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.