Power Rationing econ6313 (Cecilia)Ziyan liu z5382514
Evaluation The shortcoming of the original policy
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The shortcoming of the original policy On the one hand, in reality, China’s government implemented the price controls (Gao 2004) and rolling blackouts. As electricity is an impure public good and the government aims to ensure the low-income individual’s welfare. But the low price cannot guarantee the power company’s profit so that it might cause the low efficiency of power generation which may lead to electricity shortage. On the other hand, Maurer, Pereira and Rosenblatt (2005) consider that blackouts would distort the allocation of the electricity and experimentally prove that this policy would cause the devastating social and economic costs. Thus, this policy can only be implemented if the government has no other choice. Compare the outage cost caused The outage cost of blackouts: Munasinghe and Gellerson (1979) were the first to suggest using production function approach to evaluate the cost of power cuts. The approach suggests that blackout costs equal the declining output that is caused by the absence of this input. Then Wolf and Wenzel (2015) made the simplest setup of liner production functions to reduce the amount of required information in a generally data-scarce environment. Thus, for the factories: Where is defined as the ratio between annual output and annual electricity consumption and indicates how much output can be traced back to the use of one kWh of electricity. denotes annual Gross Value Added of sector s and denotes annual electricity consumption (in kilowatt hours (kWh)) To estimate time t specific losses of firms, based on the proportionality assumption, knowledge of total electricity consumption by firms during that time can be used to deduce total outage costs (O): For households: Furthermore, the authors suggest that the utility received through electricity consumption could be used to estimate the specific losses of households at time t. The utility can be replaced by the pleasure the households gain from electricity-dependent leisure activities. Then it is feasible to assume the share of electricity-dependent leisure from data which is donated as . The marginal benefit of 1 h of leisure should equal its cost that the labor could gain from 1 hour. Thus, average net wages per hour (W) could be seen as the value of 1h leisure time for all employed person. Nooij et al. (2009) suppose that the value of each hour for an unemployed person is 50 percent of the value of an employee. The total value of leisure is donated as the total value of leisure for an employed is donated as the total value of leisure for an unemployed is donated as the average number of working hours is donated as the total amount of available hours. Given the population size (POP) and number of employed person ( , the total value of leisure for all citizens of the county is calculated as: The value of lost load for households (h) is: Thus, the losses resulting from a blackout during time span t is: The cost of proposal 1 The cost of proposal 2: The outage cost of proposal 3: In contrast, for the new proposals of power system, only when occurs the urgent energy crisis, the government will introduce the rolling blackouts. Moreover, according to the price signal, the industrial firms will design its own baseline whether is high or not. As a result, when the electricity price (P) is high and power bill is based on the second-degree price discrimination, on the one hand, factories might submit a low baseline and actually reduce the use of power. On the other hand, factories would invest more in improving the productivity. When the electricity price is low, factories might submit a high baseline and actually increase the use of power. Thus, it is less likely for the firms and households to stop using electricity, which might cause almost zero lack of power which means that under the new proposal nearly equals zero. Similarly, we can prove that For the households: Summary: The outage costs of rolling blackouts and proposal 1 that are the amount of declining output due to outage are both smaller than the outage cost. However, because of the lack of data and the restriction of renewable energy power which is instability, I could not precisely estimate the possibility of outage under the proposal 2. As a result, the outage cost of proposal 2 is uncertain so that cannot be directly compared with the outage cost of other three proposals. Thus, the proposal 3 might be the most efficient method for China power system. Download 374.48 Kb. Share with your friends:
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