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

  • Raineri, Ricardo
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    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.

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    File URL: http://www.sciencedirect.com/science/article/B6V2W-4X8YMN2-2/2/bf4f57cbe9707157305372908c174f27
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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 1 (January)
    Pages: 30-41

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    Handle: RePEc:eee:enepol:v:38:y:2010:i:1:p:30-41
    Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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    1. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516 Elsevier.
    2. 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.
    3. Prezas, Alexandros P, 1994. "The Relationship between Investment and Asset Life," The Financial Review, Eastern Finance Association, vol. 29(4), pages 539-55, November.
    4. Lori Snyder & Nolan Miller & Robert Stavins, 2003. "The Effects of Environmental Regulation on Technology Diffusion: The Case of Chlorine Manufacturing," Working Papers 2003.48, Fondazione Eni Enrico Mattei.
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