Motivating energy suppliers to promote energy conservation

We examine the design of regulatory policy to induce electric utilities to deliver the surplus-maximizing level of energy efficiency services, <InlineEquation ID="IEq1"> <EquationSource Format="TEX">$$e^{*}$$</EquationSource> </InlineEquation>. The rebound effect (whereby increased energy efficiency stimulates the demand for energy) typically renders revenue decoupling insufficient in this regard. The additional financial incentive required to induce <InlineEquation ID="IEq2"> <EquationSource Format="TEX">$$e^{*}$$</EquationSource> </InlineEquation> is shown to vary with such factors as the prevailing price of energy, the magnitude of the rebound effect, the extent of observable energy efficiency investments, and the utility’s objective. Copyright Springer Science+Business Media New York 2013