Avoided Cost

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Avoided cost analysis is a widely accepted method for estimating the economic benefits associated with renewable energy, energy efficiency, or conservation programs.  Naturally, the term “avoided cost” refers to the cost no longer incurred as the result of a project or action. For a program to be considered economic, the avoided cost must outweigh the program’s expense.

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The California Independent System Operator (CAISO) manages about 80 percent of California’s power grid and facilitates the operation of a wholesale energy market, including: day-ahead, hour-ahead, and five-minute energy markets as well as ancillary services and financial transmission rights markets. For the past several years, CAISO has been working closely with PacifiCorp (a regulated electric utility serving parts of Oregon, northern California and southeastern Washington) to develop a regional energy imbalance market (EIM). This market will allow balancing authority areas (BAAs) to pool a broad array of generation resources through CAISO’s five-minute energy market.  CAISO will call on the BAAs to respond to fluctuations in supply and demand, using the most economic resources available anywhere in their shared territories.

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The U.S. Energy Information Administration (EIA) has released its Annual Energy Outlook 2014 (AEO 2014), detailing long-term projections for the U.S. through 2040 with respect to energy supply, demand, and prices. The report lists several key findings, including: increased use of natural gas-fired generation, the growth of oil and natural gas production, industrial production expansion, stabilized levels of carbon dioxide (CO2)emissions, and improved efficiency in light-duty vehicles.

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