**Abstract**

Over the past couple of decades, the kingdom's annual per capita electricity consumption has been steadily growing by around 7%. One of the key causes for such a high growth is the intensive use of non-energy-efficient equipment, which was dominating the Saudi market. In 2017, the residential sector consumed around 143 TWh, which represents around 48% of the country's total electricity consumption. The aim of this study is to assess the feasibility of an air conditioning incentive program for citizens from energy and economic sides. This chapter is a detailed study where program gains from energy and economic standpoints were based on substituting participants' old air conditioning units with new units that are better in performance. The proposed program was designed over an 8-year period with three scenarios where the government will take care of all the capital cost, 75%, and none of the capital cost in these scenarios. The results of this study indicated that an accumulated savings of up to 17.11 TWh by 2025 with NPVs above \$13 billion can be achieved in all scenarios. Moreover, it was estimated that the program will add an average of \$0.5 billion per year to the kingdom's GDP over the duration of the program.

**Keywords:** energy efficiency, energy savings, air conditioning, HVAC, subsidy program, incentive program, residential, Saudi Arabia, KSA

## **1. Introduction**

The Kingdom of Saudi Arabia is one of the nations that are blessed with plenty of energy resources, specifically fossil fuels in the form of oil and gas. In addition, it has a huge potential for renewable application which has not been leashed at full capacity yet. This wealth of energy resource was one of the main factors to have and maintain low energy prices for decades in all the sectors, namely, industrial, transportation, or buildings. For instance, the average electricity price was around \$0.03/KWh for long time which is considered one of the lowest worldwide. Over the past years, the kingdom's per capita electricity consumption was rising swiftly with an average annual rise of 7% where the year 2000 electricity consumption was 5640 KWh per capita compared to a world's average of 2384 and the 2014 numbers were 9444 KWh per capita compared to the global average of 3127 as per the World Bank statistics.

The buildings sector is considered one of the main energy consumers in the kingdom with a total of nearly 9 million electrically connected customers in 2017, with the bulk, 7.1 million, being residential customers. As per the Saudi Electricity and Cogeneration Regulatory Authority (ECRA), the residential sector consumed nearly 143 TWh, which represents 48% of the country's electricity consumption. The high residential energy consumption is projected to keep rising in the future attributing to a number of factors among which are the expected population increase, the low energy prices despite of the recent rise, and the vibrant infrastructure expansion under the kingdom's 2030 vision.

**2. Literature review**

*DOI: http://dx.doi.org/10.5772/intechopen.82634*

**2.1 Policy frameworks**

**45**

growing domestic clean product market [7].

This section will provide an overview of the policy frameworks and program designs that will be helpful as a preparation to the reader into the proposed subject of residential air conditioning incentive program for the kingdom of Saudi Arabia. In addition, some light will be shed on energy analysis approaches. Finally, techno-

*Energy Savings Analysis of a Recommended Residential Air Conditioning Incentive Program…*

Incentive programs usually complement standards and labeling procedures by speeding up market permeation of more energy-efficient products than required by current standards in place and by also preparing the market for further stringent future standards requirements. Incentives can be focused at several points in the appliance's supply chain; a precise point may be more effective than another subject to different factors including, but not limited to, the maturity of the technology and market permeation. Financial incentive packages have larger impact when they are focused toward highly efficient technologies that have a smaller market share, and those program designs will be going to depend on market barriers addressed, targeted equipment, and local market situation. Therefore, it is safe to say that there is no specific one program design that is inherently better than the other. The key here is to design an effective program by implementing a comprehensive understanding of the market and the identification of the vital local complications to the

