Understanding Cost-Effectiveness of Energy Efficiency Programs

This paper reviews the issues and approaches involved in considering and adopting cost-effectiveness tests, including discussing each perspective represented by the five standard cost-effectiveness tests and clarifying key terms.

The key points from this paper include:

• There is no single best test for evaluating the cost-effectiveness of energy efficiency.
• Each of the cost-effectiveness tests provides different information about the impacts of energy efficiency programs from distinct vantage points. Together, multiple tests provide a comprehensive approach.
• Jurisdictions seeking to increase efficiency implementation may choose to emphasize the utility/program administrator costs test (PACT), which compares energy efficiency as a utility investment on a par with other resources.
• The most common primary measurement of energy efficiency cost-effectiveness is the total resource cost test (TRC), followed closely by the societal cost test (SCT).

The paper also discusses the major choices that affect the cost-effectiveness results and how those decisions are typically considered.