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Evaluation Of Investments For The Expansion Of An Electricity Distribution System

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Author Info

  • Glenn Jenkins

    () (Queen's University, Kingston, On, Canada)

  • HENRY LIM

Abstract

While the methodology for the evaluation of electricity generation investments is well developed, little work has been done on how to segregate and compare the costs and benefits of electricity distribution facilities. Distribution projects have been usually treated as a required technical part of a power system, with their specific costs and benefits rarely evaluated. As electricity systems become unbundled through privatization and competition, this historical treatment of electricity distribution investments must change. The purpose of this study is to develop and illustrate an integrated analysis of the electricity distribution investments where the financial, economic, stakeholder and risks aspects of the investment are all carried out in a constituent fashion. A major investment program that was undertaken to upgrade the distribution system of commission Federal de Electricidad (CFE) of Mexico from 1990-1994 will be the case to which this methodology is applied. Such projects produce a benefit stream that is multidimensional, it includes increased sales of electricity to new customers, a reduction of the rate of pilferage of electricity, energy savings due to reductions in transformers’ losses and a reduction in incidence of power shortages. Each of these components represents different financial and economic values to customers as well as to the utility, hence, must be considered separately in an investment appraisal. The results from this study indicate that this particular investment program was desirable from an economic perspective and from the point of view of the utility. In addition, the stakeholder analysis indicates that the economic externalities accrue largely to the government through a large positive fiscal impact, and to the electricity consumers who will now obtain access to a reliable service that is priced substantially below the amount they would have pay for it. While the project makes some customers very much better off, those whose consumption was previously unmetered will be made worse-off.

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File URL: http://www.queensjdiexec.org/publications/qed_dp_127.pdf
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Bibliographic Info

Paper provided by JDI Executive Programs in its series Development Discussion Papers with number 1998-01.

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Length: 64 pages
Date of creation: Dec 1998
Date of revision:
Handle: RePEc:qed:dpaper:127

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Web page: http://qed.econ.queensu.ca/
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Related research

Keywords: electric distribution; electricity investments; Mexico;

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References

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  1. Glenn P. Jenkins, 1985. "Public Utility Finance and Economic Waste," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 484-98, August.
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Cited by:
  1. Ellen Seidensticker & Glenn Jenkins, 2000. "Public Sector Intervention in the Energy Sector," Development Discussion Papers 2000-02, JDI Executive Programs.
  2. Bicak, H.A. & Jenkins, G.P., 1999. "Costs and Pricing Policies Related to Transporting Water by Tanker from Turkey to North Cyprus," Papers 689, Harvard - Institute for International Development.

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