Several barriers contribute in discouraging consumers from investing in energyefficient equipment. These barriers may include absence of information, split incentives (between landlords and renters), and lack of energy-efficient equipment on the market [2–4]. One of the most major barriers that policy makers detect is the fairly higher up-front prices of efficient products. Usually these costs discourage potential buyers even when investments seem to be in consumers' interest (i.e., cost-effective over the lifetime of the equipment). Consumers set great value on instant savings and profoundly discount future savings [5, 6]. Additionally and as they might not be able to simply evaluate future savings, consumers tend to have less confidence in expected paybacks. Consequently, consumers regularly purchase the cheapest available options. Many incentive programs have been established worldwide to address these

The classical policy frameworks in which incentive programs are developed are either (1) government rollouts with fund raised through taxes or (2) compulsory savings goals agreed for energy providers (i.e., utilities) to decrease their customers' energy consumption. Incentive programs, over the history, have been implemented by different governments for one main purpose, and that is to support long-run

Examples of compulsory savings goal schemes include those exist in Brazil, some Australian states, South Korea, China, India, and South Africa [8, 9]. In Australia, New South Wales State implemented the world's first obligatory GHG emissions exchange scheme in 2003, in which electricity GHG emissions are capped each year [7]. Since 1998, the Brazilian power regulatory authority, ANEEL, mandated utilities to invest at least 0.5 percent of the net revenues in energy efficiency programs. The Brazilian Congress necessitates that around half of these funds must be spent

In India, the Maharashtra Electricity Regulatory Commission (MERC) introduced a public benefit type of electricity charge on utilities where funds are used to

on energy efficiency measures targeting low-income households [10].

economic assessment will be reviewed with focus on net present value.

penetration of energy-efficient technologies [1].

barriers and speed up the penetration of efficient equipment [6].

Such existence of low energy prices coupled with the absence of stringent standards, building code enforcement, and standards and labeling (S&L) programs led to wasteful pattern of energy consumption among citizens which resulted in depleting the kingdom's natural resource at higher rates than normal compared to international records.

The Saudi government realized this fact and decided to change the existing situation. Hence, Saudi policy makers acknowledged the fact that energy efficiency and conservation shall be set as one of the nation's top priorities for the national energy security. This was apparent via inaugurating the Saudi Energy Efficiency Program (SEEP) activities to help in jump-starting the energy efficiency efforts within the kingdom by designing a comprehensive integrated framework consisting of several key pillars and enablers. In order to ensure sustainability, the Saudi Energy Efficiency Center (SEEC) was established in 2010 aiming for rationalizing the production and consumption of energy in all sectors in order to ensure the kingdom's efficiency along with unifying efforts in this field among governmental bodies and nongovernmental entities as well. The center's mission is to preserve the national wealth of energy sources in a manner that promotes development and the national economy and achieves the lowest possible levels of consumptions. The efforts made by the government since the inception of the energy efficiency program had a great and clear impact from different aspects in each and every sector. Zooming into the buildings sector, the efforts were obvious by completing several milestones including updating the Saudi Building Code along with introducing several Minimum Energy Performance Standards (MEPS) for a number of equipment, enforcement of insulation standards for new buildings, introducing S&L programs for different appliances, and much more.

The aforementioned efforts helped the market to be in a better situation by slowly getting rid of less efficient equipment along with changing the mindset of citizens to be mindful of their energy consumption patterns. Nevertheless, in order to further normalize the uncontrolled demand for building energy, it is vital that more energyefficient improvement opportunities be assessed and progressively executed. One of these opportunities is to introduce an incentive program for the existing fleet of air conditioners with low energy efficiency ratings especially in the residential sector as the main consumer within the buildings sector of Saudi Arabia which is the topic of this chapter. However, before going into the details of the proposal, some light need to be shed on the purpose of such programs, the appropriate time for their introduction in a market, their implementation mechanism, and finally the main challenges or barriers that might face such programs. This will be detailed in the literature review section.

