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 marl

Measuring economies of horizontal and vertical integration in the US electric power industry:how costly is unbundling?

This research employs econometric analysis on a cross section of American electricity companies in order to study the cost implications associated with unbundling the operations of integrated companies into vertically and/or horizontally separated companies. Focusing on the representative sample average firm, we find that complete horizontal and vertical disintegration resulting in the creation of separate nuclear, conventional, and hydro electric generation companies as well as a separate firm distributing power to final consumers, results in a statistically significant 13.5 percent increase in costs. Maintaining a horizontally integrated generator producing nuclear, conventional, and hydro electric generation while imposing vertical separation by creating a stand alone distribution company, results in a lower but still substantial and statistically significant cost penalty amounting to an 8.1 % increase in costs relative to a fully integrated structure. As these results imply that a vertically separated but horizontally integrated generation firm would need to reduce the costs of generation by 11% just to recoup the cost increases associated with vertical separation, even the costs associated with just vertical unbundling are quite substantial. Our paper is also the first academic paper we are aware of that systematically considers the impact of generation mix on vertical, horizontal, and overall scope economies. As a result, we are able to demonstrate that the estimated cost of unbundling in the electricity sector is substantially influenced by generation mix. Thus, for example, we find evidence of strong vertical integration economies between nuclear and conventional generation, but little evidence for vertical integration benefits between hydro generation and the distribution of power. In contrast, we find strong evidence suggesting the presence of substantial horizontal integration economies associated with the joint production of hydro generation with nuclear and/or conventional fossil fuel generation. These results are significant because they indicate that the cost of unbundling the electricity sector will differ substantially in different systems, meaning that a blanket regulatory policy with regard to the appropriateness of vertical and horizontal unbundling is likely to be inappropriate.

Assessing the capability to acquire and absorb technology within the public sector in developing countries : the case of Kuwait

The aim of this research is to assess the acquisition and absorption technology capabilities of the public sector in developing countries, with specific focus on the State of Kuwait. The assessment process of these two capabilities was conducted using a model originally designed for the private sector. In addition, the research aims to propose a framework to enhance the technological capability of developing countries, as well as the performance of the public sector. To achieve these aims, an investigation of the technology process to three public ministries in Kuwait was conducted. The prime interest of this investigation was to evaluate the role of the transferred technology in enhancing the indigenous technological capability of the public sector. The research is based on a case study approach, comprising a main case study (Ministry of Electricity and Water) and three minor case studies. Based on the outcomes from an extensive literature review and the preliminary sectoral visits, the research question and four hypotheses were formulated. These hypotheses were then tested using interview-based survey and documentation. The findings of the research revealed the weakness of the acquisition and absorption technological capabilities of the public sector. Consequently, the public sector relies extensively on foreign contractors and expatriates to compensate for this weakness. Also, it was found that Kuwait Government has not taken the necessary measures to develop its technological capability. This research has proposed a framework which could lead, if properly managed, to the enhancement of indigenous capability. It has also proposed how to improve performance and productivity in the public sector. Finally, the findings suggest that the assessment model, with minor adjustment, is applicable to the public sector.

Public sector investment appraisal:the place of flexibility in the decision making process

This thesis reviews the main methodological developments in public sector investment appraisal and finds growing evidence that appraisal techniques are not fulfilling their earlier promise. It is suggested that an important reason for this failure lies in the inability of these techniques to handle uncertainty except in a highly circumscribed fashion. It is argued that a more fruitful approach is to strive for flexibility. Investment projects should be formulated with a view to making them responsive to a wide range of possible future events, rather than embodying a solution which is optimal for one configuration of circumstances only. The distinction drawn in economics between the short and the long run is used to examine the nature of flexibility. The concept of long run flexibility is applied to the pre-investment range of choice open to the decisionmaker. It is demonstrated that flexibility is reduced at a very early stage of decisionmaking by the conventional system of appraisal which evaluates only a small number of options. The pre-appraisal filtering process is considered further in relation to decisionmaking models. It is argued that for public sector projects the narrowing down of options is best understood in relation to an amended mixed scanning model which places importance on the process by which the 'national interest ' is determined. Short run flexibility deals with operational characteristics, the degree to which particular projects may respond to changing demands when the basic investment is already in place. The tension between flexibility and cost is noted. A short case study on the choice of electricity generating plant is presented. The thesis concludes with a brief examination of the approaches used by successive British governments to public sector investment, particularly in relation to the nationalised industries

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.

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.