Cost function estimates,scale economies and technological progress in the Turkish electricity generation sector

Turkish electricity sector has undergone significant institutional changes since 1984. The recent developments since 2001 including the setting up of a regulatory agency to undertake the regulation of the sector and increasing participation of private investors in the field of electricity generation are of special interest. This paper estimates cost functions and investigates the degree of scale economies, overinvestment, and technological progress in the Turkish electricity generation sector for the period 1984–2006 using long-run and short-run translog cost functions. Estimations were done for six groups of firms, public and private. The results indicate existence of scale economies throughout the period of analysis, hence declining long-run average costs. The paper finds empirical support for the Averch–Johnson effect until 2001, i.e., firms overinvested in an environment where there are excess returns to capital. But this effect was reduced largely after 2002. Technological progress deteriorated slightly from 1984–1993 to 1994–2001 but improved after 2002. Overall, the paper found that regulation of the market under the newly established regulating agency after 2002 was effective and there are potential gains from such regulation.     

Economies of scale and technological progress in electric power production: The case of Brazilian utilities

This paper examined the cost structure of the electricity generation companies in Brazil during the period 2000–2010 by using a translog cost function that imposes no restrictions on production technology and allows for the existence of non-homotheticity. The hypothesis that economies of scale are a typical feature of the generation market in Brazil and, in general, are not exhausted at lower levels of production is not rejected. This result supports the vision that indivisibilities restrict efficiency gains from free-market competition in the Brazilian electricity generation and most of the last restructuring in the industry regulation was based on this assumption. Furthermore, over the sample period, technological progress led to cost reductions in electric power supply. These technological improvements take the form of both a neutral technological effect as well as a non-neutral fuel effect, which prevails over the capital and labor saving technical changes.     

The impact of liberalisation of the electricity market on the hard coal mining sector in Poland

The liberalisation of the electricity market changed the conditions of operation not only for the power industry, but also for related sectors. One of the particularly sensitive industries in Poland is coal mining, which is the result of coal-based structure of electricity generation. As it is more difficult, in the liberalised market, to burden consumers with all the costs, electricity producers are eager to transfer the risk of operation to the suppliers. That increases uncertainty about the future of the hard coal industry. The aim of this paper was to quantitatively estimate the impact that liberalisation of the electricity markets may have on the coal mining sector in Poland. First of all, the possible areas of that impact were identified. Then the model, which involved detailed relations in the impact areas identified, was developed and employed to evaluate the performance of the mining sector. The comparison of scenarios of a monopolistic electricity sector with a liberalised one enabled an estimation of the scale of the impact on the mining sector to be made. The results showed that liberalisation causes decreased coal consumption and decreased operating profits in coal companies. However, some savings in electricity costs are possible for coal producers.     

Evaluation of micro‐scale electricity generation cost using biomass‐derived synthetic gas through modeling

A promising renewable energy technology is electricity generated with biomass‐derived synthetic gas (syngas). The economic feasibility of using biomass gasification for generating electrical power is very much dependent on the cost of the power plant and the cost of its operation. A cost model was developed to analyze the Unit Cost (unit‐cost) of electricity generation from micro‐scale power facilities that used biomass gasification as its energy input. The costs considered in the model were capital cost and operating costs. The results from the modeling indicated that operating cost was a major part of the total annual production cost of electricity generation, and that labor was the largest part of the total annual production cost of operation, and it was during the time when the power facilities operated at lower generation capacity levels. One effective way of reducing the unit‐cost was to operate the facility at high capacity level. The study found that when the capacity level increased the total of annual cost was also increased, but the electricity unit‐cost decreased markedly. For a given level of generating capacity, the electricity unit‐cost of the facility operating at a two or three shifts operating mode was significantly lower than that of one shift operating mode. Copyright © 2010 John Wiley & Sons, Ltd.     

