, Volume 43, Issue 3, pp 229-247
Date: 20 Mar 2013

Motivating energy suppliers to promote energy conservation

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We examine the design of regulatory policy to induce electric utilities to deliver the surplus-maximizing level of energy efficiency services, \(e^{*}\). The rebound effect (whereby increased energy efficiency stimulates the demand for energy) typically renders revenue decoupling insufficient in this regard. The additional financial incentive required to induce \(e^{*}\) is shown to vary with such factors as the prevailing price of energy, the magnitude of the rebound effect, the extent of observable energy efficiency investments, and the utility’s objective.