Concern of Uncertainty and Willingness to Pay for Adopting PSS: Example of Solar Power System Leasing

Transcription

1 Concern of Uncertanty and Wllngness to Pay for Adoptng PSS: Example of Solar Power System Leasng L-Hsng Shh 1 and Tse-Yuen Chou 2 Department of Resources Engneerng, Natonal Cheng Kung Unversty Tanan, Tawan 1 correspondng author: lhshh@mal.ncku.edu.tw Abstract Conjont analyss has been wdely used to fnd consumers preference and drecton of mprovement n new product development. It can also be used n product servce system development and marketng as long as attrbutes and attrbute levels are carefully selected. Ths study focuses on consumers preference and wllngness to pay (WTP) of product servce system takng photovoltac system as an example. Leasng s consdered as a type of product servce that consumers could choose. In addton, consumers concerns on several uncertantes are measured n order to fnd the effect of uncertanty on preference of dfferent lease tmes. The results show that the concern of uncertantes on government subsdy, electrcty prce, relablty, and rse of new generaton solar power system would sgnfcantly affect the addtonal wllngness-to-pay for shorter lease tme. The relaton between gap of WTP between lease tmes and uncertanty scores that measure consumers concern are presented. Cluster analyss s used to fnd two groups wth hgh and low concern of uncertanty. People wth hgher concern on uncertanty tend to pay more for adoptng PSS wth shorter lease tme. Keywords Conjont analyss, Lease tme, Photovoltac System, Uncertanty 1 INTRODUCTION Conjont analyss has been used to fnd consumers preference for new product development and marketng. It can also be used n product servce system (PSS) development and marketng as long as attrbutes and attrbute levels are carefully selected. Snce PSS s a combnaton of product and servce, attrbute selecton needs to consder both ends to reflect characterstcs of PSS and get adequate responses from customers. Defnng attrbutes n conjont analyss s essental and should be carefully conducted n a case by case bass. Ths study works on PSS of photovoltac system wth leasng servce and fnds consumers preference and wllngness to pay (WTP) for varous servce types,.e. lease tme. Preference of purchase and leasng are presented and compared whle gaps of WTP between servce types are estmated. Snce photovoltac electrcty system s consdered clean and sustanable transformng solar energy drectly to electrcty, many countres have announced that photovoltac energy s gong to play essental role n electrcty generaton n near future. EPIA [1] estmated that overall annual nstallaton of photovoltac systems wll ncrease more than three tmes by In fact, overall nstallaton has grown 15 tmes from 1998 to For example, Tawan s nstalled capacty has ncreased from 3KW to 2060KW from 2000 to Recently, local government also announced that electrcty from renewable energy wll be more than 11% of the total electrcty generaton by Among the capacty, solar power capacty would stand 6.25%. As an emergng energy suppler, there are several competng solar energy technologes such as c-s technology, thn flm technology and new concepts technology. Accordng to technology forecast [2], the cost and effcency of solar energy technology wll greatly mprove n next 20 years. Among the technologes, thn flm technology could have more mprovement (up to 30% cost reducton) than slcon based technology. Effcency mprovement of both technologes s also expected to be 15% to 40%. Hoffmann et al [3] estmated that market share of thn flm technology wll ncrease from 5% (2005) to 35% (2030) whle new concept technology such as chemcal compound technology mght also ncrease from 0%(2005) to 35% (2030). These technology forecast ponted out tremendous growth potental of solar power system, but also revealed that there would be dramatc change and competton among varous solar power technologes. In lght of the technology uncertanty as well as polcy uncertanty, ths study consders effect of uncertanty n solar power system dffuson. Snce photovoltac technology s stll an emergng technology, consumers are often concerned about uncertanty factors lke nconsstent government ncentve polcy, changng prce of electrcty, relablty and mantanablty, product lfetme, energy effcency, and phase-out speed. It s essental to deal wth these uncertanty concerns n order to expedte the growng speed and volume