Price Regulation and the Incentives to Pursue Energy Efficiency by Minimizing Network Losses

Joisa Dutra, Flavio Menezes and Xuemei Zheng

The Energy Journal, 2016, vol. 37, issue 4, 45-62

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.

Keywords: Energy efficiency; Regulatory incentive; The electricity sector (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/01956574.37.4.jdut (text/html)

Related works:
Journal Article: Price Regulation and the Incentives to Pursue Energy Efficiency by Minimizing Network Losses (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:37:y:2016:i:4:p:45-62

DOI: 10.5547/01956574.37.4.jdut

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().