Marginal Energy Price Analyses

Use of marginal energy prices, instead of average energy prices, represents a theoretically valuable and challenging refinement to the usual life-cycle cost analysis conducted for proposed appliance energy efficiency standards. Marginal prices, from a consumer perspective, are those prices consumers pay (or save) for their last units of energy used (or saved). For utilities, marginal electricity costs are the costs experienced by utilities for the last kilowatt-hour (kWh) of electricity produced. A utility's marginal cost can be higher or lower than its average price, depending on the relationships between capacity, generation, transmission, and distribution costs.

Since 1998, the EES group has developed three methods for estimating marginal energy prices for use in energy efficiency standards rulemakings. These methods are based on extensive and ongoing analysis of data on the range and distribution of marginal energy prices around the country. The methods are:

  1. regression analysis of household utility bill data,
  2. hourly utility marginal costs, and
  3. tariff-based energy bill calculator.

The regression analysis method has been used to improve the life-cycle cost (LCC) analyses for residential products, including clothes washers, water heaters, fluorescent lamp ballasts, and central air conditioners and heat pumps. This approach has particular benefit when the product under study is used seasonally, such as air conditioners or furnaces. Methods 2 and 3 have been applied to different product categories of distribution transformers. Hourly utility marginal costs are calculated for the economic analysis of liquid-immersed transformers, which are predominantly owned by utilities that have marginal costs that can vary by the hour. The tariff-based bill calculator, a monthly analysis, is used for evaluating dry-type transformers, which are typically owned by commercial and industrial (C&I) establishments that see monthly electricity bills.