The objective of this book is to review and to analyze the economics of conservation programs in theory and in practice. Demand side management (DSM) is one of the most topical issues in regulating electric utilities, both in the United States and internationally. DSM consists of various measures at the level of demand (households, commerce, industry, others), which are at least partially financed by electric utilities and which should either conserve energy or reduce the peak load.
DSM rests on two pillars: efficient regulation and environmental concern. While regulatory aspects dominated the past debate, environmental issues are now becoming more and more important. This shift is largely due to the recently substantiated evidence on the greenhouse effect. Therefore, lowering greenhouse gas emissions, in particular of carbon dioxide, which is an inevitable by-product of burning fossil fuels, seems an important environmental objective. Given the contribution of carbon dioxide emissions, energy conservation, whatever that means in detail, becomes highly important. Indeed, DSM and related conservation programs are considered as a low cost option, or as a no regret strategy, independent of whether or not DSM improves the power industry's economic efficiency. Therefore, conservation programs have to be considered among the first instruments to be implemented in any efficient carbon dioxide emission reduction plan. Just how cheap such programs will turn out to be is the subject of this study.
Although DSM covers load management as well as conservation, this book, like the public debate, focuses on conservation. The emphasis of this book is on electricity demand, including the exposition, jargon, empirics, etc., but the basic idea of DSM and many of the issues addressed in this book can be extended to utilities other than energy (gas and district heat), also to water, garbage collection and others. However, the intention of the book is not to pretend to generality but to develop the basic ideas with respect to an environment with which the author is sufficiently familiar.