of solar power system market. In summary, ths study shows the use of conjont analyss for fndng consumers preference and wllngness to pay for new product servce system, takng photovoltac system leasng as an example. On the other hand, concern of uncertanty, ncludng polcy and technology uncertanty, s nvestgated to see ts effect on adopton of photovoltac systems wth dfferent types of PSS. 2 CONSUMERS PREFERENCE AND ESTIMATION OF WILLINGNESS-TO-PAY VIA CONJOINT ANALYSIS Conjont model has been wdely used n new product development (Kreger et al [4]; Green and Srnvasan [5]) to estmate consumers utlty functon and fnd the preference structure. The part worth utlty estmaton of multple attrbutes could be helpful n detectng 173 CIRP IPS2 Conference 2010

2 consumers responses to the new product and provde feed-back to product development process for further mprovement. Recently, conjont analyss s also used n new servce desgn evaluaton. Good examples nclude Danels et al [6], Lockshn et al [7], and Ennekng et al [8]. In general, conjont analyss consst of fve steps, ncludng determnng attrbutes and levels, constructng model, buldng profles, conductng survey and data collecton, and conductng statstcal analyss. For PSS applcaton, attrbute selecton s the most essental part snce t should cover both product and servce concerns from customer s pont of vew. A good combnaton of attrbutes and attrbute levels could reflect fathfully the preference structure of customers and hence obtan better estmate of WTP. In ths study, conjont analyss s conducted as follows: Select mportant attrbutes and attrbute levels of PSS Snce number of attrbutes n conjont analyss s recommended less than eght, attrbutes representng characterstcs of PSS must be carefully selected. The attrbutes should cover aspects that targeted customers would consder n adoptng a PSS to fathfully reflect the utlty structure. Attrbutes should be representng characterstcs for both product and servce so that dfference between product and PSS can be detected. It s better f attrbute levels could stand for dfferent types of PSS. A good selecton of attrbutes would make conjont analyss to have better explanng ablty and useful results. Construct preference model Several types of conjont models have been proposed snce the method was frst proposed n 1970s. The mathematcal form of multple attrbute utlty functon could be addtve, multplcatve, and nonlnear. Evaluaton collected from respondents could be rankng, ratng, and comparson. Ths study presents a conventonal conjont model, where addton of man effects s adopted and ratng scores on PSS profles are collected n a survey. For the ensung dscusson, some notatons are ntroduced heren. m denotes the ndex for attrbute. Assume there are M attrbutes,.e., m = 1, 2,, M. l s the level for an attrbute, for example, l = 1, 2,, L m denotng the levels of m th attrbute. s r s the evaluaton ratng obtaned for the rth full profle receved by respondent. r s the ndex for full profle, where r = 1,, R, R s the total number of PSS profles. The preference model s n regresson model form: 174 M Lm s r = a + m=1 l=1 B ml I rml + e r (1) where I rml equals to 1 when the rth full profle matches the level l at the m th attrbute; otherwse, I rml equals to 0. In regressng the data, s r and I rml are adopted from the ratngs from the respondents. It should be noted that a and B ml are regresson parameters n expresson (1) whle e r s an error term. The parameter B ml eventually s the part worth value at the level l of the mth attrbute. Buld PSS profles wth factoral desgn In conjont analyss, combnatons of PSS profles are presented to potental customers and ask for ther ratng and wllngness to adopt the products that match the profle. Profles of PSS are made accordng to combnatons of all attrbutes levels. When the number of profles s too large, fractonal factoral desgn s used to reduce number of profles n questonnare desgn. Respondent would gve ratng of wllngness to adopt for each product profle and the ratngs from respondents are used n regresson analyss n order to estmate part worth utlty of attrbutes. The hypothetcal product profle was presented verbally, as a lst of attrbutes and levels. Questonnare survey and data collecton PSS profles are presented n a questonnare to collect respondents ratng on wllngness to adopt. A combnaton of attrbute levels s showed as a profle to respondents. Number of profles should