Yale School of Forestry & Environmental Studies
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Utility demand-side management programs show lasting and lagged effects

Utility companies’ demand-side programs produced a 0.9 percent savings in electricity consumption over the period between 1992 and 2006 and a 1.8 percent savings overall. They also achieved their maximum impact a few years after launching and had a long-lasting effect.  Policy-makers should incorporate consideration of lasting and lagged effects of DSM programs into consideration.

Demand-side management (DSM) programs encourage energy users to incorporate energy efficient design and reduce energy consumption and demand. Such programs have been in existence since the late 1970s. After a brief period of disappearance during the market restructuring of the electricity market, they are now experiencing a renewed interest during this period of increasing electricity prices, volatile electricity supply, and growing debate over climate change. Yet there is no authoritative judgment over the cost-effectiveness of DSM, which is evaluated by how much it costs to reduce 1 kilowatt-hour  (kWh) of electricity compared to previous demand-side management programs. Opinion varies when it comes to the electricity and cost saving impacts. To move forward and advance to next stage of energy efficiency development and policy-making, a comprehensive and controlled evaluation of previous policies becomes particularly important.
In a recent paper from The Energy Journal, a group of researchers from Sophia University-Tokyo, Cornell, Duke and Resources for the Future analyze the effects of utility and third-party demand-side management program expenditures on electricity demand. Controlling for various consumption drivers, the authors use utility-level data from the U.S. Energy Information Administration (EIA) and other sources over 1992 to 2006 to identify the elasticity between electricity demand and demand-side management spending. The result demonstrates that DSM expenditures between 1992 and 2006 produced a 0.9 percent savings in electricity consumption over that time period and a 1.8 percent savings over all years. Such savings translate to a cost saving of roughly 5 cents per kWh saved with a 5 percent discount rate. More interestingly, the research also suggests that the impact of such programs is still effective even 15 years later—indicating a lasting effect on consumers’ energy consumption behavior. Also, the data generated also show that the effects of program spending could be initially small, yet continuously increase and achieve its maximum only a few years later. This a sensible conclusion considering the information coordination, training, demonstration and financing activities required for such programs.
The effectiveness of utility energy efficiency and demand-side management programs is at center of increasing interest and research. This paper’s finding highlights the importance of sustainable support of energy efficiency programs.  Policy-makers should incorporate consideration of lasting and lagged effects of DSM programs into consideration and demonstrate policy and market commitment to DSM program development.

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Original Paper:

Toshi H. Arimura, Shanjun Li, Richard G. Newell, and Karen Palmer, "Cost-Effectiveness of Electricity Energy Efficiency Programs,” The Energy Journal, Vol. 0, Number 2 (2012), International Association for Energy Economics. 


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