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A higher penetration of compact fluorescent lamps (CFLs) for household lighting can reduce growth in peak electricity demand, reduce sales of subsidized electricity, and lessen environmental impacts. This paper describes an economic analysis of a project designed to promote high penetration rates of CFLs in two cities in Mexico. Our analysis indicates that the project will bring substantial net economic benefits to Mexico, the utility, and the average customer. In the absence of any subsidy to CFLs, most customers will see a payback period longer than two years. By sharing some of the anticipated net benefit, CFE, the utility company, can reduce the payback period to a maximum of two years for all customers. CFE's role is thus crucial to the successful implementation of the project. Expanding the Ilumex project to a Mexico-wide programme would make a significant contribution towards meeting the planned addition of generation capacity by the year 2000.