Beneficial Electrification Test to Assess Benefits and Costs to Achieve Widespread Decarbonization
U.S. states, cities, and utilities can achieve widespread decarbonization by scaling up beneficial electrification markets through large investments combined with capital investments from the private sector. However, policymakers, regulators, and utilities must justify the expenditure of public and ratepayer dollars. Critical to this is effort is assessing cost-effectiveness –that is, comparing benefits of an investment with costs. Utilities and regulators have traditionally evaluated cost-effectiveness using a series of benefit cost analysis (BCA) tests that were established for demand-side management. While those tests are conceptually relevant, those pursuing decarbonization goals may wish to rethink how they apply and interpret those tests when evaluating beneficial electrification investments.
In this article, Cadmus experts examine the opportunities and challenges of evaluating beneficial electrification investments using a BCA framework that has been routinely used for energy efficiency. Specifically, they describe the traditional energy efficiency BCA tests, explore how the allocation of benefits and costs change for beneficial electrification investments, and offer suggestions that policymakers and analysts should consider when interpreting BCA test results.
As policymakers, regulators, utilities, and other stakeholders wrestle with establishing the most appropriate decarbonization goals, they will likely also have to wrestle with the correct application of BCA components for beneficial electrification. In doing so, it will be critical to rethink the assumptions that have been traditionally used to evaluate energy efficiency programs.