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Economies of scale and technological progress in electric power production: The case of Brazilian utilities

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  • Machado, Mauricio Marins
  • de Sousa, Maria Conceição Sampaio
  • Hewings, Geoffrey

Abstract

This paper examined the cost structure of the electricity generation companies in Brazil during the period 2000–2010 by using a translog cost function that imposes no restrictions on production technology and allows for the existence of non-homotheticity. The hypothesis that economies of scale are a typical feature of the generation market in Brazil and, in general, are not exhausted at lower levels of production is not rejected. This result supports the vision that indivisibilities restrict efficiency gains from free-market competition in the Brazilian electricity generation and most of the last restructuring in the industry regulation was based on this assumption. Furthermore, over the sample period, technological progress led to cost reductions in electric power supply. These technological improvements take the form of both a neutral technological effect as well as a non-neutral fuel effect, which prevails over the capital and labor saving technical changes.

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  • Machado, Mauricio Marins & de Sousa, Maria Conceição Sampaio & Hewings, Geoffrey, 2016. "Economies of scale and technological progress in electric power production: The case of Brazilian utilities," Energy Economics, Elsevier, vol. 59(C), pages 290-299.
    • Handle: RePEc:eee:eneeco:v:59:y:2016:i:c:p:290-299
    DOI: 10.1016/j.eneco.2016.06.017
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    More about this item

    Keywords

    Power supply; Scale economies; Technical change; Translog function; Seemingly unrelated regressions; Panel model;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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