Energy security and option value in residences

The choice of heating, lighting and cooking technology in households has implications not only for the welfare in the form of current energy consumption, but also for the option value of being able to use alternative energy sources in household production in cases where prices on energy sources are rising rapidly, or the delivery of one energy source becomes insecure. In Norway today, these alternative energy sources are to a large degree connected to old technology; wood and fuel oils for heating, candles, paraffin or solar panels for lighting, and gas, coal and wood for cooking.

Currently, we know very little about to what extent households are concerned with energy security when choosing among available technologies and how this affects the diffusion and utilization of new and smart technologies. This option to use alternative energy sources are important for how households are affected by, and value the loss of electricity supply, in the case of power grid failures. Thus it is interesting to analyse how technology choices are affected by this option value and how the option to use alternative energy sources affects the households’ welfare losses in a long-term black out situation lasting for more than 24 hours.