be reduced to an acceptable level to avod lengthy questonnare and neffectve responses. In addton, personal data of respondents s collected to conduct marketng research such as fndng market segment usng cluster analyss. In ths study, respondents concern on uncertanty s measured usng Lkert scale. Sx questons regardng sx major uncertantes are ncluded n the questonnare. Conduct statstcal analyss and result analyss Conjont analyss provdes estmates of the part worth utltes of all attrbutes. As ndcated n expresson (1), part worth utltes are estmated usng coeffcents of the regresson model. Commercal software lke SPSS can well be used to conduct the regresson analyss and present the part worth utltes. Snce utlty correspondng to each attrbute level can be estmated, the shape of utlty functon for each attrbute (.e. part worth utlty, PWU) can be obtaned. Furthermore, Green and Wnd [9] suggested that the range of part worth utlty of an attrbute represent the relatve mportance of ths attrbute. Conjont analyss can also be used to estmate wllngness-to-pay (WTP) on certan attrbutes provded that prce s selected as one of the attrbutes. Many recent lteratures have used the method such as Hurlmann et al [10], Espno et al [11] and Longo [12]. The wllngness to pay can be calculated usng equaton (2) where dfference of part worth utlty (PWU) between any par of selected attrbute levels s used to multply the prce coeffcent. The prce coeffcent can be obtaned usng the prce dfference and the PWU dfference of prce attrbute. hghp lowp p Hgh Prce LowPr ce WTP par selected p β p : prce coeffcent β hghp : PWU of the hgher level of prce attrbute β lowp : PWU of the lower level of prce attrbute HghPrce: hgher level of prce LowPrce: lower level of prce (2) WTP par : gap of WTP between the selected par of attrbute levels. β selcted : PWU dfference between levels of selected attrbute 3 UNCERTAINTY FACTORS IN ADOPTING PHOTOVOLTAIC ELECTRICITY SYSTEM Not only solar power systems, uncertanty factors could cause resstance n adoptng many nnovatve products. Ram and Sheth [13] stated that there are three major barrers n adoptng nnovaton ncludng value barrer, usage barrer and rsk barrer. Value barrer means

3 nnovaton s nablty to produce economc-or performancebased benefts whle use barrer means nnovaton may not be compatble wth exstng workflows, practces and habts. The thrd barrer for consumers adoptng nnovatve products s rsk barrer whch ncludes physcal rsk, functonal rsk, economc rsk and socal rsk. Customers, aware of the rsks, could postpone adoptng the nnovaton untl they could learn more about t or avod the rsks. Cox et al [14] mentoned that consumers are cautous about acceptng novel technologes because of perceved rsk and lack of benefts. They used conjont model to study consumers perceved rsk, benefts, need, unnaturalness and safety of the technologes. Partcpants were segmented by the sum of ther belefs on the novel technologes. Snce photovoltac technologes are stll n a fast changng stage, consumers are also very cautous n adoptng the technology. Uncertanty of payment for nnovatve products could ncrease the value barrer. They nclude government polcy on subsdy, sellng prce and the prce of electrcty whch heavly depends on changng fossl fuel prces. On the other hand, the rsk barrer could be caused by several uncertanty factors such as product lfetme, relablty and mantanablty, replacement by new generaton technology. Ths study focuses on value and rsk barrers n adoptng solar power systems. Before actually desgnng the questonnare, feld ntervew was conducted to verfy the uncertanty factors that are concerned by customers. Questons about whether respondents are concerned about the uncertanty factors whle consderng adoptng solar energy system are ncluded n the questonnare. Fve pont Lkert scale was used to collect degree of concern on the partcular uncertanty. Each respondent was asked to choose between very agree and very dsagree on the statement concernng each of the sx uncertanty factors. These responses reflectng respondents concern would be used to fnd ther relatonshp to the adopton and wllngness to pay later. 