Energy Price Analysis
The economic value of energy-saving technologies from the perspective of the consumer depends on the price of energy (electricity, gas, or other fuel), which varies significantly both for different types of consumers and for different regions of the country.
While simple analytic models often treat energy as a commodity, in reality consumers are billed for energy as a service, with billing based on tariffs which specify the terms of service and pricing for various aspects of the service. For electricity in particular, the formulas used to determine the total bill can be quite complex. In a now-completed research project, EES collected an extensive sample of electric utility tariffs, compiled the pricing data, and built computation tools to calculate electricity prices based on real data for representative sets of consumers, such as households in different regions, small businesses, etc. These data serve as an important benchmark in evaluating the precision of data sets that may contain less detail about pricing structures, but cover more utility companies and are updated frequently.
EES has conducted an extensive review of other energy price data, including data published by the Energy Information Administration and data published by utility industry organizations, and compared the prices predicted based on these other sources to those calculated from the highly detailed tariff data. This analysis showed that the Typical Bills and Average Rates Reports published twice a year by the Edison Electric Institute (EEI), are sufficiently detailed to develop price estimates with precision comparable to the more detailed tariff-based data. The EEI reports are used each year to update the price estimates used in the various cost-benefit analyses performed by EES.
Marginal Energy Price Analysis
Two categories of price are used in the economic analyses: average and marginal prices. The average price is defined as the total energy bill ($) to the total commodity consumption (e.g. kWh for electricity). This price should be used to value energy use in the baseline scenario, in which no change is made to technology choice. The marginal price is defined under conditions where the consumer’s total energy use changes, for example due to the installation of higher efficiency equipment. In this case the marginal price is equal to the change in the consumer’s energy bill divided by the change in consumption. Given the complexity of tariff structures, marginal prices can be higher or lower than average prices. EES data analyses show that, for current electricity and natural gas markets, marginal prices are typically higher than average prices, and in some cases may be significantly higher. Hence, use of marginal prices represents a valuable refinement to life-cycle cost and other cost-benefit analyses.
Energy Price Trends
Another important consideration in EES economic analyses is how energy prices may vary in the future. For example, in life-cycle cost analysis the analysis period is the entire lifetime of the product, so trends on future energy prices should be included to correctly value changes to energy consumption. EES uses projections of future energy price trends published in the Annual Energy Outlook (AEO), which include variability by region and customer type.
Related Publications
Coughlin, Katie, and Bereket Beraki. Non-residential Electricity Prices: A Review of Data Sources and Estimation Methods. 2019. LBNL-2001203. PDF.
Coughlin, Katie, and Bereket Beraki. Residential Electricity Prices: A Review of Data Sources and Estimation Methods. 2018. LBNL-2001169. PDF.