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Optimal energy efficiency policies and regulatory demand-side management tests: How well do they match?

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  • Brennan, Timothy J.
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    Abstract

    Under conventional models, subsidizing energy efficiency requires electricity to be priced below marginal cost. Its benefits increase when electricity prices increase to finance the subsidy. With high prices, subsidies are counterproductive unless consumers fail to make efficiency investments when private benefits exceed costs. If the gain from adopting efficiency is only reduced electricity spending, capping revenues from energy sales may induce a utility to substitute efficiency for generation when the former is less costly. This goes beyond standard "decoupling" of distribution revenues from sales, requiring complex energy price regulation. The models' results are used to evaluate tests in the 2002 California Standard Practice Manual for assessing demand-side management programs. Its "Ratepayer Impact Measure" test best conforms to the condition that electricity price is too low. Its "Total Resource Cost" and "Societal Cost" tests resemble the condition for expanded decoupling. No test incorporates optimality conditions apart from consumer choice failure.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 8 (August)
    Pages: 3874-3885

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    Handle: RePEc:eee:enepol:v:38:y:2010:i:8:p:3874-3885

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    Web page: http://www.elsevier.com/locate/enpol

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    Keywords: Electricity Energy efficiency Demand-side management;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Brennan, Timothy J., 2009. "Energy Efficiency: Efficiency or Monopsony?," Discussion Papers dp-09-20, Resources For the Future.
    2. Brennan, Timothy J., 2008. "Is the Benefit of Reserve Requirements in the “Reserve” or the “Requirement”?," Discussion Papers dp-08-33, Resources For the Future.
    3. Timothy J. Brennan, 2009. "Energy Efficiency: Efficiency or Monopsony?," UMBC Economics Department Working Papers 09-110, UMBC Department of Economics, revised 01 May 2009.
    4. Brennan, Timothy, 1998. "Demand-Side Management Programs Under Retail Electricity Competition," Discussion Papers dp-99-02, Resources For the Future.
    5. Brennan, Timothy, 2003. "Electricity Capacity Requirements: Who Pays?," Discussion Papers dp-03-39, Resources For the Future.
    6. Timothy J. Brennan, 2004. "Market Failures in Real-Time Metering," Journal of Regulatory Economics, Springer, vol. 26(2), pages 119-139, 09.
    7. Brennan, Timothy J., 2003. "Electricity Capacity Requirements: Who Pays?," The Electricity Journal, Elsevier, vol. 16(8), pages 11-22, October.
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    Citations

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    Cited by:
    1. Wang, Dong, 2012. "A Dynamic Optimization on Energy Efficiency in Developing Countries," MPRA Paper 43749, University Library of Munich, Germany.
    2. Leon Chu & David Sappington, 2012. "Designing optimal gain sharing plans to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 42(2), pages 115-134, October.
    3. 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.
    4. Torriti, Jacopo, 2013. "The significance of occupancy steadiness in residential consumer response to Time-of-Use pricing: Evidence from a stochastic adjustment model," Utilities Policy, Elsevier, vol. 27(C), pages 49-56.
    5. Brennan, Timothy J., 2013. "Holding Distribution Utilities Liable for Outage Costs: An Economic Look," Discussion Papers dp-13-16, Resources For the Future.
    6. Brennan, Timothy J., 2011. "Energy Efficiency Policy: Surveying the Puzzles," Discussion Papers dp-11-27, Resources For the Future.
    7. Brennan, Timothy J., 2011. "Energy efficiency and renewables policies: Promoting efficiency or facilitating monopsony?," Energy Policy, Elsevier, vol. 39(7), pages 3954-3965, July.
    8. Salies, Evens, 2013. "Real-time pricing when some consumers resist in saving electricity," Energy Policy, Elsevier, vol. 59(C), pages 843-849.
    9. Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.

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