Cost-effectiveness of electricity energy efficiency programs

Toshi H. Arimura, Shanjun Li, Richard G. Newell, Karen Palmer*

*Corresponding author for this work

Research output: Contribution to specialist publicationArticle

60 Citations (Scopus)


We analyze the cost-effectiveness of electric utility ratepayer-funded programs to promote demand-side management (DSM) and energy efficiency (EE) investments. We specify a model that relates electricity demand to previous EE DSM spending, energy prices, income, weather, and other demand factors. In contrast to previous studies, we allow EE DSM spending to have a potential longterm demand effect and explicitly address possible endogeneity in spending. We find that current period EE DSM expenditures reduce electricity demand and that this effect persists for a number of years. Our findings suggest that ratepayer funded DSM expenditures between 1992 and 2006 produced a central estimate of 0.9 percent savings in electricity consumption over that time period and a 1.8 percent savings over all years. These energy savings came at an expected average cost to utilities of roughly 5 cents per kWh saved when future savings are discounted at a 5 percent rate.

Original languageEnglish
Number of pages37
Specialist publicationEnergy Journal
Publication statusPublished - 2012
Externally publishedYes


  • Demand-side management
  • Electricity demand
  • Energy efficiency

ASJC Scopus subject areas

  • Economics and Econometrics
  • General Energy


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