Objectively Designing Shared Savings Incentive Mechanisms: An Opportunity Cost Model for Electric Utility Efficiency Programs

Electric utilities have proposed incentive mechanisms such as shared savings programs with the claim that energy efficiency programs create foregone investment and opportunity cost. Unfortunately, incentive proposals from utilities typically do not rigorously link the incentives to a formal measure of opportunity cost. The authors develop a financial model for estimating opportunity cost as an objective benchmark to accurately develop shared savings levels.