Uses of frontier efficiency methodologies and multi-criteria decision making for performance measurement in the energy sector

Guest editorial Ali Emrouznejad is a Senior Lecturer at the Aston Business School in Birmingham, UK. His areas of research interest include performance measurement and management, efficiency and productivity analysis as well as data mining. He has published widely in various international journals. He is an Associate Editor of IMA Journal of Management Mathematics and Guest Editor to several special issues of journals including Journal of Operational Research Society, Annals of Operations Research, Journal of Medical Systems, and International Journal of Energy Management Sector. He is in the editorial board of several international journals and co-founder of Performance Improvement Management Software. William Ho is a Senior Lecturer at the Aston University Business School. Before joining Aston in 2005, he had worked as a Research Associate in the Department of Industrial and Systems Engineering at the Hong Kong Polytechnic University. His research interests include supply chain management, production and operations management, and operations research. He has published extensively in various international journals like Computers & Operations Research, Engineering Applications of Artificial Intelligence, European Journal of Operational Research, Expert Systems with Applications, International Journal of Production Economics, International Journal of Production Research, Supply Chain Management: An International Journal, and so on. His first authored book was published in 2006. He is an Editorial Board member of the International Journal of Advanced Manufacturing Technology and an Associate Editor of the OR Insight Journal. Currently, he is a Scholar of the Advanced Institute of Management Research. Uses of frontier efficiency methodologies and multi-criteria decision making for performance measurement in the energy sector This special issue aims to focus on holistic, applied research on performance measurement in energy sector management and for publication of relevant applied research to bridge the gap between industry and academia. After a rigorous refereeing process, seven papers were included in this special issue. The volume opens with five data envelopment analysis (DEA)-based papers. Wu et al. apply the DEA-based Malmquist index to evaluate the changes in relative efficiency and the total factor productivity of coal-fired electricity generation of 30 Chinese administrative regions from 1999 to 2007. Factors considered in the model include fuel consumption, labor, capital, sulphur dioxide emissions, and electricity generated. The authors reveal that the east provinces were relatively and technically more efficient, whereas the west provinces had the highest growth rate in the period studied. Ioannis E. Tsolas applies the DEA approach to assess the performance of Greek fossil fuel-fired power stations taking undesirable outputs into consideration, such as carbon dioxide and sulphur dioxide emissions. In addition, the bootstrapping approach is deployed to address the uncertainty surrounding DEA point estimates, and provide bias-corrected estimations and confidence intervals for the point estimates. The author revealed from the sample that the non-lignite-fired stations are on an average more efficient than the lignite-fired stations. Maethee Mekaroonreung and Andrew L. Johnson compare the relative performance of three DEA-based measures, which estimate production frontiers and evaluate the relative efficiency of 113 US petroleum refineries while considering undesirable outputs. Three inputs (capital, energy consumption, and crude oil consumption), two desirable outputs (gasoline and distillate generation), and an undesirable output (toxic release) are considered in the DEA models. The authors discover that refineries in the Rocky Mountain region performed the best, and about 60 percent of oil refineries in the sample could improve their efficiencies further. H. Omrani, A. Azadeh, S. F. Ghaderi, and S. Abdollahzadeh presented an integrated approach, combining DEA, corrected ordinary least squares (COLS), and principal component analysis (PCA) methods, to calculate the relative efficiency scores of 26 Iranian electricity distribution units from 2003 to 2006. Specifically, both DEA and COLS are used to check three internal consistency conditions, whereas PCA is used to verify and validate the final ranking results of either DEA (consistency) or DEA-COLS (non-consistency). Three inputs (network length, transformer capacity, and number of employees) and two outputs (number of customers and total electricity sales) are considered in the model. Virendra Ajodhia applied three DEA-based models to evaluate the relative performance of 20 electricity distribution firms from the UK and the Netherlands. The first model is a traditional DEA model for analyzing cost-only efficiency. The second model includes (inverse) quality by modelling total customer minutes lost as an input data. The third model is based on the idea of using total social costs, including the firm’s private costs and the interruption costs incurred by consumers, as an input. Both energy-delivered and number of consumers are treated as the outputs in the models. After five DEA papers, Stelios Grafakos, Alexandros Flamos, Vlasis Oikonomou, and D. Zevgolis presented a multiple criteria analysis weighting approach to evaluate the energy and climate policy. The proposed approach is akin to the analytic hierarchy process, which consists of pairwise comparisons, consistency verification, and criteria prioritization. In the approach, stakeholders and experts in the energy policy field are incorporated in the evaluation process by providing an interactive mean with verbal, numerical, and visual representation of their preferences. A total of 14 evaluation criteria were considered and classified into four objectives, such as climate change mitigation, energy effectiveness, socioeconomic, and competitiveness and technology. Finally, Borge Hess applied the stochastic frontier analysis approach to analyze the impact of various business strategies, including acquisition, holding structures, and joint ventures, on a firm’s efficiency within a sample of 47 natural gas transmission pipelines in the USA from 1996 to 2005. The author finds that there were no significant changes in the firm’s efficiency by an acquisition, and there is a weak evidence for efficiency improvements caused by the new shareholder. Besides, the author discovers that parent companies appear not to influence a subsidiary’s efficiency positively. In addition, the analysis shows a negative impact of a joint venture on technical efficiency of the pipeline company. To conclude, we are grateful to all the authors for their contribution, and all the reviewers for their constructive comments, which made this special issue possible. We hope that this issue would contribute significantly to performance improvement of the energy sector.

