On the other hand, when prices of a good are too low, either because of price subsidies or other market distortions, consumption goes up. If there is insufficient supply to meet this consumption, demand is limited by making people wait in line (in the case of consumer goods) or suffering brown-outs and black-outs (in the case of electricity). These situations are tragic, graphic, and avoidable.
As noted, the utility sector in the US does not operate in a free market to provide price signals to consumers and suppliers. But it does work. We have built a system that protects us from monopolist overcharging, and from over-zealous price controls that would reduce demand through brown-outs.
So how much energy efficiency should we have?
This is the 7.5-billion dollar question. It is an important one. When utility energy efficiency programs are underfunded or ineffective, we all lose. Utilities receive a guaranteed rate of return for investment because of the need to raise capital. There is no mandate, or even rationale, for giving utilities profits just because we are nice. Regulators and stakeholders are working hard to reduce the amount of money that utilities make. Energy efficiency is not the enemy of utilities any more than clean water is. Utilities operate in a space that is supposed to benefit ratepayers and customers. Normal infrastructure, fuel costs, pollution, energy efficiency, and utility profits all play a factor for regulators in this market.
That is the reality of regulated industry. We don’t have breadlines or rampant gouging because our system works. But this system only works when we have reliable information to make investment decisions. The conventional wisdom is that energy efficiency is about half the cost of supply-side energy resources. Business and economic interests should be demanding more energy efficiency. In fact, they do. People demanding low electric rates are actually demanding more energy efficiency investment. They just don’t always know it. So, why don’t we do more?
I think there are two reasons. The first is that we don’t do a good enough job showing the math on cost-effectiveness. We need to consider attribution and avoided cost rigorously, and provide regulators and stakeholders certainty that the money is being well spent.
The second is that energy efficiency can be hard. Throwing an additional dollar at energy efficiency is not enough to ensure that ratepayers benefit. Some programs and projects are terrible. My best guess is that I have done about 1,000 site visits for evaluation and energy efficiency studies, and I have seen projects that have done nothing to help the ratepayers that fund them. It’s rare, but I have seen it. When we see it, we need to fix it.
To address these issues. We need robust and competent evaluation of energy efficiency programs. We can’t just aim wildly and hope that, on average, we hit the magnificent buck (cost effectiveness target). We need to adjust our programs and funding until we actually hit the deer. Now let’s eat.
 Not recommended.
 His correctness factor (CF, a made-up value) was about 0.87, a slight decrease from the last post’s CF, but still above industry average. See stranded assets, Enron, Public Service Co. of New Hampshire et al.
 Several problems.
 This is not a joke. This is done well in the United States.
 In fully vertical markets, the avoided cost of power from other sources is often known.
 Ratepayer funded energy efficiency spending, 2015.