Cover Image


View/Hide Left Panel

Page 709

The steps are ranked in order of ascending CCE, with the cheapest options plotted first, causing the curve to be upward-sloping.

To decide whether a step is profitable (and how profitable), its CCE is compared to the "price" of the avoided kilowatt-hour. Table C.1 shows that "price" varies from different viewpoints. The average 1989 price of electricity in buildings (line 1) is 7.5 cents/kWh, whereas industry (line 2) pays only 4.7 cents/kWh. Because one cannot anticipate where a conserved kilowatt-hour will ultimately be used, the societal price is taken to be an all-sector average of 6.4 cents/kWh (line 3). One could then subtract the tax (1.1 cents/kWh), but tax would also have to be subtracted from the cost of conserved energy. However, both the competing utility and the conservation industries pay taxes, and only the difference (if any) in tax rates should be corrected for. To simplify, one will be assumed to cancel the other.

Line 4 addresses the fact that the short-run marginal cost of electricity may be lower than its average price. In some parts of the United States there is still a glut of electric generating capacity, so that the marginal cost of a kilowatt-hour is low. In such areas, the "rock bottom" price of generating a kilowatt-hour from coal and delivering it to the building meter is about 3.5 cents.

Line 5 addresses externalities, although they will not actually be used now. Today, many jurisdictions require a theoretical "environmental adder" of 1 to 3 cents/kWh; that is, they give efficiency an advantage of 1 to 3 cents/kWh over supply during resource planning. For example, New York has recently adopted a point system for evaluating competing resources in which the most environmentally disruptive resource (a new coal plant) under the most unfavorable circumstances is given. This point system provides an "environmental adder" of 1.4 cents/kWh. Desiring to be conventional and conservative in its claims for the profitability of efficiency investments,

TABLE C.1 "Prices" of Electricity at the Meter


Price (cents/kWh)

1.  Residential price (seen by consumer)


2.  Industrial price


3.  All-sector average price


4.  Marginal cost of operating a coal plant and delivering 1 kWh to the meter


5.  Line 3 plus externality cost: 1 to 3 cents/kWh (New York has chosen 1.4 cents/kWh for the worst coal plant)


The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement