Valuing security of supply: does experience matter?

Abstract

Purpose The paper aims to analyse whether experiencing a supply interruption affects the valuation of security of electricity supply. Design/methodology/approach A blackout in Munich, Germany, in November 2012 is utilised as a natural experiment by conducting a contingent valuation survey around two months after the event. The characteristics of the supply interruption allow for distinguishing between households that were affected by the blackout and those who were not. This provides the opportunity to compare the willingness to pay (WTP) for avoiding and the willingness to accept (WTA) for enduring a supply interruption between affected and non-affected Munich households. Findings The results show that households who were affected by the outage had a higher WTP for avoiding a hypothetical supply interruption. Although affected households also had a higher WTA for enduring an outage, the WTA-differences between the two groups are not statistically significant. Furthermore, the results indicate that experience with power outages can increase the perceived relevance of the policy objective “security” at the expense of the objective “environmental sustainability”. Originality/value The paper contributes to the literature in three general respects. First, the assessment of the relationship between outage experience and the valuation of supply security is based on a natural experiment which avoids most of the shortcomings of previous studies. Second, the paper uses both the WTP and the WTA measure to approximate the valuation of supply security and discusses the differences in their outcomes. Third, these monetary valuations are complemented and compared with general attitudes towards a reliable electricity system.