1. Things Cheaper, World Greener, When We Link Electricity Together
Kwanruetai Boonyasana Supervisors:
Department of Economics Prof. Wojciech Charemza
Correspondence: Dr. Subir Bose
WORLD
ELECTRICITY CO-OPERATION
- electricity prices
- CO2 emission
levels
- government
subsidies
for generation
Decrease
Increase
- security of
electricity supply
- income from
electricity export
- co-operation
between
countries
Things Cheaper, World Greener,
When We Link Electricity Together 3 4 5 1 2
Original picture from: iStockphoto LP
INTRODUCTION:
Currently, there is a serious problem with regard to the high price of electricity around the world. There is also the issue of electricity shortage in some countries coexisting with surplus in others. “The Absolute Advantage” (1776) of Adam Smith and “Pareto Principle” (1906) of Vilfredo Pareto both suggest mutual advantages that can arise from efficient import and export of electricity. This study examines whether electricity co-operation (import & export) between countries can help redress the problem of high electricity prices.
What action is being taken by governments? 4
Countries 1 & 2 : import & export electricity
Countries 3 & 4 : negotiate co-operation
Country : no import & no export
Other countries : undecided
POSSIBLE SOLUTION:
Energy Information Administration (EIA)
reports that growth in world electricity generation has outpaced consumption. This suggests that import and export would be beneficial. Not only prices, but also Carbon Dioxide (CO2) emission levels would decrease from this co-operation.
MODEL: Representation of Electricity Market
History
Projection
Electricity Demand
We consume resources to produce electricity, but we don’t use it.
Electricity Inventory
Electricity Price
Electricity Supply
External Influences:
- Import
- Export
- Transmission Loss
- Government Subsidy
Generation Capacity
Developed from
“Model Representation of a Commodity Market”
(Walter C. Lays & Peter K. Pollack, 1984)
HYPOTHESIS:
This table addresses the hypothesis that import and export produce lower prices (p2, p2) than no import and no export (p3, p3) which is “a Nash Equilibrium” payoff, but is this hypothesis true?
METHODOLOGY:
This study employs Panel Data Analysis, Ordinary Least Square (OLS) by using 29 OECD countries’ yearly data ( ) from IEA.
RESULT:
ln (Pit) = α + β1 Cit + β2 Git + β3 Mit + β4 Xit + εit
Electricity generation produces lower household and industry prices than import + export, which is opposite from the hypothesis. However, generation subsidies in OECD countries are higher than 10%, hence the real prices of electricity for generation (+ subsidies) are higher than for import + export.
Subsidies come from taxes, and taxes come from people’s income. So when governments subsidize, the people pay for electricity indirectly.
Subsidies involve Moral Hazard by discouraging efficiency of electricity generators – the result being prices may not decrease in the long run.
CONCLUSION:
Both import and export countries will gain a benefit from electricity
co-operation. Electricity prices
in import countries will decrease,
and export countries will gain
more income.
FURTHER STUDY:
- What impact does electricity
co-operation have on CO2
emission levels?
- What role should government subsidies take in
encouraging electricity co-operation?
Country B
Country A
M & X
Import: M
Export: X
no M & no X
p2 , p2
p4 , p1
p2 , p4
p3 , p3
p1 , p4
p5 , p5
p1 , p4
p5 , p3
p4 , p2
p4 , p4
p4 , p3
p3 , p3
p3 , p5
p3 , p4
ElectricityPrice: P
Consumption: C
(+ Demand)
Generation: G
(+ Supply)
Import: M
Export: X
(- Supply)
M + X
Household
+9.37%
- 8.73%
-12.28%
+7.71%
-4.57%
Industry
+8.84%
-8.23%
-11.83%
+6.57%
-5.26%
The table shows coefficients (βj) of price function at significant level 1%.
P is electricity price and p1< p2 < p3 < p4 < p5
When the world prices of electricity decrease,
it will help people to have a higher standard of living and also reduce the cost of industry and business.
Thank you
THAILAND
USA