With regard to air conditioning in Saudi Arabia, The Saudi Standards, Metrology and Quality Organization (SASO) have done great efforts in developing the SASO 2663 standard for Energy Labeling and Minimum Energy Performance Requirements for Air-Conditioners (phase 1, 2013; and phase 2, 2015). Now it is time to start developing an incentive program that would help not only in reducing electric consumption and summer peak demand but would correspondingly avoid pricey power outages in peak hot summer months and cut greenhouse gases (GHG) emissions.Moreover, it would aid in supporting SASO 2663 for a further shift in efficiency levels.

*Energy Savings Analysis of a Recommended Residential Air Conditioning Incentive Program… DOI: http://dx.doi.org/10.5772/intechopen.82634*

#### **2. Literature review**

The buildings sector is considered one of the main energy consumers in the kingdom with a total of nearly 9 million electrically connected customers in 2017, with the bulk, 7.1 million, being residential customers. As per the Saudi Electricity and Cogeneration Regulatory Authority (ECRA), the residential sector consumed nearly 143 TWh, which represents 48% of the country's electricity consumption. The high residential energy consumption is projected to keep rising in the future attributing to a number of factors among which are the expected population increase, the low energy prices despite of the recent rise, and the vibrant infra-

Such existence of low energy prices coupled with the absence of stringent standards, building code enforcement, and standards and labeling (S&L) programs led to wasteful pattern of energy consumption among citizens which resulted in depleting the kingdom's natural resource at higher rates than normal compared to international records. The Saudi government realized this fact and decided to change the existing situation. Hence, Saudi policy makers acknowledged the fact that energy efficiency and conservation shall be set as one of the nation's top priorities for the national energy security. This was apparent via inaugurating the Saudi Energy Efficiency Program (SEEP) activities to help in jump-starting the energy efficiency efforts within the kingdom by designing a comprehensive integrated framework consisting of several key pillars and enablers. In order to ensure sustainability, the Saudi Energy Efficiency Center (SEEC) was established in 2010 aiming for rationalizing the production and consumption of energy in all sectors in order to ensure the kingdom's efficiency along with unifying efforts in this field among governmental bodies and nongovernmental entities as well. The center's mission is to preserve the national wealth of energy sources in a manner that promotes development and the national economy and achieves the lowest possible levels of consumptions. The efforts made by the government since the inception of the energy efficiency program had a great and clear impact from different aspects in each and every sector. Zooming into the buildings sector, the efforts were obvious by completing several milestones including updating the Saudi Building Code along with introducing several Minimum Energy Performance Standards (MEPS) for a number of equipment, enforcement of insulation standards for new buildings, introducing S&L

The aforementioned efforts helped the market to be in a better situation by slowly getting rid of less efficient equipment along with changing the mindset of citizens to be mindful of their energy consumption patterns. Nevertheless, in order to further normalize the uncontrolled demand for building energy, it is vital that more energyefficient improvement opportunities be assessed and progressively executed. One of these opportunities is to introduce an incentive program for the existing fleet of air conditioners with low energy efficiency ratings especially in the residential sector as the main consumer within the buildings sector of Saudi Arabia which is the topic of this chapter. However, before going into the details of the proposal, some light need to be shed on the purpose of such programs, the appropriate time for their introduction in a market, their implementation mechanism, and finally the main challenges or barriers that might face such programs. This will be detailed in the literature review section. With regard to air conditioning in Saudi Arabia, The Saudi Standards, Metrology and

Quality Organization (SASO) have done great efforts in developing the SASO 2663 standard for Energy Labeling and Minimum Energy Performance Requirements for Air-Conditioners (phase 1, 2013; and phase 2, 2015). Now it is time to start developing an incentive program that would help not only in reducing electric consumption and summer peak demand but would correspondingly avoid pricey power outages in peak hot summer months and cut greenhouse gases (GHG) emissions.Moreover, it would aid

in supporting SASO 2663 for a further shift in efficiency levels.

**44**

structure expansion under the kingdom's 2030 vision.

*Energy Policy*

programs for different appliances, and much more.

