Working Paper: NBER ID: w17556
Authors: Toshi H. Arimura; Shanjun Li; Richard G. Newell; Karen Palmer
Abstract: 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.
Keywords: electric utility; energy efficiency; demand-side management; cost-effectiveness
JEL Codes: H76; L94; Q41; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stringent building codes (L78) | electricity demand (L94) |
| decoupling regulation (G18) | effectiveness of DSM spending (H56) |
| DSM spending (E20) | electricity demand (L94) |