Modelling the competitiveness of first generation commercial OTEC power plants

First generation OTEC plants are expected to be used mainly for baseload electricity generation in the United States Gulf Coast region. In this application, OTEC plants would compete directly with nuclear and coal-fired power plants. The prospective competitiveness of OTEC is evaluated by comparing the delivered cost of electricity generated by the three types of plant for a geographical scenario typical of the region. The comparison is carried out using a modified version of the cost of energy model developed by the Jet Propulsion Laboratory and current estimates of future construction, operating and maintenance costs for the three power plant types. Four main independent variables are considered in this study: OTEC plant capital costs, real fuel escalation rates, real cost of capital resources, and OTEC plant operating capacity factors. The first two factors are found to be prime determinants of OTEC competitiveness. The values commonly forecasted suggest that OTEC plants are likely to deliver electricity at roughly the same cost as nuclear and coal-fired power plants by the year 2000. By contrast, variations in the real cost of capital resources and in OTEC plant capacity factors are found to have only a minor impact on the competitiveness of OTEC with conventional modes of electricity generation.     

Optimization of hybrid solar energy sources/wind turbine systems integrated to utility grids as microgrid (MG) under pool/bilateral/hybrid electricity market using PSO

This study presents an optimized design of microgrid (MG) in distribution systems with multiple distributed generation (DG) units under different market policies such as pool/hybrid electricity market.Proposed microgrid includes various energy sources such as photovoltaic array and wind turbine with energy storage devices such as battery bank.In this study, microgrid is considered as independent power producer company (IPP) in power system. Price of selling/buying power in on-peak or off-peak for MG, DG and upstream power system (DISCO) under pool/bilateral/hybrid electricity market are different. In this study, particle swarm optimization (PSO) algorithm has been implemented for the optimization of the microgrid cost. The costs include capital cost, replacement cost, operation and maintenance costs and production cost for microgrid and DGs. Then, an objective function to maximize total net present worth (NPW) is presented. PSO approach is employed to obtain the minimum cost of microgrid, during interconnected operation by optimizing the production of local DGs and power exchanges with the main distribution grid. The optimization algorithm is applied to a typical LV network operating under different market policies.     

What happened to efficiency in electricity industries after reforms?

The last two decades have witnessed widespread power market reforms in both developed and developing countries that have cost billions of dollars. Among the key aims (and assumptions) of these reforms, there has always been realization of improvements in power sector efficiency. This paper questions the validity of this hypothesis. Using panel data from 92 countries covering the period 1982–2008, empirical models are developed and analyzed. The research findings suggest that the impact of the reforms on electricity industry performance is statistically significant but also limited. The results imply that, after controlling for country-specific variables, application of liberal market models in electricity industries slightly increases efficiency in power sector. Besides, we detect a positive relationship between reform process and the percentage share of network (transmission and distribution) losses in total electricity supplied, meaning that as countries take more reform steps the network losses as a fraction of power generated tend to increase. Moreover, the study puts forward that income level and other country specific features are more important determinants of industry efficiency than the reform process. Overall, contrary to expectations of substantial increases in sector efficiency, the paper concludes that introducing a decentralized market model with competition in the electricity sector has a limited increasing effect on power industry performance.     

Energy‐cost‐aware flow shop scheduling considering intermittent renewables,energy storage,and real‐time electricity pricing

The industrial sector is one of the major energy consumers that contribute to global climate change. Demand response programs and on‐site renewable energy provide great opportunities for the industrial sector to both go green and lower production costs. In this paper, a 2‐stage stochastic flow shop scheduling problem is proposed to minimize the total electricity purchase cost. The energy demand of the designed manufacturing system is met by on‐site renewables, energy storage, as well as the supply from the power grid. The volatile price, such as day‐ahead and real‐time pricing, applies to the portion supplied by the power grid. The first stage of the formulated model determines optimal job schedules and minimizes day‐ahead purchase commitment cost that considers forecasted renewable generation. The volatility of the real‐time electricity price and the variability of renewable generation are considered in the second stage of the model to compensate for errors of the forecasted renewable supply; the model will also minimize the total cost of real‐time electricity supplied by the real‐time pricing market and maximize the total profit of renewable fed into the grid. Case study results show that cost savings because of on‐site renewables are significant. Seasonal cost saving differences are also observed. The cost saving in summer is higher than that in winter with solar and wind supply in the system. Although the battery system also contributes to the cost saving, its effect is not as significant as the renewables.     

