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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
    Note: EEE
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    Cited by:

    1. Fiona Burlig & Christopher Knittel & David Rapson & Mar Reguant & Catherine Wolfram, 2017. "Machine Learning from Schools about Energy Efficiency," NBER Working Papers 23908, National Bureau of Economic Research, Inc.

    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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