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Do Energy Efficiency Investments Deliver at the Right Time?

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  • Judson P. Boomhower
  • Lucas W. Davis

Abstract

Electricity cannot be cost-effectively stored even for short periods of time. Consequently, wholesale electricity prices vary widely across hours of the day with peak prices frequently exceeding off-peak prices by a factor of ten or more. Most analyses of energy-efficiency policies ignore this variation, focusing on total energy savings without regard to when those savings occur. In this paper we demonstrate the importance of this distinction using novel evidence from a rebate program for air conditioners in Southern California. We estimate electricity savings using hourly smart-meter data and show that savings tend to occur during hours when the value of electricity is high. This significantly increases the overall value of the program, especially once we account for the large capacity payments received by generators to guarantee their availability in high-demand hours. We then compare this estimated savings profile with engineering-based estimates for this program as well as a variety of alternative energy-efficiency investments. The results illustrate a surprisingly large amount of variation in economic value across investments.

Suggested Citation

  • Judson P. Boomhower & Lucas W. Davis, 2017. "Do Energy Efficiency Investments Deliver at the Right Time?," NBER Working Papers 23097, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23097
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    Cited by:

    1. Jing Liang & Yueming Qiu & Bo Xing, 2021. "Social Versus Private Benefits of Energy Efficiency Under Time-of-Use and Increasing Block Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 43-75, January.
    2. Adler, David & Severnini, Edson R., 2020. "Timing Matters: Shifting Economic Activity and Intra-Day Variation in Ambient Ozone Concentrations," IZA Discussion Papers 13428, Institute of Labor Economics (IZA).
    3. Ekaterina Alekhanova, 2023. "Summertime Sadness: Time Sensitivity of Electricity Savings from a Behavioral Nudge," Carleton Economic Papers 23-01, Carleton University, Department of Economics, revised 11 Nov 2023.
    4. Huaccha, Gissell, 2023. "Regional persistence of the energy efficiency gap: Evidence from England and Wales," Energy Economics, Elsevier, vol. 127(PA).
    5. Andrius Kažukauskas & Thomas Broberg & Jūratė Jaraitė, 2021. "Social Comparisons in Real Time: A Field Experiment of Residential Electricity and Water Use," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(2), pages 558-592, April.
    6. Hammerle, Mara & Burke, Paul J., 2022. "From natural gas to electric appliances: Energy use and emissions implications in Australian homes," Energy Economics, Elsevier, vol. 110(C).
    7. Andrew J. Satchwell & Peter A. Cappers & Jeff Deason & Sydney P. Forrester & Natalie Mims Frick & Brian F. Gerke & Mary Ann Piette, 2020. "A Conceptual Framework to Describe Energy Efficiency and Demand Response Interactions," Energies, MDPI, vol. 13(17), pages 1-14, August.
    8. Fiona Burlig & Christopher Knittel & David Rapson & Mar Reguant & Catherine Wolfram, 2020. "Machine Learning from Schools about Energy Efficiency," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(6), pages 1181-1217.
    9. Granderson, Jessica & Fernandes, Samuel & Touzani, Samir & Lee, Chih-Cheng & Crowe, Eliot & Sheridan, Margaret, 2020. "Spatio-temporal impacts of a utility’s efficiency portfolio on the distribution grid," Energy, Elsevier, vol. 212(C).
    10. Hancevic, Pedro I. & Sandoval, Hector H., 2022. "Low-income energy efficiency programs and energy consumption," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
    11. Chaudhuri, Kausik & Huaccha, Gissell, 2023. "Who bears the energy cost? Local income deprivation and the household energy efficiency gap," Energy Economics, Elsevier, vol. 127(PA).
    12. Qiu, Yueming & Kahn, Matthew E. & Xing, Bo, 2019. "Quantifying the rebound effects of residential solar panel adoption," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 310-341.
    13. Massimo Filippini & Lin Zhang, 2019. "Impacts of heat metering and efficiency retrofit policy on residential energy consumption in China," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 21(2), pages 203-216, April.
    14. Bu, Caiqi & Zhang, Kaixia & Shi, Daqian & Wang, Shuyu, 2022. "Does environmental information disclosure improve energy efficiency?," Energy Policy, Elsevier, vol. 164(C).
    15. Bircan, Çağatay & Wirsching, Elisa, 2023. "Daylight saving all year round? Evidence from a national experiment," Energy Economics, Elsevier, vol. 127(PB).
    16. Hyun, Suk & Taghizadeh-Hesary, Farhad & Shim, Hyoung Suk, 2021. "Modeling solar energy system demand using household-level data in Myanmar," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 629-639.
    17. Gosnell, Greer & McCoy, Daire, 2023. "Market failures and willingness to accept smart meters: Experimental evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    18. Adler, David & Severnini, Edson, 2023. "Timing matters: Intra-day shifts of economic activity and ambient ozone concentrations," Journal of Public Economics, Elsevier, vol. 223(C).

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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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