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2012 | OriginalPaper | Buchkapitel

7. Efficiency of Electricity Distribution

verfasst von : Maria Kopsakangas-Savolainen, Rauli Svento

Erschienen in: Modern Energy Markets

Verlag: Springer London

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Abstract

In this chapter we show that, because of utility heterogeneities efficiency measurement is a demanding task. Electricity distribution is a natural monopoly industry and consequently there is a need for regulation. Efficiency measurement of distribution utilities is essential to achieve accurate information of ingredients for the efficient regulation. Unless heterogeneities are explicitly modeled inaccurate information can be produced for the regulators to use. We present Data envelopment analysis (DEA) and Stochastic frontier analysis (SFA) models, which are the basic models of frontier efficiency analysis. We show by using consistency measurement techniques how these models produce inconsistent results. We also show by testing traditional Cobb–Douglas and flexible form Translog frontier specifications that the frontier functional form specification is not crucial in identifying the inefficiencies once observed heterogeneity is included into the model.

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Vorheriges Kapitel Emission Trading and Market Access of Renewables

Nächstes Kapitel Observed Versus Unobserved Heterogeneity in Electricity Distribution

The semi-parametric frontier method introduced by Kuosmanen and Kortelainen [41] is perhaps the most promising method to solve most of the basic problems concerning SFA and DEA methods.

For literature see, e.g., Barros and Peypoch [6], Battese and Coelli [7], Cornwell and Schmidt [13], Greene [24‐26], Hjalmarsson, et al. [28], Kumbhakar and Lovell [38], Lovell [43], Pacudan and de Guzman [44], Pitt and Lee [45], Pombo and Taborda [47], Reichmann and Sommersguter-Reichmann [49], Rodríguez-Álvarez et al. [51], Schmidt and Sicles [53], and Seiford [54].

The authority responsible for the electricity regulation in Finland is called Energiamarkkinavirasto (see www.energiamarkkinavirasto.fi for further information).

The development procedure of the suggested DEA model used by Finnish Energy Market Authority is reported in Korhonen and Syrjänen [37]. It should be noted, however, that some of the suggestions (especially those concerning differences in operational conditions) have not been taken into account in practice.

Resende [50] studied the robustness of different efficiency measures that can be used in the US telecommunications context when implementing incentive regulation. According to the results only moderate consistency across the different approaches was found.

Presentation of cost frontier models follows Kumbhakar and Lovell [38].

See, e.g., Coelli et.al. [11] and Cooper et al. [12] for more specific presentation of the DEA.

The input price is computed when distribution utility receives part of its delivered energy outside of its own network and other part is received from local generator. The calculations are based on the market place payment, payment to the other companies’ network, and on the relative share of the received power and delivered power. It is important to correct the input price since otherwise it distorts the cost structure of these companies.

Utilities are generally interested in increasing LFs on their systems. A high LF indicates high usage of the system’s equipment and is a measure of efficiency. High LF customers are normally very desirable from a utility’s point of view. Using a year as the designated period, the LF is calculated by dividing the kilowatt-hours delivered during the year by the peak load for the year times the total number or hours during the year.

The share of forested area in Finland is 68%. This means that Finland is the most forested nation in Europe.

Heavy snow-fall causes frequent interruptions in electricity distribution.

We use the price of the input power p _p as the normaliser.

In order to preserve comparability with the Cobb–Douglas models we use the same normalizations also here.

We have used LIMDEP 9.0 [27] in all estimations.

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Titel: Efficiency of Electricity Distribution
verfasst von: Maria Kopsakangas-Savolainen
Rauli Svento
Verlag: Springer London
Buch: Modern Energy Markets
Print ISBN: 978-1-4471-2971-4

Electronic ISBN: 978-1-4471-2972-1

Copyright-Jahr: 2012
DOI: https://doi.org/10.1007/978-1-4471-2972-1_7

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