Evaluating residential consumers' willingness to pay to avoid power outages in South Korea

Abstract

South Korea experienced a nationwide rolling blackout in 2011 due to a rapid increase in the power demand and a lack of power supply facilities. In particular, the residential sector suffered from considerable inconveniences due to power outages, such as the interruption of elevators' operation and the stopping of all electronic appliances. Since then, ensuring a stable supply of electricity has emerged as an important task. This note aims to analyze residential consumers' willingness to pay (WTP) to avoid power outages. For this purpose, 1000 households were surveyed, applying the contingent valuation (CV) method during May 2018. The respondents understood the CV question well and gave meaningful answers. The results show that the mean of households' monthly WTP amounts to KRW 1522 (USD 1.41). This value is statistically significant. Converting it into an annual value and then expanding the value to the country indicate that the annual national value amounts to KRW 360.7 billion (USD 335.3 million). Since a substantial amount of investments should be made by power suppliers to prevent power outages in the residential sector, this value may be accepted as the upper limit of the benefits ensuing from those investments.