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Cost-Effectiveness of Electricity Energy Efficiency Programs

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  • Arimura, Toshi H.
  • Newell, Richard G.
  • Palmer, Karen

    ()
    (Resources for the Future)

Abstract

We analyze the cost-effectiveness of electric utility rate payer–funded programs to promote demand-side management (DSM) and energy efficiency investments. We develop a conceptual model that relates demand growth rates to accumulated average DSM capital per customer and changes in energy prices, income, and weather. We estimate that model using nonlinear least squares for two different utility samples. Based on the results for the most complete sample, we find that DSM expenditures over the last 18 years have resulted in a central estimate of 1.1 percent electricity savings at a weighted average cost to utilities (or other program funders) of about 6 cents per kWh saved. Econometrically-based policy simulations find that incremental DSM spending by utilities that had no or relatively low levels of average DSM spending per customer in 2006 could produce 14 billion kWh in additional savings at an expected incremental cost to the utilities of about 3 cents per kWh saved.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-09-48.

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Date of creation: 16 Nov 2009
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Handle: RePEc:rff:dpaper:dp-09-48

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Keywords: energy efficiency; demand-side management; negawatt cost;

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References

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  1. 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.
  2. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
  3. Kenneth Gillingham & Richard G. Newell & Karen Palmer, 2009. "Energy Efficiency Economics and Policy," NBER Working Papers 15031, National Bureau of Economic Research, Inc.
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  7. 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.
  8. 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.
  9. Maximilian Auffhammer & Carl Blumstein & Meredith Fowlie, 2008. "Demand-Side Management and Energy Efficiency Revisited," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 91-104.
  10. Palmer, Karen & Newell, Richard & Gillingham, Kenneth, 2004. "Retrospective Examination of Demand-side Energy-efficiency Policies," Discussion Papers dp-04-19, Resources For the Future.
  11. Paul L. Joskow & Donald B. Marron, 1992. "What Does a Negawatt Really Cost? Evidence from Utility Conservation Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 41-74.
  12. 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.
  13. David S. Loughran and Jonathan Kulick, 2004. "Demand-Side Management and Energy Efficiency in the United States," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 19-44.
  14. 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.
  15. 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.
  16. 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.
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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," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, November.
  2. Allcott, Hunt, 2011. "Social norms and energy conservation," Journal of Public Economics, Elsevier, vol. 95(9), pages 1082-1095.
  3. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," NBER Working Papers 17766, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Gillingham, Kenneth & Palmer, Karen, 2013. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Discussion Papers dp-13-02-rev, Resources For the Future.
  7. 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.
  8. 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.
  9. Sudarshan, Anant, 2013. "Deconstructing the Rosenfeld curve: Making sense of California's low electricity intensity," Energy Economics, Elsevier, vol. 39(C), pages 197-207.
  10. Palmer, Karen & Grausz, Samuel & Beasley, Blair & Brennan, Tim, 2012. "Putting a Floor on Energy Savings: Comparing State Energy Efficiency Resource Standards," Discussion Papers dp-12-11, Resources For the Future.
  11. Lucas W. Davis & Alan Fuchs & Paul J. Gertler, 2012. "Cash for Coolers," NBER Working Papers 18044, National Bureau of Economic Research, Inc.
  12. Paul, Anthony & Palmer, Karen & Woerman, Matt, 2011. "Supply Curves for Conserved Electricity," Discussion Papers dp-11-11, Resources For the Future.

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