Split Incentives and Residential Fuel Choice

Kenneth H. Tiedemann

Keywords

Energy efficiency, Deamnd side management, Load modelling and estimation and forecast, Statistical analysis, Statistical and probabilistic modelling

Abstract

This study uses probit regression analysis to analyze the role of split incentives in water heating fuel choice in new residential developments using information from a residential DSM pilot in British Columbia. Split incentive refers to a situation where the economic agent who is considering making an investment does not directly reap the benefits of the investment. A key example of split incentives in the residential sector is where the owner of a rental property makes an investment, but the gain is realized by a tenant who pays the energy bill. The key findings of the study are: (1) ownership of a dwelling unit rather than rental of a dwelling unit increases the probability of natural gas water heating by 12%; (2) the implicit discount rate on water heater investments is 30.3%; and (3) the program had a positive net present value for the Utility Test, the Participant Test, and the Total Resource Cost Test, but not for the Rate Impact Test.

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