This section will provide an overview of the policy frameworks and program designs that will be helpful as a preparation to the reader into the proposed subject of residential air conditioning incentive program for the kingdom of Saudi Arabia. In addition, some light will be shed on energy analysis approaches. Finally, technoeconomic assessment will be reviewed with focus on net present value.

Incentive programs usually complement standards and labeling procedures by speeding up market permeation of more energy-efficient products than required by current standards in place and by also preparing the market for further stringent future standards requirements. Incentives can be focused at several points in the appliance's supply chain; a precise point may be more effective than another subject to different factors including, but not limited to, the maturity of the technology and market permeation. Financial incentive packages have larger impact when they are focused toward highly efficient technologies that have a smaller market share, and those program designs will be going to depend on market barriers addressed, targeted equipment, and local market situation. Therefore, it is safe to say that there is no specific one program design that is inherently better than the other. The key here is to design an effective program by implementing a comprehensive understanding of the market and the identification of the vital local complications to the penetration of energy-efficient technologies [1].

Several barriers contribute in discouraging consumers from investing in energyefficient equipment. These barriers may include absence of information, split incentives (between landlords and renters), and lack of energy-efficient equipment on the market [2–4]. One of the most major barriers that policy makers detect is the fairly higher up-front prices of efficient products. Usually these costs discourage potential buyers even when investments seem to be in consumers' interest (i.e., cost-effective over the lifetime of the equipment). Consumers set great value on instant savings and profoundly discount future savings [5, 6]. Additionally and as they might not be able to simply evaluate future savings, consumers tend to have less confidence in expected paybacks. Consequently, consumers regularly purchase the cheapest available options. Many incentive programs have been established worldwide to address these barriers and speed up the penetration of efficient equipment [6].

### **2.1 Policy frameworks**

The classical policy frameworks in which incentive programs are developed are either (1) government rollouts with fund raised through taxes or (2) compulsory savings goals agreed for energy providers (i.e., utilities) to decrease their customers' energy consumption. Incentive programs, over the history, have been implemented by different governments for one main purpose, and that is to support long-run growing domestic clean product market [7].

Examples of compulsory savings goal schemes include those exist in Brazil, some Australian states, South Korea, China, India, and South Africa [8, 9]. In Australia, New South Wales State implemented the world's first obligatory GHG emissions exchange scheme in 2003, in which electricity GHG emissions are capped each year [7]. Since 1998, the Brazilian power regulatory authority, ANEEL, mandated utilities to invest at least 0.5 percent of the net revenues in energy efficiency programs. The Brazilian Congress necessitates that around half of these funds must be spent on energy efficiency measures targeting low-income households [10].

In India, the Maharashtra Electricity Regulatory Commission (MERC) introduced a public benefit type of electricity charge on utilities where funds are used to finance energy efficiency and renewable energy programs. In 2005, MERC requested utility companies to use these resources to start compact fluorescent light (CFL) programs in Mumbai's residential sector [11]. As can be seen from such examples, governments are developing policy frameworks in order to increase the role of energy efficiency.

In Saudi Arabia, the standard for air conditioners (ACs) was already issued and enforced since September 2013, and now it is time for incentive programs. The standard is SASO 2663: 2104 titled "Energy Labeling and Minimum Energy Performance Requirements for Air-Conditioners" and has the requirements presented in

*Energy Savings Analysis of a Recommended Residential Air Conditioning Incentive Program…*

**Mandatory EER phase 1: 7 September 2013**

CC <18,000 8.5 6.12 9.8 7.06

CC ≥ 24,000 8.5 6.12 8.5 6.12

All capacities 9.5 6.84 11.5 8.28

Incentives raise equipment desire and consequently market a shift toward more

In other countries which have weaker standards and S&L programs in place, incentive programs can aid to push for more efficient product penetration. Incentive programs can also be used as a vehicle to make more stringent standards acceptable to the public as well as manufacturers in a specific country. Furthermore, inducement programs affect people's buying choices, and if implemented with the existence of an S&L program, they will both definitely work in harmony to aid in enlightening citizens about the advantages of the more energy-efficient equipment. The availability of a consumer partial refund program is by itself a sign of the great value of the labeling program in place. Partial refund programs are usually connected with better energy-efficient units. Caution: when designing an incentive program, the program should address the issue of free ridership. Free riders are those who take advantage of incentives yet would have purchased effi-

