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Cost Effectiveness of Energy Efficiency Programs

   John Doe      February 1st, 2021

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Cost effectiveness analysis is one of the crucial key elements of energy efficiency programs. It has a direct impact on policy making, program design and budget allocation.There are two main categories of avoided costs: energyrelated and capacity-related. Energy-related avoided costs refer to market prices of energy, fuel costs, natural gas commodity prices, and other variable costs. Capacityrelated avoided costs refer to infrastructure investments such as power plants, transmission and distribution lines, and pipelines. In this segment, we will discuss some important aspects of energy efficiency programs and how to evaluate their cost effectiveness.

GHG Emissions

There is increasing interest in valuing the energy efficiency’s effect on reducing GHG emissions in the cost-effectiveness tests. The first step is to determine the quantity of avoided carbon dioxide (CO2) emissions from the efficiency program. Once the amount of CO2 reductions has been determined, its economic value can be calculated and added to the net benefits of the energy efficiency measures used to achieve the reductions.

Cost Leadership Program

To implement an effective cost intelligence philosophy, it must be accompanied by a cost leadership program where emphasis should be laid on developing an integrated supply chain model in which different departments and processes should be aligned with common objectives. Moreover, extended contract management teams must focus on low carbon efficiencies in terms of contract delivery.

Cost Recovery Solutions

Proper methodologies should be adopted regarding the expenses incurred in procurement processes of energy companies and how well it synchronizes with increased or decreased changes in cost of purchased energy. Moreover cost recovery tax should be paid due importance in aligning measurable cost recovery solutions.

As policy recommendations for increasing cost-effectiveness of energy efficiency programs we propose a larger scale of energy efficiency programs, focus on best contract strategy for businesses as well as on the development of long-term relationships with program participants and contractors.