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The Costs and Benefits of Policies for Efficient Use of Electricity: Improved Estimates of per-kWh Costs, and potential Cumulative Cost Savings for Western European Electricity Users
Panel: Panel 2: Incentives and instruments to achive greater
Authors:
Florentin Krause, International Project for Sustainable Energy Paths (IPSEP)
David Olivier, Energy Advisory Associates
Jonathan Koomey, Lawrence Berkeley National Laboratory
Abstract
This paper finds that the full implementation of electrical efficiency resources in Western Europe over the next 30 years would save electricity users 16-40 percent of projected year 2020 electricity bills, or 150-300 billion ECU on a cumulative, net present value basis.
This
paper finds that most past studies significantly understate the
economic benefits of electrical efficiency improvements, despite
the fact that most such studies have identified significant cost-effective
demand-side efficiency resources. Using a more comprehensive costing
methodology, we estimate that the full implementation of electrical
efficiency resources in Western Europe over the next 30 years would
save electricity users 16-40 percent of projected year 2020 electricity
bills, or 150-300 billion ECU on a cumulative, net present value
basis.
The research summarized in this paper distinguishes itself from
previous analyses of the potential and cost-effectiveness of electrical
efficiency improvements in several respects. First, electrical efficiency
is analyzed from a national policy perspective rather than from
the perspective of individual investors or utilities. Correspondingly,
energy efficiency is treated as a resource whose costs and market
deployment over time can be shaped by policy action.
Second, our analysis goes beyond the purely engineering-economic framework of many previous studies. To arrive at realistic cost estimates for the purpose of policy decisions, we integrate the prospective view of technology analysis with the retrospective view of program evaluation and market transformation research.
Third, the cost of energy efficiency resources is based on a more rigorous definition and comprehensive treatment of cost components than found in most previous studies. In particular, we take into account field-measured savings, explicitly incorporate administrative and other indirect program costs, and include foreseeable feedback effects of policies on technology prices. Estimates for the latter are taken from recent evaluation research on energy efficiency standards and market transformation programs. All told, 21 distinct factors are considered in calculating the cost of energy efficiency.
Fourth, we explicitly incorporate existing data uncertainties on technology and program costs, performance, and policy feedbacks. Instead of presenting only point values for the cost of saved electricity, we derive uncertainty bands, and correlate the width of these bands with policy choices.
Finally, the potential economic and environmental benefits of implementing electrical efficiency resources are estimated on the basis of an integrated least-cost analysis that takes into account interactions with the supply-side.
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