Financing energy efficiency retrofits in Chilean households: the role of financial instruments, savings and uncertainty in energy transition

Abstract

High firewood consumption for heating produces high levels of pollution in cities in centraland southern Chile, with serious consequences for health and quality of life. Energy effi-ciency measures (EEMs) have been identified as the best strategy to reduce air pollutionand maximize social benefits. However, their adoption has been slow. The objective of thisarticle is to investigate household preferences for financial incentives needed to promoteprivate investments in EEMs in Central-Southern Chilean households and study the role ofenergy savings and the uncertainty about potential savings in the investment decision, withthe aim of finding solutions to increase the adoption of these technologies. We use a choiceexperiment to explore the trade-off between the investment costs, financial instruments,energy savings, and the uncertainty about achieving the theoretical savings provided byengineering and architectural models. The results show that financial instruments playthe most important role in this decision, followed by the savings achieved by the retrofit.Householders prefer to finance their investments with a mix of their personal resources andmedium-term credits, trying to avoid long-term commitments. Although uncertainty wasfound to be a significant variable, it seems to play a small role in the investment decision.