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Vintage Capital, Technology Adoption and Electricity Demand-Side Management

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  • Wenbiao Cai
  • Hugh Grant
  • Manish Pandey

Abstract

Demand-side Management (DSM) programs by electricity utilities report substantial energy savings that often receive little support from empirical studies. We argue that this discrepancy results from an inherently static view of technology adoption by utilities when estimating future energy savings. We illustrate this through a simple model of technology adoption, in which households operate different vintages of appliances and have heterogenous forecasts about the rate of future technological progress. An “energy efficiency gap†arises when households under-estimate the true rate of technological progress. We parameterize the model using data on refrigerators and show that a DSM program that subsidizes adoption of energy-efficient refrigerators yields small energy saving that, in most cases, do not justify the cost of the subsidy.

Suggested Citation

  • Wenbiao Cai & Hugh Grant & Manish Pandey, 2018. "Vintage Capital, Technology Adoption and Electricity Demand-Side Management," The Energy Journal, , vol. 39(2), pages 219-232, March.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:2:p:219-232
    DOI: 10.5547/01956574.39.2.wcai
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    References listed on IDEAS

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    More about this item

    Keywords

    Demand-side management; vintage capital; technology adoption;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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