Factors affecting the pricing of electricity in twelve Asian countries

Pao Yue-kong Library Electronic Theses Database

Factors affecting the pricing of electricity in twelve Asian countries


Author: Ko, Koon-hung Anthony
Title: Factors affecting the pricing of electricity in twelve Asian countries
Degree: D.B.A.
Year: 2000
Subject: Electric utilities -- Rates -- Asia
Hong Kong Polytechnic University -- Dissertations
Department: Dept. of Management
Pages: 269 leaves : ill. (some col.) ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1553082
URI: http://theses.lib.polyu.edu.hk/handle/200/568
Abstract: The pricing of electricity is traditionally under government control. In western countries, some governments allow power tariffs to be determined by market forces. In Asia, the vast majority of governments regulate power tariffs as part of general price controls, or as a means of achieving other economic or social objectives. There are key theories leading to the regulatory framework in the pricing of electricity. Hirshleifer (1984) and Pogue & Sgontz (1978) postulate a declining average cost concept under the monopolistic nature of power industry. Brown & Sibley (1986) introduce the paradigm of the regulated firm, i.e. Pareto improvement, by the Ramsey Pricing approach. The approach makes one person or group better off at the expenses of no one. Therefore, the total surplus (benefits) to a society is improved. The total surplus is the sum of consumer surplus (benefits) and the producer surplus (profit). Baumol & Sidak (1995) point out the difficulties on carrying out Ramsey pricing approach as the demand elasticity is difficult to measure in practice. They emphasize more pragmatic cost allocation methods based on demand related costs, energy related costs and customer related costs. This thesis postulates a hypothesis to study of the impacts of those costs on the price of electricity. The current reform of Asian power industry introduces price competitions among incumbents. Through the segregation of ownership among power operation, transmission and distribution, the new structure is more transparent in cost and pricing structures with less interference by government regulation. The pricing of electricity is subject to the change of power policies due to the underlying economic conditions and the advancement of generation technology. This research reviews the power generation statistics, the capacity mix, and the power policies of 12 Asian countries. The results are used to form the basis of identifying the key factors affecting the price of electricity. Based on the methodologies of NERA (1980), Ebasco (1977), and Ernst & Ernst (1977, October), this thesis establishes a theoretical framework hypothesizing the factors affecting the pricing of electricity in Twelve Asian Countries. There are 12 regression equations, which are postulated to explain the factors affecting the pricing of electricity in twelve Asian countries. The results of regression analysis are tested with the construct validity, the statistical significant, and the predictive power. The findings of this research provide the utility regulators and power operators with a better understanding of the predictor variables underlying the change of the price of electricity so as to formulate corrective measures and power policies to cope with the rapid reform process in power industry. The coefficient estimates of regression equations postulated in this thesis differ between countries. The results suggest that the countries have distinct cost variations due to the difference in economic conditions and social environment. Due to the rapid changing economic conditions, it is crucial to make continual examination on subsequent data points to improve the regression model of each country. In addition to the formulation of 12 regression equations, this research carries out a single regression analysis on the panel data of 23 utility companies in 12 Asian countries to examine the factors affecting the change in the price of electricity during the period from 1983 to 1998. The results indicate that power generation technologies have impacts on the price of electricity. But, their impacts on the change in the price of electricity are less significant than the cost factors (i.e. fuel cost and operation cost) and demand related factors (i.e. sales generation, gross domestic product, and consumer price index). The results of a single regression analysis suggest that a power utility company has a predominant power generation technology, which provide competitive advantages because of a operation skill and fuel efficiency. The learning curve effect sets a high barrier of change in the generation technology. In addition, the local supply of fuel sets the prevailing generation technology in a country (i.e. a country with abundant coal supply will favor the establishment of coal fired power plant). Some countries have forced to make change in the generation technologies faster than the other. This is because of the scarcity of local fuel supply in these countries. They are exposed to higher risk due to fuel cost frustration. These countries includies Japan, Korea, and Thailand. This research provides statistical data of the change of generation technologies in 12 Asian countries. Most Asian power utility companies have their own predominant generation technology. However, the change of an underlying technology is a slow process. The results of a single regression analysis are seemed to agree that the generation technology is less significant on the changes in the price of electricity.

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