Linking consumer energy efficiency with security of supply

Most modern energy policies seek to achieve systematic ongoing incremental increases in consumer energy efficiency, since this contributes to improved security of supply, favourable environmental outcomes and increased economic efficiency. Yet realised levels of efficiency are typically well below the most cost-effective equilibrium due to variety of behavioural and organisational barriers, which are often linked to information constraints. In addition efficient users are normally unrewarded for collective benefits to system security and to the environment, thus reducing the incentives for energy consumers to invest in efficiency improvements. This paper examines the dichotomies and symmetries between supply- and demand-side solutions to energy security concerns and reviews opportunities to overcome barriers to improved consumer efficiency. A security market is identified as a mechanism to promote both demand- and supply-side investments that support electricity system security. Such a market would assist in setting the optimal quantity of reserves while achieving an efficient balance between supply- and demand-side initiatives. It would also help to smooth overall investment throughout the energy system by encouraging incremental approaches, such as distributed generation and demand-side alternatives where they provide competitive value. Although the discussion is applicable to energy systems in general, it focuses primarily on electricity in New Zealand.