This is a Free article. You will receive access to the full text.

Selling and Saving Energy: Energy Efficiency Obligations in Liberalized Energy Markets

Free Article

In Europe, energy efficiency obligations are imposed on energy retailers competing in liberalized energy markets. They comply by subsidizing energy efficiency investments made by energy end-users from within or outside their customer base. We develop a model describing how competition in the energy market affects compliance strategies. We find that, instead of selecting the most cost-effective investments options, firms may either target their most elastic customers, which enables them to increase their retail price, or their competitor’s customers, which protects their sales. Allowing firms to trade obligations can restore cost-effectiveness, but reduces consumer surplus. Overall, the degree of flexibility that should be incorporated into such programs crucially depends on the degree of heterogeneity across investment costs and the relative weights governments assign to cost-effectiveness and consumer surplus.

Download Executive Summary Download PDF

Keywords: Energy efficiency, Imperfect competition, Information asymmetry, Internal and external compliance

DOI: 10.5547/01956574.41.SI1.lgir

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 41, Special Issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


© 2023 International Association for Energy Economics | Privacy Policy | Return Policy