Price regulation and the incentives to pursue energy efficiency by minimizing network losses

Dutra, Joisa, Menezes, Flavio M. and Zheng, Xuemei (2016) Price regulation and the incentives to pursue energy efficiency by minimizing network losses. Energy Journal, 37 4: 45-61. doi:10.5547/01956574.37.4.jdut

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Author Dutra, Joisa
Menezes, Flavio M.
Zheng, Xuemei
Title Price regulation and the incentives to pursue energy efficiency by minimizing network losses
Journal name Energy Journal   Check publisher's open access policy
ISSN 0195-6574
1944-9089
Publication date 2016
Sub-type Article (original research)
DOI 10.5547/01956574.37.4.jdut
Open Access Status Not yet assessed
Volume 37
Issue 4
Start page 45
End page 61
Total pages 17
Place of publication Cleveland, OH, United States
Publisher International Association for Energy Economics
Collection year 2017
Language eng
Abstract This paper examines the incentives embedded in different regulatory regimes for investment by utilities in energy efficiency programs that aim to reduce network losses. In our model, a monopolist chooses whether to undertake an investment in energy efficiency, which is not observable by the regulator. We show that, in equilibrium, the monopolist chooses to exert positive effort more often under price cap regulation than under no regulation or mandated target regulation and that she exerts no effort under rate of return regulation. This result contrasts with an extensive literature that focuses on end-user energy conservation and shows that price caps are ineffective for achieving energy efficiency as utilities have an incentive to maximize sales volume. Thus, policies that are designed to promote demand-side energy conservation may diminish the utilities' incentives to pursue supply-side energy efficiency through minimizing network losses.
Keyword Energy efficiency
Regulatory incentive
The electricity sector
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: HERDC Pre-Audit
School of Economics Publications
 
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Created: Fri, 15 Jan 2016, 10:37:11 EST by Alys Hohnen on behalf of School of Economics