Gold and Nadel settled that incentive programs should last for a limited time, typically around 5 years, since incentives become less effective over time [17]. Rosenberg and Hoefgen concluded that various harmonized market interventions over an extended period of time are more likely to affect the behavior of market actors than programs that include a single intervention during a short period of time [14]. With time, a program can raise the overall efficiency of the units on the market. Gold and Nadel found that the refrigerator tax credit upstream program in the USA has been essentially successful as each extension of the program pressed the efficiency standard higher so that next set of incentives would further increase the energy saved. One of the main reasons for the program's success was vigorous

efficient equipment which leads to price reduction over time and hence more production of such equipment by manufacturers. The increase in fleets' energy efficiency, realized through inducement programs, will be then paved by applying more stringent standards which will lead to endless sequence of improvements. This twirl can be continual as technology advances in developing more energy-efficient products. To further advance the penetration rate, further programs can be intro-

**T1 (35°C) T3 (46°C) T1 (35°C) T3 (46°C)**

8.5 6.12 9.7 6.98

**Mandatory EER phase 2: 1 January 2015**

**Mandatory EER phase 2: 1 January 2015**

the table below:

**Cooling capacity (CC) limit (Btu/h)**

*DOI: http://dx.doi.org/10.5772/intechopen.82634*

**At testing conditions T1 (35°C)**

18,000 ≤ CC < 24,000

duced such as awareness programs and awards [1].

cient technologies even without the incentives [1].

**Mandatory EER phase 1: 7 September 2013**

**Air conditioner appliance type**

Window type

Split type and other types

**47**

#### **2.2 Funding sources**

Financial incentive programs are capital-intensive in nature, involving not only administration costs but costs of financial incentives for every participating appliance unit. In general, government-sponsored incentive programs are financed through government budgets funded by taxpayers. Developing countries governments can pursue monetary support from international financial institutions such as the World Bank. For example, India's Super-Efficient Equipment Program for electric fans is supported by the Clean Technology Fund, which is administered by World Bank [12].

Earmarked taxes can also finance energy efficiency programs. For instance, South Korea introduced a 5 to 6.5 percent tax on energy consuming appliances where the revenues from the tax were used to subsidize the procurement of efficient products by low-income households [13]. These types of policies are known as a feebate (a portmanteau of "fee" and "rebate") which is basically a fee on products with low energy efficiencies that is utilized in order to be directed as rebates on better-performing products [1].

Under the current budget limitations that the government of Saudi Arabia is facing nowadays, the feebate policy could be an appropriate vehicle to implement the proposed air conditioning incentive program.

#### **2.3 Program designs**

The major challenge of incentive program design is to accomplish robust market transformation [14, 15]. Programs need to be customized to address different stages of energy-efficient products' market diffusion to increase the products' penetration through a sustainable manner. In general, the diffusion of efficient technologies follows an S curve [16]. At the beginning, limited early participants will be willing to take risk in purchasing expensive new technologies, thus market diffusion is considered small at this stage. After the technology has been proven, the technology's market penetration rates rise faster. After that market penetration of technology levels off, only "idlers" will remain unwilling to implement new technologies [1].

