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Asset life and pricing the use of electricity transmission infrastructure in Chile

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  • Raineri, Ricardo

Abstract

Beyond the different approaches to set regulated prices for the use of infrastructure, a key parameter to determine regulated tariffs is the concept of asset life and how it changes with changes in the economic and regulatory context, which determines the optimal infrastructure investment and replacement policies. In this paper we look at the effects that changes in demand, the presence of substitutes and complements, the regulatory framework - both a pro or an anticompetitive framework - , scale economies, and the investment planning horizon, have on the economic service life of an asset and the tariffs for its use. We find that as the electric industry becomes more competitive, a negative effect on the economic service life of electric electricity transmission should be expected. Also, numerical experiments illustrate an inverse relation between scale economies on investment and the ESL of electricity transmission infrastructure. Further, we look at the biases on optimal investment that happen when optimal plans do not observe the life cycle of the investments and the ESL of the equipment, as well as the inconsistency and biases on optimal investment and replacement policies that might result when the Social Planner optimal investment plan lacks of a long-term commitment.

Suggested Citation

  • Raineri, Ricardo, 2010. "Asset life and pricing the use of electricity transmission infrastructure in Chile," Energy Policy, Elsevier, vol. 38(1), pages 30-41, January.
  • Handle: RePEc:eee:enepol:v:38:y:2010:i:1:p:30-41
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    1. Herman L. Gilster, 1970. "A Statistical Analysis of Aircraft Maintenance Costs," Operations Research, INFORMS, vol. 18(5), pages 904-917, October.
    2. Lori D. Snyder & Nolan H. Miller & Robert N. Stavins, 2003. "The Effects of Environmental Regulation on Technology Diffusion: The Case of Chlorine Manufacturing," American Economic Review, American Economic Association, pages 431-435.
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    4. Prezas, Alexandros P, 1994. "The Relationship between Investment and Asset Life," The Financial Review, Eastern Finance Association, vol. 29(4), pages 539-555, November.
    5. José Miguel Benavente & Alexander Galetovic & Ricardo Sanhueza & Pablo Serra, 2005. "Estimando la Demanda Residencial por Electricidad en Chile: El Consumo es Sensible al Precio," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(125), pages 31-61.
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    Cited by:

    1. Sumper, Andreas & Boix-Aragonès, Oriol & Villafáfila-Robles, Roberto & Bergas-Jané, Joan & Ramírez-Pisco, Rodrigo, 2010. "Methodology for the assessment of the impact of existing high voltage lines in urban areas," Energy Policy, Elsevier, vol. 38(10), pages 6036-6044, October.
    2. Brown, Alistair, 2016. "The need for improved financial reporting of a developing country energy utility," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1448-1454.

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