Message passing for distributed optimisation of power allocation with renewable resources

The increase in renewable energy generators introduced into the electricity grid is putting pressure on its stability and management as predictions of renewable energy sources cannot be accurate or fully controlled. This, with the additional pressure of fluctuations in demand, presents a problem more complex than the current methods of controlling electricity distribution were designed for. A global approximate and distributed optimisation method for power allocation that accommodates uncertainties and volatility is suggested and analysed. It is based on a probabilistic method known as message passing [1], which has deep links to statistical physics methodology. This principled method of optimisation is based on local calculations and inherently accommodates uncertainties; it is of modest computational complexity and provides good approximate solutions.We consider uncertainty and fluctuations drawn from a Gaussian distribution and incorporate them into the message-passing algorithm. We see the effect that increasing uncertainty has on the transmission cost and how the placement of volatile nodes within a grid, such as renewable generators or consumers, effects it.

Investement appraisal in a deregulated electricity market

This thesis analyses the impact of deregulation on the theory and practice of investment decision making in the electricity sector and appraises the likely effects on its long term future inefficiency. Part I describes the market and its shortcomings in promoting an optimal generation margin and plant mix and in reducing prices through competition. A full size operational model is developed to simulate hour by hour operation of the market and analyse its features. A relationship is established between the SMP and plant mix and between the LOLP and plant margin and it is shown bow a theoretical optimum can be derived when the combined LOLP payments and the capital costs of additional generation reach a minimum. A comparison of prices against an idealised bulk supply tariff is used to show how energy prices have risen some 12% in excess of what might have occurred under the CEGB regime. This part concludes with proposals to improve the marlmarket conditions and these are tested against the actual investment decisions since deregulation to demonstrate their appropriateness. It is shown that the current market mechanisms could lead to suboptimal investment. Part 3 discusses the essential role of transmission in enabling competition and reviews worldwide practices illustrating little consensus on charging for its use. Basic costing principles are described and a new model is developed to demonstrate bow a generator may strike supply agreements either side of an interconnector to influence prices so as to maximise his income. The optimal pricing strategy for the transmitter is also derived and consumer response is simulated .The concept of transmission uplift is developed and the operational model is extended to include transmission constraints and then used to establish monthly incremental transmission constraint cost functions. It is shown how these can be used to appraise investment options and optimally plan outages. Part 4 concludes by discussing the regulatory framework and its limitations in improving efficiency or encouraging the optimum levels of investment. The principal findings of the thesis are reviewed and potential market improvement are described. This part concludes with a discussion of alternative market structures and likely future developments.