4 CONJOINT ANALYSYS FOR SOLAR POWER SYSTEM ADOPTION CONSIDERING LEASING Leasng s consdered an opton of PSS n promotng photovoltac systems. Instead of purchase, leasng may reduce consumers worry on these uncertanty factors, especally for an expensve new product. By leasng a solar system, consumers can get electrcty wthout actually ownng t. The rsk due to uncertanty factors of new products s taken by the servce provders. Currently, there are some leasng servce provders n the US. Consumers can choose lease term for one, fve, ten or ffteen years. Servce provders would take care of nstallaton, mantenance, and repar of the system. The rent may be fxed or adjustable followng local electrcty prce at the tme. Servce provders generally do not charge rent f the system s broken or under mantenance. When the lease term s up and extenson s of nterest, the companes can upgrade the system for free. In lght of the exstng lease servce of photovoltac power system, ths study works on consumers preference and wllngness-to-pay for the leasng servce usng conjont analyss. Multple attrbute utltes of consumers preference are estmated. Gaps of wllngness-to-pay from one attrbute level to another level are estmated. Tme perod for leasng s ntentonally set as one of the attrbutes to nvestgate the wllngness to pay between varous leasng tme. On the other hand, consumers concerns on several uncertanty factors are measured. The man research queston s how much consumers are wllng to pay (WTP) to reduce the aforementoned uncertanty by adoptng leasng nstead of purchase. When consumers consder a solar energy system, many attrbutes could be consdered. Besdes prce, capacty, relablty, mantenance, and effcency are some examples. They could reflect economcal as well as functonal aspect on the consumer sde. In ths study, lease tme s ncluded to fnd out the utlty of leasng duraton. The levels of leasng tme are selected as 5, 15, and 20 years whle 20 years s looked as purchase. Payment per month for leasng s selected as one attrbute so that gap of WTP could be calculated for comparson. Other attrbutes selected nclude monthly payment, capacty, and frequency of break down. Table 1 shows the attrbute and attrbutes levels. The attrbute levels of capacty and monthly payment are defned based on the ranges of actual electrcty usage. As to relablty concern, Goett et al [15] suggested that when a solar energy system breaks down more than three tmes, the relablty would be consdered a serous problem. attrbute Capacty Payment per month levels (1) 300 KW hr (2) 700 KW hr (3) 1100 KW hr (1)2500 NT dollars per month* (2)6000 NT dollars per month (3)9500 NT dollars per month (1)5 year (2)10 years Lease tme (3)20 years (equvalent to purchase) Frequency of (1)hgh break down (2)low *Note: 1 US dollar s approxmately 32 NT dollars Table 1: Attrbutes and attrbute levels. Questonnare survey s conducted va nternet, whle popular web stes and BBS are selected to spread the message. A web ste was set for questonnare and collectng responses. 317 responses were collected wthn a month. The respondents aged less than 21 were erased to represent the populaton who may purchase solar power systems. The effectve sample sze s then reduced to 217 (70%). Table 2 shows the statstcs of the sample. varables number Percentage (%) Male Female and above Hgh school College Graduate school K and below K K and above Table 2: Sample statstcs. 175

4 5 RESULTS OF PART WORTH UTILITY AND CONCERN ON UNCERTAINTY FACTORS Part worth utltes (PWU) of the four attrbutes are obtaned usng conjont analyss. Table 3 shows the PWU and the relatve mportance based of the ranges of PWU. Payment per month s the most mportant attrbute (51.7%) whle electrcty capacty s the least mportant attrbute (8.8%). Leasng tme ranks the thrd (10.8%). attrbutes level PWU capacty 300 kw hr/month 700 kw hr/month 1100 kw hr/month Range of PWU Relatve mportance % 2500 dollars Payment 6000 dollars per month 9500 dollars % Lease tme 5 years years years Frequency Low of break down Hgh % % Table 3: PWUs of four attrbutes and relatve mportance. In the questonnare, Lkert scale of fve was used to measure the concern severty of uncertanty factors. Table 4 shows the statstcs on the concern on uncertanty factors ncludng government subsdy, prce, lfetme, relablty, replaced by new model and electrcty prce. For overall sample, replaced by new model, lfetme and prce are of more concern wth average score greater than 4 (5 for very concern). Concern on relablty s also hgh. Cluster analyss s used to see f there s sgnfcant dfference between concerns on uncertanty. The bottom half of Table 4 shows two clusters wth sgnfcant dfferent opnons on uncertanty factors