The offshore trend: Structural changes in the wind power sector

In recent years, the wind power sector has begun to move offshore, i.e. to use space and good wind speeds on the open sea for large scale electricity generation. Offshore wind power, however, is not just technologically challenging but also a capital intensive and risky business that requires particular financial and organizational resources not all potential investors might have. We therefore address the question, what impact offshore wind power may have on ownership and organizational structures in the wind power sector. We compare on- and offshore wind park ownership in Denmark, the UK and Germany. The analysis shows that offshore wind power in all three countries is dominated by large firms, many of which are from the electricity sector. In Denmark and the UK, also investors from the gas and oil industry play an important role in the offshore wind business. This development represents a major shift for countries such as Germany and Denmark, in which the wind power sector has grown and matured on the basis of investments by individuals, farmers, cooperatives and independent project developers. The structural changes by which offshore wind power is accompanied have consequences for turbine manufacturers, project developers, investors, associations and policy makers in the field.     

Renewable energy: Externality costs as market barriers

This paper addresses the impact of environmentally based market failure constraints on the adoption of renewable energy technologies through the quantification in financial terms of the externalities of electric power generation, for a range of alternative commercial and almost-commercial technologies. It is shown that estimates of damage costs resulting from combustion of fossil fuels, if internalised into the price of the resulting output of electricity, could lead to a number of renewable technologies being financially competitive with generation from coal plants. However, combined cycle natural gas technology would have a significant financial advantage over both coal and renewables under current technology options and market conditions. On the basis of cost projections made under the assumption of mature technologies and the existence of economies of scale, renewable technologies would possess a significant social cost advantage if the externalities of power production were to be “internalised”. Incorporating environmental externalities explicitly into the electricity tariff today would serve to hasten this transition process.     

The economics of tidal energy

Concern over global climate change has led policy makers to accept the importance of reducing greenhouse gas emissions. This in turn has led to a large growth in clean renewable generation for electricity production. Much emphasis has been on wind generation as it is among the most advanced forms of renewable generation, however, its variable and relatively unpredictable nature result in increased challenges for electricity system operators. Tidal generation on the other hand is almost perfectly forecastable and as such may be a viable alternative to wind generation. This paper calculates the break-even capital cost for tidal generation on a real electricity system. An electricity market model is used to determine the impact of tidal generation on the operating schedules of the conventional units on the system and on the resulting cycling costs, emissions and fuel savings. It is found that for tidal generation to produce positive net benefits for the case study, the capital costs would have to be less than €510,000 per MW installed which is currently an unrealistically low capital cost. Thus, it is concluded that tidal generation is not a viable option for the case system at the present time.     

Green hydrogen for heating and its impact on the power system

With a relatively high energy density, hydrogen is attracting increasing attention in research, commercial and political spheres, specifically as a fuel for residential heating, which is proving to be a difficult sector to decarbonise in some circumstances. Hydrogen production is dependent on the power system so any scale use of hydrogen for residential heating will impact various aspects of the power system, including electricity prices and renewable generation curtailment (i.e. wind, solar). Using a linearised optimal power flow model and the power infrastructure on the island of Ireland this paper examines least cost optimal investment in electrolysers in the presence of Ireland's 70% renewable electricity target by 2030. The introduction of electrolysers in the power system leads to an increase in emissions from power generation, which is inconsistent with some definitions of green hydrogen. Electricity prices are marginally higher with electrolysers whereas the optimal location of electrolysers is driven by a combination of residential heating demand and potential surplus power supplies at electricity nodes.     

