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

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  • Louis-Gaëtan Giraudet
  • Matthieu Glachant
  • Jean-Philippe Nicolai

Abstract

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.

Suggested Citation

  • Louis-Gaëtan Giraudet & Matthieu Glachant & Jean-Philippe Nicolai, 2020. "Selling and Saving Energy: Energy Efficiency Obligations in Liberalized Energy Markets," The Energy Journal, , vol. 41(1_suppl), pages 191-214, June.
  • Handle: RePEc:sae:enejou:v:41:y:2020:i:1_suppl:p:191-214
    DOI: 10.5547/01956574.41.SI1.lgir
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    References listed on IDEAS

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    More about this item

    Keywords

    Energy efficiency; Imperfect competition; Information asymmetry; Internal and external compliance;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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