usng analyss of varance (ANNOVA). Group 1 wth hgher concern scores s named hgh concern group, whle group 2 s called low concern group. Table 5 shows the relatve mportance of four attrbutes from the responses of the two groups. Group of hgher concern ranks lease tme the thrd whle group of lower concern ranks t the fourth. The percentage of female of group 2 s hgher than of group 1. The average age of the frst group s slghtly younger than the second group. On the other hand, Group 1 has hgher ncome than that of group 2. group Sample sze All 217 subsdy prce replacement of new model 3.89 (0.76) 4.08 (0.76) 4.16 (0.74) Group Group ANNOVA F results p value group All 217 Sample sze relablty lfetme Electrcty prce 3.97 (0.71) 4.13 (0.66) 3.77 (0.90) Group Group ANNOVA F results p value Table 4: Results of uncertanty scores of all sample and two groups.(standard devaton s nsde parenthess). attrbutes Capacty kw hr/month Monthly payment Lease tme Frequency of break down Gender Age Monthly ncome (NT dollars) Group 1 Group 2 level mportance mportance % % % % 5 years 4.08% 10 years 20 years 10.78% Low 35.02% 28.71% hgh varables Percentage (%) Percentage (%) Male Female above K and below K K and above Table 5: PWU and relatve mportance of attrbutes n two groups. 176

5 6 GAP OF WILLINGNESS TO PAY BETWEEN LEASING AND PURCHASE After obtanng part worth utltes of all attrbutes, wllngness to pay for each par of attrbute levels can be calculated usng equaton (2). For example, Table 6 shows the utltes between dfferent lease tmes as well as the gaps of wllngness to pay between pars of lease tmes. Consumers are wllng to pay extra NT 1459 dollars on the average for choosng 5 year lease tme than 20 year lease tme. Please note that leasng 20 years means a long term commtment and could be nterpreted the same as purchase heren. Comparng to the monthly worth of purchase, 3200 dollars, extra payment of 1459 dollars s about 45% of the purchase prce. The gap of WTP mples that consumers are wllng to pay 45% more to take an opton of leasng the system for fve years nstead of purchasng t. Ths can also be seen as a payment to avod the rsk of holdng a solar system for more than 20 years. The dfference of WTP between leasng 5 years and 10 years s 392 NTD, whle the dfference of WTP between leasng 10 years and 20 years s 1067 NTD. To compare the wllngness to pay between groups of hgher concern and lower concern on uncertanty factors, dfferences of utlty and WTP between dfferent lease tmes are shown n Fgure 1. Group 1 has larger gap of WTP between lease tmes, meanng people wth hgher uncertanty concern prefer shorter lease tme to avod the rsk. Take the comparson between 5 and 20 year lease tmes as an example, group 1 s wllng to pay extra 1969 NT dollars for 5 year lease tme than 20 year lease tme. The extra payment per month s larger than that offered by group 2, 508 NT dollars. Comparng the lease tmes of 5 and 10 years, group 1 are wllng to pay extra 537 NT dollars, whch s larger than that (64 NT dollars) wllngness to pay offered by Group 2. Ths result meets our hypothess that short term leasng would be adopted by people who have hgher concern of uncertanty factors. Hgher amount of WTP for shorter leasng tme by group 1 verfes the hypothess. Dfference of utlty 10 years 20 years 5 years years Dfference of wllngness to 10 years 20 years pay (NTD) 5 years $392 $ years - $1067 Table 6: Dfferences of utltes and wllngness to pay between lease tmes. Another nterestng queston s whether concern of the uncertanty factors s related to the WTP between short term lease and purchase. People wth hgher concern on uncertanty and resstance to new products are supposed to choose shorter term lease. Table 7 shows the correlaton between gap of WTP and concern scores of uncertanty factors usng Pearson correlaton. Gap of WTP between lease tmes s hghly correlated wth most uncertanty factors lke government subsdy, product lfetme, relablty, rse of new model and electrcty prce. The only uncertanty measure that s not sgnfcantly related to gap of WTP s product prce. Among the uncertanty scores, score on relablty concern s hghly correlated wth gap of WTP. Concern on product lfetme has the least correlaton wth gap of WTP. Gap of WTP (5 years-20 years) Government subsdy Product prce Product lfetme Pearson correlaton p value 0.013** ** Gap of WTP (5 years-20 years) relablty Rse of new model Electrcty prce Pearson correlaton p value 0.000*** 0.017** 0.020** Fgure 1 :Gap of WTP between dfferent lease tmes for two groups. 