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Cost-Effectiveness of Electricity Energy Efficiency Programs

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  • Toshi H. Arimura, Shanjun Li, Richard G. Newell, and Karen Palmer

Abstract

We analyze the cost-effectiveness of electric utility ratepayer–funded programs to promote demand-side management (DSM) and energy efficiency (EE) investments. We specify a model that relates electricity demand to previous EE DSM spending, energy prices, income, weather, and other demand factors. In contrast to previous studies, we allow EE DSM spending to have a potential long-term demand effect and explicitly address possible endogeneity in spending. We find that current period EE DSM expenditures reduce electricity demand and that this effect persists for a number of years. Our findings suggest that ratepayer funded DSM expenditures between 1992 and 2006 produced a central estimate of 0.9 percent savings in electricity consumption over that time period and a 1.8 percent savings over all years. These energy savings came at an expected average cost to utilities of roughly 5 cents per kWh saved when future savings are discounted at a 5 percent rate.

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Bibliographic Info

Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 33 (2012)
Issue (Month): Number 2 ()
Pages:

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Handle: RePEc:aen:journl:33-2-04

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  1. Nadel, Steven & Geller, Howard, 1996. "Utility DSM : What have we learned? Where are we going?," Energy Policy, Elsevier, vol. 24(4), pages 289-302, April.
  2. Grant D. Jacobsen & Matthew J. Kotchen, 2013. "Are Building Codes Effective at Saving Energy? Evidence from Residential Billing Data in Florida," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 34-49, March.
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  6. Joseph Eto & Edward Vine & Leslie Shown & Richard Sonnenblick & Chris Payne, 1996. "The Total Cost and Measured Performance of Utility-Sponsored Energy Efficiency Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 31-51.
  7. Joseph Eto & Suzie Kito & Leslie Shown & Richard Sonnenblick, 2000. "Where Did the Money Go? The Cost and Performance of the Largest Commercial Sector DSM Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 23-49.
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  11. Grant D. Jacobsen & Matthew J. Kotchen, 2010. "Are Building Codes Effective at Saving Energy? Evidence from Residential Billing Data in Florida," NBER Working Papers 16194, National Bureau of Economic Research, Inc.
  12. Paul W. Parfomak & Lester B. Lave, 1996. "How Many Kilowatts are in a Negawatt? Verifying Ex Post Estimates of Utility Conservation Impacts at the Regional Level," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 59-87.
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  15. Nadel, Steven & Kushler, Marty, 2000. "Public Benefit Funds: A Key Strategy for Advancing Energy Efficiency," The Electricity Journal, Elsevier, vol. 13(8), pages 74-84, October.
  16. Khawaja, M. Sami & Koss, Patricia & Hedman, Brian, 2001. "System Benefits Charge: Economic Impacts and Implications," The Electricity Journal, Elsevier, vol. 14(5), pages 25-32, June.
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Citations

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Cited by:
  1. Blonz, Joshua & Burtraw, Dallas & Walls, Margaret A., 2010. "Climate Policy’s Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap and Trade," Discussion Papers dp-10-12, Resources For the Future.
  2. Paul Dolan & Robert Metcalfe, 2013. "Neighbors, knowledge, and nuggets: two natural field experiments on the role of incentives on energy conservation," LSE Research Online Documents on Economics 51563, London School of Economics and Political Science, LSE Library.
  3. Paul, Anthony & Palmer, Karen & Woerman, Matt, 2011. "Supply Curves for Conserved Electricity," Discussion Papers dp-11-11, Resources For the Future.
  4. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 3-28, Winter.
  5. Lucas W. Davis & Alan Fuchs & Paul J. Gertler, 2012. "Cash for Coolers," NBER Working Papers 18044, National Bureau of Economic Research, Inc.
  6. Murphy, Rose & Jaccard, Mark, 2011. "Energy efficiency and the cost of GHG abatement: A comparison of bottom-up and hybrid models for the US," Energy Policy, Elsevier, vol. 39(11), pages 7146-7155.
  7. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
  8. Sudarshan, Anant, 2013. "Deconstructing the Rosenfeld curve: Making sense of California's low electricity intensity," Energy Economics, Elsevier, vol. 39(C), pages 197-207.
  9. Boomhower, Judson & Davis, Lucas W., 2014. "A credible approach for measuring inframarginal participation in energy efficiency programs," Journal of Public Economics, Elsevier, vol. 113(C), pages 67-79.
  10. Palmer, Karen L. & Grausz, Samuel & Beasley, Blair & Brennan, Timothy J., 2013. "Putting a floor on energy savings: Comparing state energy efficiency resource standards," Utilities Policy, Elsevier, vol. 25(C), pages 43-57.
  11. Allcott, Hunt, 2011. "Social norms and energy conservation," Journal of Public Economics, Elsevier, vol. 95(9), pages 1082-1095.
  12. Burtraw, Dallas & Linn, Joshua & Palmer, Karen & Paul, Anthony, 2014. "The Costs and Consequences of Clean Air Act Regulation of CO2 from Power Plants," Discussion Papers dp-14-01, Resources For the Future.
  13. Souvik Datta & Sumeet Gulati, 2011. "Utility Rebates for ENERGY STAR Appliances: Are They Effective?," CEPE Working paper series 11-81, CEPE Center for Energy Policy and Economics, ETH Zurich.

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