Elements of the Swiss Market for Electricity

Transcription

1 Elements of the Swiss Market for Electricity

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3 Massimo Filippini Elements of the Swiss Market for Electricity With 51 Figures and 5 Tables Physica-Verlag A Springer-Verlag Company

4 Series Editors Werner A. Muller Peter Schuster Author PD Dr. Massimo Filippini Institut fur Empirische Wirtschaftsforschung (lew) University of Zurich Blumlisalpstr. 10 CH-8006 Zurich, Switzerland The publication of this study was partly financed by the Azienda Elettrica Ticinese, Bellinzona. ISBN-13: Cata1oging-in-Publication Data applied for Die Deutsche Bibliothek - CIP-Einheitsaufnahme Filippini, Massimo: Elements of the Swiss liilirlcet for electricity: with 5 tables I Massimo Filippini. - Heidelberg: Physica-Verl., 1997 (Contributions to economics) ISBN-13: e-isbn-13: DOl: / This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Pbysica-Verlag. Violations are liable for prosecution under the German Copyright Law. Pbysica-Verlag Heidelberg 1997 The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply. even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Softcover Design: Erich Kirchner, Heidelberg SPIN / Printed on acid-free paper

5 ACKNOWLEDGEMENTS During the course of this research I have benefitted greatly from the advice and comments of many people. I wish to express my gratitude to Professor Peter Zweifel for providing me the opportunity to do this research while working at the Institute of Empirical Research in Economics at the University of ZUrich. lowe special thanks to Professor Sybrand Schim Van Der Loeff, who taught me most about the practice of econometrics theory that underlies this research. Parts of the manuscript were written when I was visiting scholar at the Economics Department of Harvard University, Cambridge. I am grateful to Professors Ernst R. Berndt, Zvi Griliches, William W. Hogan, and Dale Jorgenson for their very helpful discussions and suggestions. The acquisition of the data sets utilized in this research would not have been possible without the help and cooperation I received from the Swiss Electric Utilities Association, from Alfred Lahrer of the Swiss Energy Office and from research assistants Markus Meier and Paola Prioni. Their involvement is greatly appreciated. I would also like to thank Professor Marc Hauser and research assistants Susanne Bonomo, Luca Crivelli, and Jarg Wild who read the manuscript with great care and offered constructive suggestions. In addition, I am also grateful to Janaki Blum, Tauni Sanchez and Tara Zend who have made the manuscript readable by scrutinizing the language. Finally, I am gratefully to my parents, Eugenio and Annamaria, for their encouragement and to my wife and son, Angela and Simone, for their love and patience.

6 TABLE OF CONTENTS List of tables List of figures X XII 1 INTRODUCTION 1.1 Economic issues to be analyzed Market for electricity: a short overview of demand, supply,regulation and tariff structures 4 PARTI Electricity demand by time-of-use 15 Introduction to part I 17 2 IMPLEMENTING CONSUMER THEORY Review of consumer theory Two-stage budgeting approach Aggregation and consumer behavior Compensating and equivalent variation in a conditional demand system Functional form and the AIDS model Review of the literature 52 3 REPRESENTATIVE CONSUMER BEHAVIOR MODEL Model specification Data and variables Estimation Results Partial elasticity estimates Concluding comments 75

7 VIII 4 AGGREGATE CONSUMER BEHAVIOR MODEL Model specification Data and variables Estimation results Partial elasticity estimates Concluding comments 98 5 HOUSEHOLD CONSUMER BEHAVIOR MODEL Model specification Data and variables Estimation results Partial elasticity estimates Concluding comments SUMMARY AND CONCLUSIONS TO PART I 113 PART II The cost structure of Swiss electric utilities 121 Introduction to part II IMPLEMENTING PRODUCER THEORY Review of traditional production theory Functional form and the translog model Output characteristics Review of the literature THE LONG-RUN COST MODEL Model specification Data and estimation procedure Estimation results Estimated economies of scale Marginal and average total costs 167

8 IX 8.6 Cost effects of load factor 8.7 Elasticities of factor demand and substitution 8.8 Concluding comments 9 THE SHORT-RUN COST MODEL 9.1 Model specification 9.2 Data and estimation procedure 9.3 Estimation Results 9.4 Long-run equilibrium conditions 9.S Economies of utilization and scale 9.6 Marginal and average variable costs 9.7 Elasticities of factor demand and substitution 9.8 Concluding comments 10 SUMMARY AND CONCLUSIONS TO PART II APPENDIX A APPENDIXB References

9 LIST OF TABLES 1.1 Electricity consumption by sector in Switzerland (1993) 1.2 The electric power industry in Switzerland Residential electricity tariffs in Switzerland Some common functional forms employed in studies on the electricity demand by time-of-use Review of previous studies on the electricity demand by time-of-use Descriptive statistics of dependent and independent variables ( ) Non-homothetic residential time-of-use electricity demand Homothetic residential time-of-use electricity demand Estimated partial elasticities Construction of the joint probability distribution of income (JZi ) and capacity ( CZw ), p (CZw JZi) and the univariate probability distribution p ( JZi), p (CZw ) or the sample of Zurich households Construction of the joint probability distribution of income (lci ) and capacity (CCw), p (CCw, ICi ) and the univariate probability distribution p (lci), p (CCw) for each city (c) of the sample Descriptions of sample household characteristics for the sample of households living in Zurich in Description of the variables Joint estimates of the non-homothetical time-of-use share equation Joint estimates of the homothetical time-of-use share equation Estimated partial elasticities Description of the variables Description of sample household characteristics Estimates of the non-homothetical time-of-use share equation Estimates of the homothetical time-of-use share equation Estimated partial elasticities Summary of the estimated partial elasticities Some common functional forms employed in cost studies of the electric industry 133

10 XI 7.2 Review of previous studies on electricity generating cost functions Review of previous studies on electricity distribution cost functions Translog total cost restrictions for tests of alternative technology hypothesis and identical fixed effects Descriptive statistics Total cost parameter estimates Likelihood Ratio test for parametric restrictions Overall scale economy estimates Estimates of scale economies for 5 small and 5 large electric distribution utilities in Marginal and average total costs for small, medium and large utilities with different load factor Cost elasticity with respect to load factor for small and large utilities in Own and cross-price elasticities of factor demand Allen elasticities of substitution Translog variable cost restrictions for tests of alternative technology hypothesis and identical fixed effects Descriptive statistics Variable cost parameter estimates Likelihood Ratio test Derivative of variable cost function with respect to capital stock for small and large utilities in Simple correlation coefficients Economies of utilization and scale Estimates of utilization and scale economies for 5 small and 5 large electric distribution utilities in Marginal and average variable costs for small, medium and large utilities Short-run own and cross-price elasticities of factor demand Short-run Allen elasticities of substitution Summary of economies of scale Percentage change in predicted total costs due to merger 208 A Electricity demand estimated coefficients of the city specific dummy variables 211

11 XII Bl B2 Total cost estimated coefficients of the firm specific dummy variables 213 Variable cost estimated coefficients of the firm specific dummy variables 215 LIST OF FIGURES 1.1 Typical daily system load curve for Switzerland 1.2 A simple electric system 8.1 Daily system load curves 8.2 Average and marginal total cost curves 9.1 Average and marginal variable cost curves