Demand side management within a regional electricity company

The work presented in this thesis concerns itself with the application of Demand Side Management (DSM) by industrial subsector as applied to the UK electricity industry. A review of the origins of DSM in the US and the relevance of experience gained to the UK electricity industry is made. Reviews are also made of the current status of the UK electricity industry, the regulatory system, and the potential role of DSM within the prevalent industry environment. A financial appraisal of DSM in respect of the distribution business of a Regional Electricity Company (REC) is also made. This financial appraisal highlights the economic viability of DSM within the context of the current UK electricity industry. The background of the work presented above is then followed by the construction of a framework detailing the necessary requirements for expanding the commercial role of DSM to encompass benefits for the supply business of a REC. The derived framework is then applied, in part, to the UK ceramics manufacturing industry, and in full to the UK sanitaryware manufacturing industry. The application of the framework to the UK sanitaryware manufacturing industry has required the undertaking of a unique first-order energy audit of every such manufacturing site in the UK. As such the audit has revealed previously unknown data on the timings and magnitude of electricity demand and consumption attributable to end-use manufacturing technologies and processes. The audit also served to reveal the disparity in the attitudes toward energy services, and thus by implication towards DSM, of manufacturers within the same Standard Industrial Classification (SIC) code. In response to this, attempt is made to identify the underlying drivers which could cause this variation in attitude. A novel approach to the market segmentation of the companies within the UK ceramics manufacturing sector has been utilised to classify these companies in terms of their likelihood to participate in DSM programmes through the derived Energy Services approach. The market segmentation technique, although requiring further development to progress from a research based concept, highlights the necessity to look beyond the purely energy based needs of manufacturing industries when considering the utilisation of the Energy Services approach to facilitate DSM programs.

Organizational change and development:a case study in the Indian electricity market

Five principles for accommodating cultural nuances

Selection of power market structure using the analytic hierarchy process

Selection of a power market structure from the available alternatives is an important activity within an overall power sector reform programme. The evaluation criteria for selection are both subjective as well as objective in nature and the selection of alternatives is characterised by their conflicting nature. This study demonstrates a methodology for power market structure selection using the analytic hierarchy process (AHP), a multiple attribute decision-making technique, to model the selection methodology with the active participation of relevant stakeholders in a workshop environment. The methodology is applied to a hypothetical case of a State Electricity Board reform in India.

Applications of the behavioural homogeneity evaluation framework: the predictive ability of consumer involvement for international food market segmentation

This article proposes a framework of alternative international marketing strategies, based on the evaluation of intra- and inter-cultural behavioural homogeneity for market segmentation. The framework developed in this study provides a generic structure to behavioural homogeneity, proposing consumer involvement as a construct with unique predictive ability for international marketing strategy decisions. A model-based segmentation process, using structural equation models, is implemented to illustrate the application of the framework.

An examination of the consequences of market orientation in China

Recent literature suggests that the relationship between market orientation and business performance may be moderated by the nature of the external environment. While the conceptual arguments for such a relationship are well established, empirical evidence on the precise nature of this link has been both limited and ambiguous. The current paper provides further evidence on the nature of the links between market orientation, the environment and performance through a comparative analysis of two business sectors in China with distinctively different competitive environments. The results indicate that market orientation's impact on business performance is positive regardless of environmental conditions. However, the environment is found to moderate the relationship between market orientation and customer satisfaction. Finally, the study provides evidence that market orientation also has positive impacts on power in distribution channels and corporate social responsibility.

An assessment of the performance of high density polyethylene copolymers for natural gas distribution pipes

The total thermoplastics pipe market in west Europe is estimated at 900,000 metric tonnes for 1977 and is projected to grow to some 1.3 million tonnes of predominantly PVC and polyolefins pipe by 1985. By that time, polyethylene for gas distribution pipe and fittings will represent some 30% of the total polyethylene pipe market. The performance characteristics of a high density polyethylene are significantly influenced by both molecular weight and type of comonomer; the major influences being in the long-term hoop stress resistance and the environmental stress cracking resistance. Minor amounts of hexene-1 are more effective than comonomers lower in the homologous series, although there is some sacrifice of density related properties. A synergistic improvement is obtained by combining molecular weight increase with copolymerisation. The Long-term design strength of polyethylene copolymers can be determined from hoop stress measurement at elevated temperatures and by means of a separation factor of approximate value 22, extrapolation can be made to room temperature performance for a water environment. A polyethylene of black composition has a sufficiently improved performance over yellow pigmented pipe to cast doubts on the validity of internationally specifying yellow coded pipe for gas distribution service. The chemical environment (condensate formation) that can exist in natural gas distribution networks has a deleterious effect on the pipe performance the reduction amounting to at least two decades in log time. Desorption of such condensate is very slow and the influence of the more aggressive aromatic components is to lead to premature stress cracking. For natural gas distribution purposes, the design stress rating should be 39 Kg/cm2 for polyethylenes in the molecular weight range of 150 - 200,000 and 55 Kg/cm2 for higher molecular weight materials.

