Back to Right Light Proceedings startpage
Short-term Financial Impacts of Energy-Efficiency Programmes on European Electric Utilities Case Studies for Nine Utilities in Five Countries
Evan MillsDepartment of Environmental and Energy Systems Studies, University of Lund, Sweden Nils Borg Department of Economic History, Uppsala University, Sweden Abstract In the long term, investments in end-use energy-efficiency can reduce the need for building costly new electric power plants. However, the threat of short-term net revenue losses due to under-collection of fixed costs can discourage utilities from promoting end-use efficiency. This paper assesses the impacts of conservation programmes under the accounting rules and cost structures that characterize selected utilities in Denmark, Germany, Italy, the Netherlands, and Sweden. For the utilities studied, net revenue losses resulting from reduced electricity demand range from 0% to 46% of total per-kWh revenues. Net revenue losses are minimized when variable costs represent a large portion of total revenues and when tariffs include fixed charges. Distributing companies are generally less-adversely effected than generating companies. With certain caveats, the current practice in the five countries studied is to increase electricity prices in order to recover lost net revenues (and conservation programme costs). The same approach is taken in the often-noted Electric Revenue Adjustment Mechanism (ERAM) used in California, although an important distinction is that the procedures are less formalized in Europe. Decoupling utility revenues from electricity sales in this manner removes an important disincentive to promoting energy efficiency, although it falls short of providing a financial reward. European utilities have so far devoted very little effort towards improving energy efficiency. By applying new systems for cost accounting, utilities can receive a true incentive for investing in end-use efficiency rather than new supply. In Europe, the practice of increasing prices to recover program-related costs, lost revenues, and possible extra incentive payments is often viewed as a potential source of public and political opposition to large-scale utility conservation spending, even if total consumer bills decline. The current practice of "expensing" conservation programme costs in a single year compounds this problem. Electricity price increases due to lighting programmes operated by eight utilities are trivial and lead to essentially unchanged or slightly decreased bills.
|