Cost-Effectiveness of Electricity Energy Efficiency Programs
Toshi H. Arimura
Waseda University - School of Political Science and Economics; Resources for the Future
Cornell University - School of Applied Economics and Management
Richard G. Newell
Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future
Karen L. Palmer
Resources for the Future
NBER Working Paper No. w17556
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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Number of Pages in PDF File: 45working papers series
Date posted: October 29, 2011
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