Essays on Households' Technology Choices and Long-Term Energy Use

This thesis consists of three essays on households' choice of heating technology at the moment of building a new detached house. The analyses make use of Finnish administrative registry data to study how sensitive these investments are to electricity prices and how socio-demographic characteristics of households are related to technology choices. The data link each new house to the house owner as well as local electricity prices. Identification of price impacts is based on cross-sectional variation in the price of electricity distribution. The first essay focuses on the binary choice between central heating or direct electric heating. The latter technology fixes electricity as the source of heat whereas central heating can accommodate different energy sources. The results show that the choice of electric heating technology is sensitive to electricity prices, implying that consumers do account for future operating costs at the investment stage. The elasticity of technology choice with respect to distribution costs of electricity is estimated to be -0.63 at the average price level. The second essay estimates households' willingness to pay higher investment costs in order to obtain reductions in the lifetime costs of heating. This essay introduces additional data on investment costs and the heat consumption of houses, and evaluates sensitivity to total annual heating costs. The results show that there is considerable heterogeneity in the valuation of future energy costs across builders, and this variance is not captured if random coefficients are used to account for heterogeneity. The estimated WTP-values are consistent with reasonable discount rates averaging 8 to 10 percent. The third essay considers the full range of technologies available, and links household characteristics to technology choices. The findings indicate a strong importance of upfront costs and annual costs for the investment decision. Increasing electricity prices induce substitution from electric heating into wood heating and ground heat. Consequently, the CO2-emissions from heating energy production are reduced. The results suggest that some households are constrained in their ability to pay high investment costs associated with more efficient technologies. Furthermore, previous experience of house ownership is an important determinant of the technology choice, implying there may be information asymmetries between the households.