Estimating the Value of Energy Efficiency to Reduce Wholesale Energy Price Volatility

Research Report U1803


Brendon Baatz, James Barrett, and Brian Stickles


Wholesale energy prices have historically been volatile, and this can impose significant costs on electricity buyers and sellers. This report examines these costs in electricity markets and demonstrates the value of energy efficiency as a low-risk supply option. It estimates the value at risk in the PJM service territory and finds that volatility adds as much as a 25% cost premium in extreme years and a 14% premium in more representative years. Well-designed energy efficiency investments can significantly reduce the amount of risk utilities and their customers bear and should be included in resource planning processes.