A scenario analysis of investment options for the Cuban power sector using the MARKAL model

The Cuban power sector faces a need for extensive investment in new generating capacity, under a large number of uncertainties regarding future conditions, including: rate of demand growth, fluctuations in fuel prices, access to imported fuel, and access to investment capital for construction of new power plants and development of fuel import infrastructure. To identify cost effective investment strategies under these uncertainties, a supply and power sector MARKAL model was assembled, following an extensive review of available data on the Cuban power system and resource potentials. Two scenarios were assessed, a business-as-usual (BAU) scenario assuming continued moderate electricity load growth and domestic fuel production growth, and a high growth (HI) scenario assuming rapid electricity demand growth, rapid increase in domestic fuel production, and a transition to market pricing of electricity. Within these two scenarios sets, sensitivity analyses were conducted on a number of variables. The implications of least-cost investment strategies for new capacity builds, investment spending requirements, electricity prices, fuel expenditures, and carbon dioxide emissions for each scenario were assessed. Natural gas was found to be the cost effective fuel for new generation across both scenarios and most sensitivity cases, suggesting that access to natural gas, through increased domestic production and LNG import, is a clear priority for further analysis in the Cuban context.     

Greenhouse gas emission mitigation in the Sri Lanka power sector supply side and demand side options

Sri Lanka has had a hydropower dominated electricity generation sector for many years with a gradually decreasing percentage contribution from hydroresources. At the same time, the thermal generation share has been increasing over the years. Therefore, the expected fuel mix in the future in the large scale thermal generation system would be dominated by petroleum products and coal. This will result in a gradual increase in greenhouse gas (GHG) and other environmental emissions in the power sector and, hence, require special attention to possible mitigation measures.

This paper analyses both the supply side and demand side (DSM) options available in the Sri Lanka power sector in mitigating emissions in the sector considering the technical feasibility and potential of such options. Further, the paper examines the carbon abatement costs associated with such supply side and DSM interventions using an integrated resource planning model, which is not used in Sri Lanka at present. The sensitivities of the final generation costs and emissions to different input parameters, such as discount rates, fuel prices and capital costs, are also presented in the paper. It is concluded that while some DSM measures are economically attractive as mitigation measures, all the supply side options have a relatively high cost of mitigation, particularly in the context of GHG emission mitigation. Further it is observed that when compared with the projected price of carbon under different global carbon trading scenarios, these supply side options cannot provide economically beneficial CO₂ mitigation in countries like Sri Lanka.     

Uncertainties in key low carbon power generation technologies – Implication for UK decarbonisation targets

The UK government’s economy-wide 60% carbon dioxide reduction target by 2050 requires a paradigm shift in the whole energy system. Numerous analytical studies have concluded that the power sector is a critical contributor to a low carbon energy system, and electricity generation has dominated the policy discussion on UK decarbonisation scenarios. However, range of technical, social and market challenges, combined with alternate market investment strategies mean that large scale deployment of key classes of low carbon electricity technologies is fraught with uncertainty. The UK MARKAL energy systems model has been used to investigate these long-term uncertainties in key electricity generation options. A range of power sector specific parametric sensitivities have been performed under a ‘what-if’ framework to provide a systematic exploration of least-cost energy system configurations under a broad, integrated set of input assumptions. In this paper results of six sensitivities, via restricted investments in key low carbon technologies to reflect their technical and political uncertainties, and an alternate investment strategies from perceived risk and other barriers, have been presented.     

Potential impact of (CET) carbon emissions trading on China’s power sector: A perspective from different allowance allocation options

In Copenhagen climate conference China government promised that China would cut down carbon intensity 40–45% from 2005 by 2020. CET (carbon emissions trading) is an effective tool to reduce emissions. But because CET is not fully implemented in China up to now, how to design it and its potential impact are unknown to us. This paper studies the potential impact of introduction of CET on China’s power sector and discusses the impact of different allocation options of allowances. Agent-based modeling is one appealing new methodology that has the potential to overcome some shortcomings of traditional methods. We establish an agent-based model, CETICEM (CET Introduced China Electricity Market), of introduction of CET to China. In CETICEM, six types of agents and two markets are modeled. We find that: (1) CET internalizes environment cost; increases the average electricity price by 12%; and transfers carbon price volatility to the electricity market, increasing electricity price volatility by 4%. (2) CET influences the relative cost of different power generation technologies through the carbon price, significantly increasing the proportion of environmentally friendly technologies; expensive solar power generation in particular develops significantly, with final proportion increasing by 14%. (3) Emission-based allocation brings about both higher electricity and carbon prices than by output-based allocation which encourages producers to be environmentally friendly. Therefore, output-based allocation would be more conducive to reducing emissions in the Chinese power sector.     

