Motivating energy suppliers to promote energy conservation

LY Chu, DEM Sappington - Journal of Regulatory Economics, 2013 - Springer
Journal of Regulatory Economics, 2013Springer
We examine the design of regulatory policy to induce electric utilities to deliver the surplus-
maximizing level of energy efficiency services, e^*. The rebound effect (whereby increased
energy efficiency stimulates the demand for energy) typically renders revenue decoupling
insufficient in this regard. The additional financial incentive required to induce e^* is shown
to vary with such factors as the prevailing price of energy, the magnitude of the rebound
effect, the extent of observable energy efficiency investments, and the utility's objective.
Abstract
We examine the design of regulatory policy to induce electric utilities to deliver the surplus-maximizing level of energy efficiency services, . The rebound effect (whereby increased energy efficiency stimulates the demand for energy) typically renders revenue decoupling insufficient in this regard. The additional financial incentive required to induce is shown to vary with such factors as the prevailing price of energy, the magnitude of the rebound effect, the extent of observable energy efficiency investments, and the utility’s objective.
Springer
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