Boomhower, Judson and Davis, Lucas “Do Energy Efficiency Investments Deliver at the Right Time?” (Revised August 2017) (Revised version published in American Economic Journal: Applied Economics, 12(1): 115-139, 2020) | WP-271R | Blog

Abstract:
Electricity cannot be cost-effectively stored even for short periods of time. Consequently, wholesale electricity prices vary widely across hours of the day with peakprices frequently exceeding off-peak prices by a factor of ten or more. Most analyses ofenergy-efficiency policies ignore this variation, focusing on total energy savings without regard to when those savings occur. In this paper we demonstrate the importanceof this distinction using novel evidence from a rebate program for air conditioners inSouthern California. We estimate electricity savings using hourly smart-meter dataand show that savings tend to occur disproportionately during hours when the valueof electricity is high. This significantly increases the overall value of the program,especially once we account for the large capacity payments received by generators toguarantee their availability in high-demand hours. We then compare this estimatedsavings profile with engineering-based estimates for this program as well as a varietyof alternative energy-efficiency investments. The results illustrate a surprisingly largeamount of variation in economic value across investments.

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