Working Paper: NBER ID: w23097
Authors: 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.
Keywords: Energy Efficiency; Electricity Markets; Peak Demand; Smart Meters; Capacity Payments
JEL Codes: D40; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| energy efficiency investments in air conditioning (Q41) | reductions in electricity consumption during peak hours (L97) |
| reductions in electricity consumption during peak hours (L97) | increased value of the energy efficiency program (Q48) |
| timing of energy savings varies across different energy efficiency investments (Q41) | timing premium of air conditioning investments (D25) |
| timing premium of air conditioning investments (D25) | higher economic value compared to other investments (G19) |
| energy efficiency investments (G31) | changes in electricity consumption before and after installation (L94) |