7 SUMMARY Ths study presents applcaton of conjont analyss on PSS marketng and development, takng solar power system as an example. Solar power system s looked as one of the most promsng renewable energy sources and novel green products adopted by consumers n the near future. But, snce there are many uncertantes for the emergng technology, PSS such as leasng mght be an opton to help consumers reduce ther rsk and worry. Ths study fnds consumers preference of solar power systems and focuses on the wllngness to pay for leasng the system comparng to purchasng. Questonnare survey on consumers concern on certan uncertanty factors that may affect the adopton of solar power system s conducted. Conjont analyss s used to estmate PWU of the attrbutes of solar power system and the wllngness to pay regardng varous attrbutes. By ncludng lease tme as an attrbute n conjont model, the gap of WTP between varous lease tmes can be estmated. Gaps of wllngness to pay between shorter and longer leasng tmes could be estmated. Snce leasng tme equal to 20 years s nterpreted as purchase, the gap of wllngness to pay between shorter leasng tme and purchase can be estmated. In addton, the relaton between gap of WTP between lease tmes and uncertanty scores that measure consumers concern are presented. Cluster analyss s used to fnd two groups wth hgh and low concern of uncertanty. Gaps of WTP for dfferent lease tme for the two groups are compared. People wth hgher concern on uncertanty tend to pay more for adoptng shorter lease tme. Characterstcs of the two groups are also presented. Table 7: Correlaton between WTP gap and uncertanty score. 177

6 8 ACKNOWLEDGEMENT Authors would lke to thank Natonal Scence Councl for provdng fnancal support to ths study (NSC Z MY3). 9 REFERENCES [1] European Photovoltac Industry Assocaton, 2009, Global market outlook for photovoltacs untl 2013, EPIA report. [2] Bagnall, D.M. and Boreland, M., 2008, Photovoltac technologes, Energy Polcy 36, [3] Hoffmann, W., S. M. Petruszko, M. Vaud, 2004, Towards an Effectve European Industral Polcy for PV Solar Electrcty, 19 th PVSEC Pars, June. [4] Kreger, A. M.; P. E. Green; Y. J. Wnd, 2004, Adventures n Conjont Analyss: A Practtoner s Gude to Trade-Off Modelng and Applcatons, Monograph, Unversty of Pennsylvana. [5] Green, P. E. and V. Srnvasan, 1990, Conjont Analyss n Marketng: New Developments wth Implcatons for Research and Practce, Journal of Marketng, 54, 4, [6] Danels, R., E. Marcucc and L. Rotars, 2005, Logstcs Managers Stated Preferences for Freght Servce Attrbutes, Transportaton Research Part, E41, [7] Lockshn, L., W. Jarvs, F. Hautevlle, and J. Perrouty, 2006, Usng Smulatons from Dscrete Choce Experments to Measure Consumer Senstvty to Brand, Regon, Prce, and Awards n Wne Choce, Journal of Food Qualty and Preference, 17, [8] Ennekng, U., C. Neumann, and S. Henneberg, 2007, How Important Intrnsc and Extrnsc Product Attrbutes Affect Purchase Decson, Journal of Food Qualty and Preference, 18, [9] Green, P.E. and Y. Wnd, 1975, New Ways to Measure Consumer Judgments, Harvard Busness Revews, 53, [10] Hurlmann, A. and McKay J., 2007, Urban Australans Usng Recycled Water for Domestc Non- Potable Use-An Evaluaton of the Attrbutes Prce, Saltness, Color and Odor Usng Conjont Analyss, Envronmental Management, 85, 1, [11] Espno, R., Martn, J. C. and Roman, C., 2008, Analyzng the Effect of Preference Heterogenety on Wllngness to Pay for Improvng Servce Qualty n an Arlne Choce Context, Transportaton Research part E, 44, 4, [12] Longo, A., Markandya A. and Petrucc M., 2008, The Internalzaton of Externaltes n the Producton of Electrcty: Wllngness to Pay for the Attrbutes of a Polcy for Renewable Energy, Ecologcal Economcs, 67, 1, [13] Ram, S. and Sheth, J., 1989, Consumer Resstance to Innovatons: The Marketng Problem and Its Solutons, Journal of Consumer Marketng, 6, 2, [14] Cox, D. N., Evans, G. and Lease, H. J., 2007, The Influence of Informaton and Belefs about Technology on the Acceptance of Novel Food Technologes: A Conjont Study of Farmed Prawn Concepts, Food Qualty and Preference, 18, 5, [15] Goett, A., Hudson, K. and Tran, K., 2000, Customers Choce among Retal Energy Supplers: The Wllngness-to-Pay for Servce Attrbute, AAG Assocates, and Department of Economcs Unversty of Calforna, Berkeley. 178