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

Listed author(s):
  • Park, Sun-Young
  • Lee, Kyoung-Sil
  • Yoo, Seung-Hoon
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0301421515301531
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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 88 (2016)
    Issue (Month): C ()
    Pages: 197-203

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    Handle: RePEc:eee:enepol:v:88:y:2016:i:c:p:197-203
    DOI: 10.1016/j.enpol.2015.10.026
    Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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