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Finding Opportunity in Economic Dispatch: Saving Fuels Without Impacting Retail Electricity Prices

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  • Marie Petitet
  • Frank Felder
  • Amro Elshurafa

    (King Abdullah Petroleum Studies and Research Center)

Abstract

For important domestic public policy reasons, many oil- and natural-gas-producing countries allocate fuels to their electricity sector at administratively set prices that are below fuel opportunity costs. This article shows that dispatching power units based on fuel opportunity costs can significantly increase efficiency, while, for political reasons, end users’ electricity prices can continue to be defined based on administratively set fuel prices. In addition, opportunity cost dispatch can bring about environmental benefits when it results in switching the priority levels of oil and gas units in the merit order. This work also resolves the electricity trading dilemma since countries do not want to export electricity based on domestic prices.

Suggested Citation

  • Marie Petitet & Frank Felder & Amro Elshurafa, 2024. "Finding Opportunity in Economic Dispatch: Saving Fuels Without Impacting Retail Electricity Prices," Discussion Papers ks--2024-dp03, King Abdullah Petroleum Studies and Research Center.
    • Handle: RePEc:prc:dpaper:ks--2024-dp03
    DOI: 10.30573/KS--2024-DP03
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    File Function: First version, 2024
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