Wind of Change: Small-Scale Electricity Production and Distribution Grid Efficiency in Sweden

Mattias Vesterberg,Tommy Lundgren,Wenchao Zhou

doi:10.2139/ssrn.3577200

Abstract

In this paper, we measure the technical efficiency for local electricity distribution firms in Sweden, and in particular how small- and micro-scale generation affects efficiency scores. Using two-stage data envelope analysis to model the technical efficiency and a double bootstrap approach to estimate the determinants of inefficiencies, we show that firms are heterogenous in terms of inefficiency, but that a large share of small- and micro-scale generation is not associated with more inefficient operations.

Highlights

The share of small-scale electricity generation is increasing rapidly in Sweden and elsewhere
A key criticism of standard Data Envelopment Analysis (DEA) is that the method does not lend itself to statistical inference concerning the efficiency scores and that outliers in the data could be very influential for the results
We follow the SEMI’s method and use constant returns to scale (CRS) in both DEA models but compare our results to a VRS model, which we find to produce very similar results as our main specification

Summary

Introduction

The share of small-scale electricity generation is increasing rapidly in Sweden and elsewhere. Between 2007 and 2017, the wind generation, as a share of total domestic generation, increased from less than one percent to more than ten percent.1 Both small and micro-scale generation are heavily subsidized in Sweden, through both direct subsidies on, e.g., installations on photovoltaics Lindahl (2016), and through a tradable electricity certificate mechanism with a government-set quota to promote renewable energy. There is little, if any, empirical evidence on the effects of small and micro-scale generation on the efficiency of electricity distribution networks. This issue is becoming increasingly important to study as the penetration of small and micro-scale renewable energy is sure to continue to increase.

Background and previous literature

The econometric model

The specification of empirical models

Results

Conclusions and policy implications