Explain why the existence of a renewable energy credit market would lower the compliance costs for utilities forced to meet a renewable portfolio standard.

3.

a. Some new technologies, such as LED light bulbs, have the characteristic that they cost more to purchase than more conventional incandescent alternatives, but they save energy. How could you use the present value criterion to decide how cost-effective these new technologies are? What information would you need to do the calculations? How would the calculations be structured? How would you use the results of these calculations to decide on their cost-effectiveness?

b. Some typical monthly electrical bills have two components: (1) a fixed monthly change (e.g., $10 a month), and (2) a usage component (e.g., $0.14 per kilowatt-hour consumed). If a utility is planning to raise the amount they charge customers for electricity, would you expect that increase to discourage, encourage, or have no effect on the demand for LED light bulbs? Does it depend on which component they change? Why or why not?