Standard and labeling (S&L) programs are normally considered the first of policy intrusions to alter the market of a specific product. S&L programs approve technologies based on their energy performance and hence take out energy intensive technologies from a specific market, which ultimately results in raising efficiency levels. Incentive programs are better implemented if S&L programs are in place. A typical cycle of market conversion starts with energy-intensive products which are removed from a market by minimum energy performance standards (MEPS). Then, existing equipment efficiency is elevated utilizing energy inducement programs. Those inducement programs focus on highly efficient products with best-in-class identified equipment by the S&L programs. It is worth mentioning that programs focusing on consumers are called "downstream" programs, programs focusing on distributors and retailers are often called "midstream," and finally those focusing on manufacturers of products are usually called "upstream" [1].

*Energy Savings Analysis of a Recommended Residential Air Conditioning Incentive Program… DOI: http://dx.doi.org/10.5772/intechopen.82634*

In Saudi Arabia, the standard for air conditioners (ACs) was already issued and enforced since September 2013, and now it is time for incentive programs. The standard is SASO 2663: 2104 titled "Energy Labeling and Minimum Energy Performance Requirements for Air-Conditioners" and has the requirements presented in the table below:


Incentives raise equipment desire and consequently market a shift toward more efficient equipment which leads to price reduction over time and hence more production of such equipment by manufacturers. The increase in fleets' energy efficiency, realized through inducement programs, will be then paved by applying more stringent standards which will lead to endless sequence of improvements. This twirl can be continual as technology advances in developing more energy-efficient products. To further advance the penetration rate, further programs can be introduced such as awareness programs and awards [1].

In other countries which have weaker standards and S&L programs in place, incentive programs can aid to push for more efficient product penetration. Incentive programs can also be used as a vehicle to make more stringent standards acceptable to the public as well as manufacturers in a specific country. Furthermore, inducement programs affect people's buying choices, and if implemented with the existence of an S&L program, they will both definitely work in harmony to aid in enlightening citizens about the advantages of the more energy-efficient equipment. The availability of a consumer partial refund program is by itself a sign of the great value of the labeling program in place. Partial refund programs are usually connected with better energy-efficient units. Caution: when designing an incentive program, the program should address the issue of free ridership. Free riders are those who take advantage of incentives yet would have purchased efficient technologies even without the incentives [1].

Gold and Nadel settled that incentive programs should last for a limited time, typically around 5 years, since incentives become less effective over time [17]. Rosenberg and Hoefgen concluded that various harmonized market interventions over an extended period of time are more likely to affect the behavior of market actors than programs that include a single intervention during a short period of time [14]. With time, a program can raise the overall efficiency of the units on the market. Gold and Nadel found that the refrigerator tax credit upstream program in the USA has been essentially successful as each extension of the program pressed the efficiency standard higher so that next set of incentives would further increase the energy saved. One of the main reasons for the program's success was vigorous

finance energy efficiency and renewable energy programs. In 2005, MERC

role of energy efficiency.

**2.2 Funding sources**

*Energy Policy*

World Bank [12].

better-performing products [1].

**2.3 Program designs**

technologies [1].

**46**

the proposed air conditioning incentive program.

products are usually called "upstream" [1].

requested utility companies to use these resources to start compact fluorescent light (CFL) programs in Mumbai's residential sector [11]. As can be seen from such examples, governments are developing policy frameworks in order to increase the

Financial incentive programs are capital-intensive in nature, involving not only administration costs but costs of financial incentives for every participating appliance unit. In general, government-sponsored incentive programs are financed through government budgets funded by taxpayers. Developing countries governments can pursue monetary support from international financial institutions such as the World Bank. For example, India's Super-Efficient Equipment Program for electric fans is supported by the Clean Technology Fund, which is administered by

Earmarked taxes can also finance energy efficiency programs. For instance, South Korea introduced a 5 to 6.5 percent tax on energy consuming appliances where the revenues from the tax were used to subsidize the procurement of efficient products by low-income households [13]. These types of policies are known as a feebate (a portmanteau of "fee" and "rebate") which is basically a fee on products with low energy efficiencies that is utilized in order to be directed as rebates on

Under the current budget limitations that the government of Saudi Arabia is facing nowadays, the feebate policy could be an appropriate vehicle to implement

