Energy, Sustainability and Society (May 2024)
Synthetic natural gas in the private heating sector in Germany: match or mismatch between production costs and consumer willingness to pay?
Abstract
Abstract Background The residential heating sector in many European countries requires a fundamental transformation if it is to become climate neutral. Besides the introduction of efficiency measures and updating heating systems, scholars and practitioners consider replacing fossil fuels in existing heating systems a viable approach. Drop-in renewable gases such as biomethane and synthetic natural gas (SNG) cause considerably fewer carbon dioxide (CO2) emissions than natural gas and can be used in natural gas boilers, the dominant heating system in many European countries. To move the ongoing debate around e-fuels forward, this study reports on a Discrete Choice Experiment with 512 respondents in Germany that analyzed consumer preferences and willingness to pay (WTP) for SNG. I build on these insights by comparing WTP to the production costs, making evidence-based decision-making possible. Results The results show that consumers prefer renewable gases over natural gas. Comparing the two types of renewable gases, SNG and biomethane, reveals that consumers clearly favor the latter despite the criticism it has come under in the last 10–15 years. Consumers show a surprisingly high WTP for increasing shares of SNG, with premia of 40 to almost 70% over a natural gas-based tariff. Comparing production costs to the WTP reveals that only tariffs with small shares of SNG (5% and 10%) can be offered at cost-covering prices. Conclusions Given the urgent need for a fundamental transition of the residential heating sector, marketers and policymakers should consider carefully whether it is worth channeling a rather unknown and expensive product like SNG into the voluntary market for heating gas, especially as biomethane is already established in the market and clearly a cheaper and more popular alternative.
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