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Related Subtopics: Energy Efficiency

The Cost Effectiveness of Electricity Energy Efficiency Programs

RFF Feature
April 28, 2011

After nearly three decades of experience with utility-run electricity energy efficiency programs, a good deal of controversy remains over how effective these programs have been in reducing electricity consumption and at what cost. Estimates of the cost-effectiveness, or cost per kilowatt hour saved, of past energy efficiency demand-side-management programs range widely—from just below 1 cent per kWh saved to more than 20 cents.

A new RFF Discussion Paper by RFF Senior Fellow Karen Palmer, Fellow Shanjun Li, and their colleagues examines over 15 years’ worth of data from utility and electric rate-payer-funded state energy efficiency programs and finds:

  • Utility and state programs funded by utility rate payers produced an estimated 1 percent savings in electricity consumption over 1992–2006 and almost 2 percent cumulative savings over all years.
  • The energy savings came at an expected average cost to utilities of roughly 5 cents per kWh saved when future electricity savings are discounted at a standard discount rate of 5 percent.
  • Electricity efficiency programs have roughly constant returns to scale, at least for the levels of program spending observed in the data.
  • The programs appear to be more effective in regions that employ decoupling regulation to separate utility revenues for distribution services from the amount of electricity that the utility sells.
  • In strong housing markets, more stringent building codes can successfully reduce electricity demand.

Read the full paper, Cost Effectiveness of Electricity Energy Efficiency Programs, by Toshi Arimura, Shanjun Li, Richard Newell, and Karen Palmer, here.

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