The major challenge of incentive program design is to accomplish robust market transformation [14, 15]. Programs need to be customized to address different stages of energy-efficient products' market diffusion to increase the products' penetration through a sustainable manner. In general, the diffusion of efficient technologies follows an S curve [16]. At the beginning, limited early participants will be willing to take risk in purchasing expensive new technologies, thus market diffusion is considered small at this stage. After the technology has been proven, the technology's market penetration rates rise faster. After that market penetration of technology levels off, only "idlers" will remain unwilling to implement new

Standard and labeling (S&L) programs are normally considered the first of policy intrusions to alter the market of a specific product. S&L programs approve technologies based on their energy performance and hence take out energy intensive technologies from a specific market, which ultimately results in raising efficiency levels. Incentive programs are better implemented if S&L programs are in place. A typical cycle of market conversion starts with energy-intensive products which are removed from a market by minimum energy performance standards (MEPS). Then, existing equipment efficiency is elevated utilizing energy inducement programs. Those inducement programs focus on highly efficient products with best-in-class identified equipment by the S&L programs. It is worth mentioning that programs focusing on consumers are called "downstream" programs, programs focusing on distributors and retailers are often called "midstream," and finally those focusing on manufacturers of stakeholder engagement and education with regard to how to participate in the program [17].

*2.6.2 Consumer reward points*

*DOI: http://dx.doi.org/10.5772/intechopen.82634*

*2.6.3 Replacement programs*

**2.7 Energy analysis**

in the figure below [22].

**49**

South Korea and Japan have applied subsidies in the form of reward points to incentivize consumers to select efficient technologies. This approach aims at promoting low-carbon lifestyles by encouraging consumer responsibility and awareness [1].

*Energy Savings Analysis of a Recommended Residential Air Conditioning Incentive Program…*

Replacement programs (i.e., premature retirement and direct install) replace wasteful products before their useful estimated life is ended with more energyefficient ones. Such programs help in decreasing energy use by inspiring the placement of efficient products and confirming that non-efficient ones are taken away from the market [1]. Mexico's PNSEE has replaced large numbers of old appliances. The program offers government-funded subsidies to households in order to replace their old refrigerators and air conditioners with more efficient ones. The subsidies cover a percentage of the price of the new equipment and the costs for removing the old one. To receive the subsidy, households must surrender working refrigerators and

Approaches of energy savings vary between countries, and they have a major effect on results. For instance, in Europe the savings are commonly based on lifetime energy saving which covers accumulated savings over the life of the equipment over the program duration, while the California Public Utilities Commission objective is based on yearly energy savings gathered over a period of 3 years [1]. Also, diverse methods are utilized to estimate net savings from incentive programs. An inducement program's net energy savings are usually the percentage of savings related only to the program itself. Those gross savings do not include the savings coming from the freerides who are contributors that will purchase efficient equipment without the availability of the program. Yet, it includes savings from participants who were encouraged to purchase efficient products as a result from the program's impact on that market that are usually referred to as spillovers. Furthermore, gross savings does not include savings resulting from other programs such as existing standards/codes, S&L programs, other monetary inducement programs, and of course external events such as economic recessions/growths. Usually gross savings calculation is not easy considering the existence of different bodies within the country offering several other different monetary programs for the same equipment. A final concern that should be accounted for is the increase in energy consumption that happens within the program participants as a result of the decrease of their energy bills which is a phenomenon typically referred to as rebound effect. Continuous evaluation and assessments are important and shall be performed regularly by governments to keep program administrators up to speed and aware of possible draw-

backs that incentive programs might face and how they can be fixed [1].

Moreover and before going into energy analysis and savings quantification in this chapter, it is vital to understand what an energy system is. Scott wrote a paper about "the energy system" and defined it from sources to services where services are basically what people wants and sources are what nature provides as can be seen

air conditioners that must be 10 years old or older [21].