Market orientation of hotels and travel services in China

China is unique both politically and economically. How this uniqueness impacts on firms'' adoption of market orientation and the impact of market orientation on business performance, however, remain unclear. This book reports a study by Dr Riliang Qu who aims to address the above knowledge void. The study employs a two-stage research strategy including interviews and a survey of 1000 hotels and travel services. The study found that government regulations restricting the firm rivalry and the shortage of competent managerial talents are among the most serious constraints to the firms'' development of market orientation along with such factors as inadequacy of government regulation on product quality and consumer protection. The findings suggest that in transitional like China, government actions could be a major force behind firms'' aspiration of being market-oriented. The study also found that the benefits of market orientation are multi-fold in that it not only improves company''s business performance but also has positive effects on customer satisfaction/retention, power in distribution channel, and corporate social responsibility.

Consumer price knowledge in the market for apparel

Purpose – The aim of this study is to analyze consumers' price knowledge in the market for apparels. Design/methodology/approach – After reviewing earlier attempts at assessing the construct, the price estimation error “PEE” was used, a measure based on explicit price knowledge stored in long-term memory, as a valid indicator of price knowledge. Findings – The results, including data from about 1,527 consumers on 66 products from the German apparel market, indicate that price knowledge is relatively low. Originality/value – Although, in the literature, there are several studies on price knowledge in the food industry, little is known about price knowledge in other industry sectors. This is quite surprising since pricing strategy is a concept which is vitally important to all retailers. Therefore, this study is a first contribution to extending the concept of behavioral pricing to the apparel market.

Stock market efficiency before and after a financial liberalisation reform:do breaks in volatility dynamics matter?

This article focuses on the deviations from normality of stock returns before and after a financial liberalisation reform, and shows the extent to which inference based on statistical measures of stock market efficiency can be affected by not controlling for breaks. Drawing from recent advances in the econometrics of structural change, it compares the distribution of the returns of five East Asian emerging markets when breaks in the mean and variance are either (i) imposed using certain official liberalisation dates or (ii) detected non-parametrically using a data-driven procedure. The results suggest that measuring deviations from normality of stock returns with no provision for potentially existing breaks incorporates substantial bias. This is likely to severely affect any inference based on the corresponding descriptive or test statistics.

Policy, economic federalism, and product market entry:the Indian experience

Productivity growth has long been associated with, among other things, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm's ability to enter a product market than strategic positions adopted by the incumbent firms. We examine this proposition in the context of India where the industrial policies of the 1980s and the 1990s are widely believed to be pro-incumbent and pro-competition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In our analysis, we also take into consideration the possibility that the greater economic federalism associated with the reforms of the 1990s may have affected the distribution of industrial units across states after 1991. Our paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses.

Vertical and horizontal scope economies in the regulated US electricity power industry

This paper investigates vertical economies between generation and distribution of electric power, and horizontal economies between different types of power generation in the U.S. electric utility industry. Our quadratic cost function model includes three generation output measures (hydro, nuclear and fossil fuels), which allows us to analyze the effect that generation mix has on vertical economies. Our results provide (sample mean) estimates of vertical economies of 8.1% and horizontal economies of 5.4%. An extensive sensitivity analysis is used to show how the scope measures vary across alternative model specifications and firm types. © 2012 Blackwell Publishing Ltd and the Editorial Board of The Journal of Industrial Economics.

Dynamic network rating for low carbon distribution network operation:a U.K. application

Dynamic asset rating (DAR) is one of the number of techniques that could be used to facilitate low carbon electricity network operation. Previous work has looked at this technique from an asset perspective. This paper focuses, instead, from a network perspective by proposing a dynamic network rating (DNR) approach. The models available for use with DAR are discussed and compared using measured load and weather data from a trial network area within Milton Keynes in the central area of the U.K. This paper then uses the most appropriate model to investigate, through a network case study, the potential gains in dynamic rating compared to static rating for the different network assets - transformers, overhead lines, and cables. This will inform the network operator of the potential DNR gains on an 11-kV network with all assets present and highlight the limiting assets within each season.