Estimating the cost of improving quality in electricity distribution: a parametric distance function approach

Coelli, Tim J., Gautier, Axel, Perelman, Sergio and Saplacan-Pop, Roxana (2013) Estimating the cost of improving quality in electricity distribution: a parametric distance function approach. Energy Policy, 53 287-297. doi:10.1016/j.enpol.2012.10.060


Author Coelli, Tim J.
Gautier, Axel
Perelman, Sergio
Saplacan-Pop, Roxana
Title Estimating the cost of improving quality in electricity distribution: a parametric distance function approach
Journal name Energy Policy   Check publisher's open access policy
ISSN 0301-4215
1873-6777
Publication date 2013-02
Year available 2012
Sub-type Article (original research)
DOI 10.1016/j.enpol.2012.10.060
Volume 53
Start page 287
End page 297
Total pages 11
Place of publication London, United Kingdom
Publisher Elsevier
Collection year 2013
Language eng
Formatted abstract
The quality of electricity distribution is being more and more scrutinized by regulatory authorities, with explicit reward and penalty schemes based on quality targets having been introduced in many countries. It is then of prime importance to know the cost of improving the quality for a distribution system operator. In this paper, we focus on one dimension of quality, the continuity of supply, and we estimated the cost of preventing power outages. For that, we make use of the parametric distance function approach, assuming that outages enter in the firm production set as an input, an imperfect substitute for maintenance activities and capital investment. This allows us to identify the sources of technical inefficiency and the underlying trade-off faced by operators between quality and other inputs and costs. For this purpose, we use panel data on 92 electricity distribution units operated by ERDF (Electricité de France - Réseau Distribution) in the 2003–2005 financial years. Assuming a multi-output multi-input translog technology, we estimate that the cost of preventing one interruption is equal to 10.7€ for an average DSO. Furthermore, as one would expect, marginal quality improvements tend to be more expensive as quality itself improves.
Keyword Electricity distribution
Parametric distance function
Shadow price of quality
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ
Additional Notes Published online 22 November 2012.

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2013 Collection
School of Economics Publications
 
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