Abstract
This paper analyzes the joint cost structure of electricity and natural gas distribution investments. Assessing the joint costs is critical for urban development and public policy regarding competition at the local level. The paper accounts for the urban and geographic factors at the local level, while the previous literature primarily used company-level data with a few or no site-specific variables in joint cost analyses. An empirical analysis of the multi-utility capital costs suggests that the local urban and geographic conditions affect such costs, with economies of scope present in electricity and natural gas both in terms of total costs and underground investment costs. Hence, the joint service provision makes economic and environmental sense for urban policy makers.
Highlights
The urban energy distribution infrastructure, which is composed of electricity and natural gas networks, is essential for sustaining daily life and economic activities
It is expected that there is an economic incentive for providing joint products in multi-product utilities, such as benefits and savings from sharing infrastructure and labor. These benefits are often termed as economies of scope and their analysis requires the definition and estimation of a utility cost model, with utility outputs, such as sales and numbers of customers, and input prices used as determinants
The results show that urban and geographical variables have significant impacts on the capital costs of electricity and natural gas distribution systems
Summary
The urban energy distribution infrastructure, which is composed of electricity and natural gas networks, is essential for sustaining daily life and economic activities. Understanding the cost structure of these systems is critical to make them sustainable and provide economical, safe and reliable energy to consumers. These costs can be expected to be related to the urban characteristics of the served areas and it is reasonable to consider such factors in cost analysis. It is expected that there is an economic incentive for providing joint products in multi-product utilities, such as benefits and savings from sharing infrastructure and labor These benefits are often termed as economies of scope and their analysis requires the definition and estimation of a utility cost model, with utility outputs, such as sales and numbers of customers, and input prices used as determinants. A few studies have examined the economics of multi-product utilities and utilized all data at the aggregate, company level [1,2]
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