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Distributed Generation versus Centralised Supply: a Social Cost-Benefit Analysis

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  • Gullì, F.
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    Abstract

    This paper attempts to verify whether we are moving towards a new paradigm of the network energy industry (electricity and natural gas), based on a wide decentralisation of the energy supply. We do this by comparing the social benefits of decentralised and centralised models, simulating “ideal” situations in which any source of allocative inefficiencies is eliminated. This comparison focuses on assessing internal and external benefits. The internal benefits are calculated by simulating the optimal prices of the electricity and gas inputs. The external benefits are estimated by applying the “ExternE” methodology, one of the most recent and accurate approaches in this field. The paper rejects the hypothesis that we are moving towards a new paradigm and points out how the considerable interest in the deployment of distributed generation (DG) is probably due to market distortions, in some cases, enforced by market reforms. In this respect, the paper reflects upon the real effectiveness of such reforms as well as the overall efficiency of the environmental policies focusing on the reduction of green-house gas emissions.

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    File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0336.pdf
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    Bibliographic Info

    Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0336.

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    Length: 49
    Date of creation: Jul 2003
    Date of revision:
    Handle: RePEc:cam:camdae:0336

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    Web page: http://www.econ.cam.ac.uk/index.htm

    Related research

    Keywords: Distributed Generation; Social Cost-Benefit Analysis; Energy Economics; Environmental Economics; Technological Change;

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    References

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    1. Jay Morse, 1997. "Regulatory Policy Regarding Distributed Generation by Utilities: The Impact of Restructuring," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 187-210.
    2. Newbery, D.M. & Pollitt, M.G., 1996. "The Restructuring and Privatisation of the CEGB: Was It Worth It?," Cambridge Working Papers in Economics 9607, Faculty of Economics, University of Cambridge.
    3. Nicolas Curien & Bruno Jullien & Patrick Rey, 1998. "Pricing Regulation Under Bypass Competition," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 259-279, Summer.
    4. Stirling, Andrew, 1997. "Limits to the value of external costs," Energy Policy, Elsevier, vol. 25(5), pages 517-540, April.
    5. Borenstein, Severin & Bushnell, James & Knittel, Chris, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," Staff General Research Papers 31548, Iowa State University, Department of Economics.
    6. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
    7. Ronald R. Braeutigam, 1984. "Socially Optimal Pricing with Rivalry and Economies of Scale," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 127-134, Spring.
    8. Israel Pressman, 1970. "A Mathematical Formulation of the Peak-Load Pricing Problem," Bell Journal of Economics, The RAND Corporation, vol. 1(2), pages 304-326, Autumn.
    9. Richard Schmalensee, 1993. "Symposium on Global Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 3-10, Fall.
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