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Demand side management (DSM) is one of the most topical issues in regulating electric utilities, both in the United States and internationally. What is DSM? It consists of various measures at the level of demand (households, commerce, industry, others), which are at least partially financed by electric utilities and which should either conserve energy or reduce the peak load. The practice of DSM originates from The Public Utility Regulatory Policy Act of 1978 (PURPA) that provided the political and legal framework to set energy conservation as a national goal, which encouraged regulatory commissions to initiate utility conservation programs; see e.g., Nowell-Tschirhart (1990) and Fox-Penner (1990). Moreover, integrated resource planning, which must account for DSM on a level playing field with supply, is written into the 1992 Energy Policy Act as the U.S. Government's preferred method of electric power planning. Although PURPA set energy conservation as a national priority, its implementation was left to the states with the consequence of considerable differences concerning efforts and rules. By 1993 16 states had already implemented integrated resource planning, 9 were in the process of doing so and further 9 considered implementation, (EPRI 1993b). Due to the Clean Air Act of 1990, 24 states are considering to include external costs in integrated resource planning.
Using three major illustrative case studies, here is an integrated treatment of the major theoretical and practical issues involved in the use of economic incentives for energy conservation. While a principal focus is on electricity use in North American residential and commercial sectors, additional discussion is provided on fuels, conservation measures, industrial energy use, and related European experience.
As utilities investigate ways to implement conservation programs, the differences between customer and utility economic perspectives become more important. Because utilities bear the cost of new energy sources, energy efficiency investments that are cost-effective to them may not be cost-effective to their customers who pay average energy prices and have different economic parameters. The Bonneville Power Administration (BPA) and other parties in the Pacific Northwest have initiated an innovative manufactured (mobile) home energy conservation program. Because manufactured homes are regulated by the Department of Housing and Urban Development (HUD), are exempt from local regulations, and comprise up to 50% of new housing starts in some parts of the United States, utilities and energy planners need to find creative ways to make the economics of manufactured housing energy-efficiency investments more attractive. Differences between the economic criteria and perspectives of consumers and utilities can be used to design energy-efficiency programs. This paper discusses life-cycle cost (LCC) analysis as a framework for highlighting these differences and examines other economic criteria. It then presents information from the Pacific Northwest manufactured housing program to illustrate the application of this framework to a real-world program. Findings from this program should, be of interest to utility and government planners who are designing innovative energy-efficiency programs.
While energy efficiency projects could partly meet new energy demand more cheaply than new supplies, weak economic institutions in developing and transitional economies impede developing and financing energy efficiency retrofits. This book analyzes these difficulties, suggests a 3-part model for projectizing and financing energy efficiency retrofits, and presents thirteen case studies to illustrate the issues and principles involved.