy Funds ACRP 7th Climate Research Programme award no. KR14AC7K11859.

Author information

Author notes

  1. Michael Schmidthaler

    Present address: Energie AG Oberoesterreich Trading, Linz, Austria

Authors and Affiliations

  1. The Energy Institute at Johannes Kepler University, Linz, Austria

    Jed Cohen, Johannes Reichl & Michael Schmidthaler

  2. Department of Agricultural and Applied Economics, Virginia Tech, Blacksburg, VA, USA

    Klaus Moeltner

Authors
  1. Jed Cohen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Klaus Moeltner
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Johannes Reichl
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Michael Schmidthaler
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

J.R. and M.S. were primarily responsible for the creation and implementation of the survey instrument. J.C. was primarily responsible for the creation and management of the data set. All authors contributed to data analysis. All authors contributed to the writing of the paper with J.C. and J.R. as the primary authors.

Corresponding author

Correspondence to Jed Cohen.

Ethics declarations

Competing interests

The authors declare no competing financial interests.

Additional information

Publisher’s note: Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic supplementary material

Supplementary Information

Supplementary Figures 1–2, Supplementary Tables 1–2, Supplementary Note 1, Supplementary Methods and Supplementary References.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Cohen, J., Moeltner, K., Reichl, J. et al. Effect of global warming on willingness to pay for uninterrupted electricity supply in European nations. Nat Energy 3, 37–45 (2018). https://doi.org/10.1038/s41560-017-0045-4

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1038/s41560-017-0045-4

Search

Advanced search

Quick links

Nature Briefing

Sign up for the Nature Briefing newsletter — what matters in science, free to your inbox daily.

Get the most important science stories of the day, free in your inbox. Sign up for Nature Briefing