Electricity prices and consumers’ long-term technology choices: Evidence from heating investments

This paper studies consumers’s sensitivity to energy costs at the moment of making a long-term energy technology investment. The analysis exploits local variation in regulated electricity distribution prices that are persistent over time and therefore a good measure of long-term price expectations. Price impacts are estimated on extensive administrative registry data of private persons acting as home builders in Finland during 2006–2011. The results show that electricity prices notably influence builders’ choices, and that electricity tax increases have induced demand for technologies based on renewable energy. The results on the comprehensive set of individual-level characteristics reveal that technology choices vary systematically across households. Current dwelling status and the education level have the strongest influence on the choice probabilities. Price sensitivity is found to be lower for low-income households, and to vary by the current dwelling status and type of building location.