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Economies of scale in the Korean district heating system: A variable cost function approach

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  • Park, Sun-Young
  • Lee, Kyoung-Sil
  • Yoo, Seung-Hoon

Abstract

This paper aims to investigate the cost efficiency of South Korea’s district heating (DH) system by using a variable cost function and cost-share equation. We employ a seemingly unrelated regression model, with quarterly time-series data from the Korea District Heating Corporation (KDHC)—a public utility that covers about 59% of the DH system market in South Korea—over the 1987–2011 period. The explanatory variables are price of labor, price of material, capital cost, and production level. The results indicate that economies of scale are present and statistically significant. Thus, expansion of its DH business would allow KDHC to obtain substantial economies of scale. According to our forecasts vis-à-vis scale economies, the KDHC will enjoy cost efficiency for some time yet. To ensure a socially efficient supply of DH, it is recommended that the KDHC expand its business proactively. With regard to informing policy or regulations, our empirical results could play a significant role in decision-making processes.

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  • Park, Sun-Young & Lee, Kyoung-Sil & Yoo, Seung-Hoon, 2016. "Economies of scale in the Korean district heating system: A variable cost function approach," Energy Policy, Elsevier, vol. 88(C), pages 197-203.
    • Handle: RePEc:eee:enepol:v:88:y:2016:i:c:p:197-203
    DOI: 10.1016/j.enpol.2015.10.026
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    Cited by:

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    2. Byoung-Kuk Ju & Seung-Hoon Yoo & Chulwoo Baek, 2022. "Economies of Scale in City Gas Sector in Seoul, South Korea: Evidence from an Empirical Investigation," Sustainability, MDPI, vol. 14(9), pages 1-14, April.
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    4. Quan-Hoang Vuong & Manh-Tung Ho & Hong-Kong To Nguyen & Minh-Hoang Nguyen, 2019. "The trilemma of sustainable industrial growth: evidence from a piloting OECD’s Green city," Palgrave Communications, Palgrave Macmillan, vol. 5(1), pages 1-14, December.
    5. Jeong-Joon Yu & Seung-Hoon Yoo & Chulwoo Baek, 2019. "Economies of Scale in the South Korean Natural Gas Industry," Energies, MDPI, vol. 12(8), pages 1-10, April.
    6. Chulseung Lee & Jaechan Park & Kangmun Lee & Ji Yeon Yang & Taewoo Roh, 2019. "Energy Efficiency for Supplier and Sustainability for Demand: A Case of Heating Systems in South Korea," Sustainability, MDPI, vol. 11(15), pages 1-21, August.

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