Historically, utilities had approached long-term planning from the supply-side (for an electric utility, more
generation,
transmission,
distribution). However, the benefits of its consumption cannot be measured directly in
kilowatt-hours; electricity is converted into other services, so improvements of the efficiency of the industrial equipment, lighting, air conditioning, household appliances can be potentially a more cost-efficient way to accommodate growth. Under the pressure of
environmentalists, the IRP use started in the US in the middle of 1970s with
California taking the lead, and by the 1990s the use of IRP in most of the United States was either mandated or under considerations, Europe was lagging behind. In the perfect
electricity market IRP is not needed: the demand-side would adjust on its own by the cost-reduction on the consumer size. In practice, there are many hindrances on the way of the consumer to a more efficient behavior: • lack of information, especially for residential and small business customers. Utilities need to plan for information and auditing actions to overcome this problem; • high payback expectations. A typical consumer expects a high
return-on-investment (a payback in 2–3 years). This outsized expectation (utilities operate on 5-10% ROI) can be explained by a high degree of uncertainty on the consumer side (e.g., consumers are unaware of the utility rates if the far future), absence of incentives in some cases (e.g., an owner of apartment building does not pay for the electricity and thus has no reason to pay for the improvements), high equipment costs. Utilities can improve the situation by using a leverage they have with manufacturers by ordering equipment for the improvements in bulk. == Advantages and disadvantages ==