Pricing of biomethane products targeted at private households in Germany-product attributes and providers' pricing strategies

Abstract

In the effort to combat global warming, renewable energies play a key role. However, most efforts are still focused on the electricity market, so renewables remain underrepresented in the heat market. Biomethane derived from biogas is an intriguing option for using renewable energy to generate heat in residential homes. However, biomethane comes at a significantly higher cost than natural gas, meaning providers have to ask a price premium from consumers. Determining a pricing strategy is thus of crucial importance. Besides cost, providers have to consider consumers' willingness-to-pay (WTP) for the product. We propose that they could draw on existing research on WTP for green electricity, albeit with some important modifications and scarce research on biomethane. To explore this proposition, we performed a first-of-its-kind analysis of providers' pricing strategies for biomethane, using both providers' published data and data provided in response to e-mail queries. Based on the features and prices of 165 biomethane-based gas products for private households in Germany, we find that features that could, according to existing research, elicit a higher WTP are not priced accordingly. As the consumer market for biomethane is still in its early development, our results suggest opportunities for providers to ask higher prices for certain biomethane-based gas products.