Productivity growth and deregulation of Japanese electricity distribution

Deregulation of Japanese electric power industry began in 1995. After the amendment of Electricity Utility Industry Law in 1995, competition was partially introduced in a generation sector and retail competition started from 2000. Eligibility to choose suppliers was gradually extended from larger to smaller customers. As of 2008, almost all customers except households can choose their electricity suppliers. Based upon both previous implementation result of competition policy and review on their achievement, Japanese government will begin new policy debate in 2013 to assess further retail competition which includes household customers. To prepare for policy suggestion on the future electric power industry, this study examines the cost structure of Japanese electricity distribution. For the purpose, we estimate a multi-product translog cost function of Japanese electricity distribution from 1983 to 2003. Using the estimated cost function, we calculate several economic measures such as productivity growth, technical change and economies of scale and scope. The empirical results of this study indicate the improvement in productivity growth after deregulation.     

Capital-energy substitution in manufacturing for seven OECD countries: learning about potential effects of climate policy and peak oil

The simultaneous influence of increasing oil scarcity, greenhouse gas control and renewable energy targets will result in a future of sustained energy prices. Whether modern economies can find a smooth path away from fossil fuels is a fundamental socio-economic and political question, which according to standard economics depends to a large extent on the degree of substitution between energy and capital. We study this issue by modelling the manufacturing sector with a translog cost function in seven OECD countries using the EU-KLEMS database for the period 1970–2005. After a literature survey, different production structures accounting for input substitution, returns to scale and technical change are estimated, and substitution elasticities are derived. Our results indicate a general complementarity or weak substitution relationship between energy and capital, suggesting that an increase in energy price, e.g. due to climate policy or scarcer fossil fuels, will likely reduce capital inputs, which might lead to a lower output of manufacturing.     

Study on electrical energy and prospective electricity generation from renewable sources in Australia

Nowadays renewable sources are being used as clean sources to generate electricity and to reduce the dependency on fossil fuels. The uses of renewable sources are being increased in electricity generation and contributed to reduce the greenhouse gas emission. The function of any electrical power system is to connect everyone sufficiently, clean electric power anywhere and anytime of the country. This can be achieved through a modern power system by integrating electrical energy from clean renewable sources into the nation's electric grid to enhance reliability, efficiency and security of the power system. The paper on the status of review the driving force of the generation of renewable energy and proposing electrical energy generation from renewable sources to be ensured at least 20% of total energy of Australia. This paper has been studied the existing electricity generation capacity of Australia from renewable and non-renewable sources. Optimal electricity generation from renewable sources has been examined. The environmental impact of electricity generation from renewable sources has been considered. Under this paper the yearly average wind data of past 20 years and above for some meteorological stations of Australia have been used. The prospective electricity generation from wind turbines and solar photovoltaic panels has been proposed in the paper that will increase electrical energy of the power grid of Australia. It was estimated the capital cost of prospective electricity generation farms from wind and solar PV sources.     

Profitability and productivity changes in the Korean electricity industry

The Korean electricity industry saw significant changes following the reform in April 2001. Until the last decade, the industry was monopolized by the Korea Electric Power Corporation (KEPCO), a state-owned, vertically integrated company. The 2001 reform divided KEPCO's power generation division into six power generation companies (GENCOs), with the aim of improving efficiency and introducing competition in the electricity industry. In this study, we used capital total factor productivity (KTFP) to analyze profit changes from fixed input capital, and an index number profit decomposition (INPD) to examine the sources of the profit changes. We investigate the industry thoroughly from three points of view: the overall industry over time; the power generation sector by company; and the transmission and distribution sectors of the Korea Electric Power Corporation (KEPCO). Next, we measured how the profits from productivity growth were distributed to consumers, fuel suppliers, employees, and company owners. The results suggest that a more reasonable price system for both wholesale and consumer prices needs to be implemented prior to the privatization and deregulation of the Korean electricity industry.