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Distributed Generation versus Centralised Supply: a Social Cost-Benefit Analysis

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  • Gullì, F.

Abstract

This paper attempts to verify whether we are moving towards a new paradigm of the network energy industry (electricity and natural gas), based on a wide decentralisation of the energy supply. We do this by comparing the social benefits of decentralised and centralised models, simulating “ideal” situations in which any source of allocative inefficiencies is eliminated. This comparison focuses on assessing internal and external benefits. The internal benefits are calculated by simulating the optimal prices of the electricity and gas inputs. The external benefits are estimated by applying the “ExternE” methodology, one of the most recent and accurate approaches in this field. The paper rejects the hypothesis that we are moving towards a new paradigm and points out how the considerable interest in the deployment of distributed generation (DG) is probably due to market distortions, in some cases, enforced by market reforms. In this respect, the paper reflects upon the real effectiveness of such reforms as well as the overall efficiency of the environmental policies focusing on the reduction of green-house gas emissions.

Suggested Citation

  • Gullì, F., 2003. "Distributed Generation versus Centralised Supply: a Social Cost-Benefit Analysis," Cambridge Working Papers in Economics 0336, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0336
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe0336.pdf
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    References listed on IDEAS

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    1. Jay Morse, 1997. "Regulatory Policy Regarding Distributed Generation by Utilities: The Impact of Restructuring," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 187-210.
    2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    3. Newbery, D.M. & Pollitt, M.G., 1996. "The Restructuring and Privatisation of the CEGB: Was It Worth It?," Cambridge Working Papers in Economics 9607, Faculty of Economics, University of Cambridge.
    4. Stirling, Andrew, 1997. "Limits to the value of external costs," Energy Policy, Elsevier, vol. 25(5), pages 517-540, April.
    5. Severin Borenstein & James Bushnell & Christopher R. Knittel, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 65-88.
    6. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    7. Richard Schmalensee, 1993. "Symposium on Global Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 3-10, Fall.
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    More about this item

    Keywords

    Distributed Generation; Social Cost-Benefit Analysis; Energy Economics; Environmental Economics; Technological Change;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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