The specification and estimation of technological change in electricity production

Abstract

DISCLAIMERPortions of this document may be illegible in electronic image products. Images are produced from the best available original document.This study focuses on the rate of technological change in electricity production. The dominant role of fossil fuel-fired electricity production in the industry, coupled with the direct association with the emission of greenhouse gases, makes technology parameters particularly significant for several reasons. First, very long-run simulations of energy-economic paths at a global level require that technical progress occupy a place in the methodology for sound formulations that are vital in global emissions/energy policy analysis. Second, given the outlook for electricity generation being predominately coal-based, especially in developing economies around the world, the specification and measurement of technical change is essential for developing realistic long-run technology forecasts. Finally, industry or sector growth in productivity hinges partly on technical progress, and updated analysis will always be necessary to stay abreast of developments on this front, as well as for economic growth considerations in general.This study is based on empirical economic research on production functions in the electric utility industry. However, it advances a seldom used approach, called the "engineeringproduction function," in contrast to the more common neoclassical approach used by economists.Combined with this approach is a major departure from the type of data used to conduct econometric estimations of production parameters. This research draws upon a consistent set of ex ante or "blueprint" data that better reflects planned, technical performance and cost data elements, in contrast to the more customary, expost type of data from actual h / p l a n t operations.The results from the examination of coal-fired technologies indicate the presence of tech-Ncal change. Using data for the period from 1979 to 1989, we find technical change to be capital-augmenting at the rate of 1.8 percent per year. Technical advance diminishes fuel inputs, however. (Labor factors of production are not present in the specifiitions, given their very low cost share in the cost of installation and production.) The composite rate of technical progress is found to be 0.7 percent per year. Our estimates fall within the range of other studies, which are briefly reviewed in the report. This study is sponsored by internal Laboratory resources under the direction of the Global Studies Program.iii