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Economies of Scale and Utilization: An Analysis of the Multi‐Plant Generation Costs of the Electricity Commission of New South Wales, 1970/71–1984/85

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  • JEFF BATESON
  • PETER L. SWAN

Abstract

We examine the average costs of electricity generated in NSW at the site level employing a new simultaneous‐equations model approach Further, we argue that costs depend principally on unit size and capacity utilization We reinterpret capacity utilization as a compositional variable which is a continuous proxy for the (inverse of) the intensity of demand for electricity, thus partially addressing the multi‐product nature of electricity. Low capacity utilization corresponds to intense demands and hence peaking output We find that costs per kWh, as conventionally measured, are highly sensitive to the degree of capacity utilization but less so to unit size (scale). The results emphasize the need for tine‐related pricing

Suggested Citation

  • Jeff Bateson & Peter L. Swan, 1989. "Economies of Scale and Utilization: An Analysis of the Multi‐Plant Generation Costs of the Electricity Commission of New South Wales, 1970/71–1984/85," The Economic Record, The Economic Society of Australia, vol. 65(4), pages 329-344, December.
    • Handle: RePEc:bla:ecorec:v:65:y:1989:i:4:p:329-344
    DOI: 10.1111/j.1475-4932.1989.tb00686.x
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    References listed on IDEAS

    as
    1. Peter L. Swan, 1990. "Real Rates of Return in Electricity Supply: New South Wales, Tasmania and Victoria," The Economic Record, The Economic Society of Australia, vol. 66(2), pages 93-109, June.
    2. Huettner, David A, 1973. "Shifts of long run average cost curves: Theoretical and managerial implications," Omega, Elsevier, vol. 1(4), pages 421-450, August.
    3. Hugh R. Wills, 1978. "Estimation of a Vintage Capital Model for Electricity Generating," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(3), pages 495-510.
    4. Thomas G. Cowing & V. Kerry Smith, 1978. "The Estimation of a Production Technology: A Survey of Econometric Analyses of Steam-Electric Generation," Land Economics, University of Wisconsin Press, vol. 54(2), pages 156-186.
    5. Peter L. Swan, 1983. "The Marginal Cost of Base‐Load Power: An Application to Alcoa's Portland Smelter," The Economic Record, The Economic Society of Australia, vol. 59(4), pages 332-344, December.
    6. John F. Stewart, 1979. "Plant Size, Plant Factor, and the Shape of the Average Cost Function in Electric Power Generation: A Nonhomogeneous Capital Approach," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 549-565, Autumn.
    7. Gold, Bela, 1981. "Changing Perspectives on Size, Scale, and Returns: An Interpretive Survey," Journal of Economic Literature, American Economic Association, vol. 19(1), pages 5-33, March.
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    Cited by:

    1. Peter L. Swan, 1990. "Real Rates of Return in Electricity Supply: New South Wales, Tasmania and Victoria," The Economic Record, The Economic Society of Australia, vol. 66(2), pages 93-109, June.

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