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Plant Size, Plant Factor, and the Shape of the Average Cost Function in Electric Power Generation: A Nonhomogeneous Capital Approach

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  • John F. Stewart

Abstract

This paper models an electricity producing firm's ex ante choice of technology for a generating plant in a way that recognizes that planned output is best described by a load increment composed of an instantaneous rate and a time duration and that the cost of capital equipment is dependent on the size and fuel efficiency of the plant. We estimate the cost of equipment function for a sample of plants and use the results to simulate the ex ante average cost surface over a grid of load increments. The major finding of the paper is that plant size has relatively little effect on the average cost, while the plant utilization factor is the major element leading to reductions in average cost as cumulative output expands.

Suggested Citation

  • 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.
  • Handle: RePEc:rje:bellje:v:10:y:1979:i:autumn:p:549-565
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    Cited by:

    1. Zhang, Liang, 2012. "Electricity pricing in a partial reformed plan system: The case of China," Energy Policy, Elsevier, vol. 43(C), pages 214-225.
    2. Tauchmann, H., 2006. "Firing the furnace? An econometric analysis of utilities' fuel choice," Energy Policy, Elsevier, vol. 34(18), pages 3898-3909, December.
    3. Alice Shiu, Raymond Li, and Chi-Keung Woo, 2016. "Economic Growth and Infrastructure Investments in Energy and Transportation: A Causality Interpretation of Chinas Western Development Strategy," The Energy Journal, International Association for Energy Economics, vol. 0(China Spe).
    4. Soderholm, Patrik, 2001. "Fossil fuel flexibility in west European power generation and the impact of system load factors," Energy Economics, Elsevier, vol. 23(1), pages 77-97, January.
    5. Harald Tauchmann, 2004. "Firing the Furnace? – An Econometric Analysis of Utilities’ Fuel Choice," RWI Discussion Papers 0017, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
    6. David P. Baron & Raymond R. De Bondt, 1980. "Factor Price Changes," Discussion Papers 417, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. repec:zbw:rwidps:0017 is not listed on IDEAS

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