Discount rates and demand-side management
The standard economic analysis of of implied discount rates for energy-efficiency investment is wrong. First, consumers are not profit maximizing or economic optimizing agents with respect to energy. To the extent consumers make tradeoffs on some criteria other than energy costs, implied discount rates measure that other tradeoff, not the energy cost tradeoff. Second, to the extent that product pricing does not reflect tradeoffs between first cost and energy cost, there is no meaning to implied market discount rates based on these factors. Related to this misinterpretation of consumer and market discount rates is the issue of consumer and utility self-interest. To the extent that utilities can capitalize on the energy-inefficient investment behavior of individuals through DSM programs, it is in their interest and the ratepayer's interest to do so. Considerable evidence suggests that implied discount rates convey extremely misleading information about the level of this underinvestment. Drawing inferences about the value of DSM programs from this information is similarly misleading. An economic explanation of consumer and marker behavior suggests that such underinvestment is both rational and common and that large gains may be achieved through DSM. Societal welfare would be improved if utilities aggressively capitalized on the widespread consumer underinvestment in energy efficiency by incorporating DSM in their resource planning processes.
- OSTI ID:
- 6634380
- Journal Information:
- Public Utilities Fortnightly; (United States), Journal Name: Public Utilities Fortnightly; (United States) Vol. 131:3; ISSN PUFNAV; ISSN 0033-3808
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
320603* -- Energy Conservation
Consumption
& Utilization-- Municipalities & Community Systems-- Public Utilities-- (1980-)
BEHAVIOR
COST
DEMAND FACTORS
ECONOMIC ANALYSIS
ECONOMICS
EFFICIENCY
ENERGY
ENERGY CONSUMPTION
ENERGY EFFICIENCY
ENERGY MANAGEMENT
INVESTMENT
MANAGEMENT
MARKET
PLANNING
PUBLIC UTILITIES