The Convenience Benefits of the District Heating System over Individual Heating Systems in Korean Households

Abstract

Koreans usually prefer the district heating system (DHS) to the individual heating system (IHS) because DHS can give them convenience and safety within their living environment. The Korean government thus plans to expand the DHS and requires information about the value that consumers place on the DHS over the IHS, which has not been dealt with in academic literature. This paper attempts to investigate Korean households' willingness to pay (WTP) for DHS over IHS, for residential heat (RH). To this end, the authors apply the dichotomous choice contingent valuation to assessing additional WTP for DHS using a survey of 1000 randomly selected households living in buildings with IHS. A mixture model is applied to deal with the zero WTP responses. The WTP distribution is specified as a mixture of two distributions, one with a point mass at zero and the other with full support on the positive half of the real line. The results show that the mean additional WTP for DHS-based RH over IHS-based RH is estimated to be KRW 5775 (USD 5.4) per Gcal. This value can be interpreted as the consumer's convenience benefits of DHS over IHS, and amounts to approximately 6.0% of the average price: KRW 96,510 (USD 90.4) per Gcal in 2013, for IHS-based RH. This information is useful for evaluating changes to the method used for supplying RH from IHS to DHS.

A Price Premium for the District Heating System: An Empirical Investigation on South Korean Residents

“…In this regard, the most frequently used method in estimating the price premium or AWTP in the literature is CV. For instance, Yoon et al [13], Kim et al [14,15], and Lee et al [16]. Thus, CV is also adopted in this study.…”

Estimating the Demand Function for Residential City Gas in South Korea: Findings from a Price Sensitivity Measurement Experiment

“…However, RCG is expected to compete fiercely with other energy sources such as electricity. For example, gas stoves are being replaced by induction cooktops, and CGbased individual heating is being replaced by district heating or electric heating [5,6]. Thus, both the government and CG operators have recently begun to ask for information on the demand function for RCG.…”