Energy Economics

‘Measuring the Welfare Effects of Residential Energy Efficiency Programs,’ Allcott, H. (with M.Greenstone), 2017.

This paper sets out a framework to evaluate the welfare impacts of residential energy efficiency programs in the presence of imperfect information, behavioral biases, and externalities, then estimates key parameters using a 100,000-household eld experiment. Several results run counter to conventional wisdom: we and no evidence of informational or behavioral failures thought to reduce program participation, there are large unobserved benets and costs that traditional evaluations miss, and realized energy savings are only 58 percent of predictions. In the context of the model, the two programs we study reduce social welfare by $0.18 per subsidy dollar spent, both because subsidies are not well-calibrated to estimated externality damages and because of self-selection induced by subsidies that attract households whose participation generates low social value. However, the model predicts that perfectly calibrated subsidies would increase welfare by $2.53 per subsidy dollar, revealing the potential of energy efficiency programs.

‘Real-Time Pricing and Electricity Market Design,’ Allcott, H., 2013.

This paper considers two related distortions in electricity markets: the lack of real-time retail pricing and the suppression of peak wholesale prices due to Installed Capacity requirements. I lay out a framework for understanding these problems using a two-stage entry model in which producers with multiple technologies set capacity and then sell electricity into wholesale markets as demand varies over time. The model is calibrated to supply and demand conditions in the PJM electricity market. I estimate that moving from 10 percent of consumers on real-time pricing to 20 percent would increase welfare in PJM by $120 million per year. However, the welfare gains from clearer signals of scarcity prices under an Energy Only market design are more than twice as large. Furthermore, equilibrium peak prices in the Energy Only design drop to reasonable levels once a moderate share of retail consumers are on real-time pricing.