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The discounted payback is the number of years it takes until the cumulative
discounted benefits equal or exceed the cumulative discounted costs. The
shorter the discounted payback, the more attractive or beneficial the program is
to the participants. Although “payback period” is often defined as undis-
counted in the textbooks, a discounted payback period is used here to
approximate more closely the consumer’s perception of future benefits and
costs (refer to point 2 in Notes).
NPV p gives the net dollar benefit of the program to an average participant
or to all participants discounted over some specified time period. An NPV
above 0 indicates that the program is beneficial to the participants under this
test.
BCR p is the ratio of the total benefits of a program to the total costs dis-
counted over some specified time period. It gives a measure of the rough rate
of return for the program to the participants and is also an indication of risk. A
BCR above 1 indicates a beneficial program.
Strengths of the Participant Test
The Participant Test gives a good “first cut” of the benefit or desirability of the
program to customers. This information is especially useful for voluntary
programs as an indication of potential participation rates.
For programs that involve a utility incentive, the Participant Test can be
used for program design considerations such as the minimum incentive level,
whether incentives are really needed to induce participation, and whether
changes in incentive levels will induce the desired amount of participation.
These test results can be useful for program penetration analyses and
developing program participation goals, which will minimize adverse rate-
payer impacts and maximize benefits.
For fuel substitution programs, the Participant Test can be used to deter-
mine whether program participation (i.e., choosing one fuel over another) will
be in the best interest of the customer in the long run. The primary means of
establishing such assurances is the NPV, which looks at the costs and benefits
of the fuel choice over the life of the equipment.
Weaknesses of the Participant Test
None of the Participant Test results (discounted payback, NPV, or BCR)
accurately capture the complexities and diversity of customer decision-
making processes for DSM investments. Until or unless more is known
about customer attitudes and behavior, interpretations of Participant Test re-
sults continue to require considerable judgment. Participant Test results play
only a supportive role in any assessment of C&LM programs as alternatives to
supply projects.