DEMAND-SIDE MANAGEMENT - OVERCOMING MARKET BARRIERS OR OBSCURING REAL COSTS

This paper compares two approaches to estimating the net benefits of a demand-side management program that subsidizes the purchase of efficient equipment. The total resource cost (TRC) test suggests net benefits of US$6.9 million. Estimates based on consumer's surplus yield an estimated net loss of US$6.3 million. This gap is due to differences in estimates of participants' net benefits. Market failures do not appear to be significant and thus cannot explain much of the gap. The more plausible explanation is that the TRC uses a lower discount rate than participants use for themselves and it omits some costs.