This study develops, and econometrically tests, a model explaining the relative importance of several key economic and engineering factors that industrial firms consider when deciding whether to self-generate or cogenerate electricity. The model and empirical results (based on data from the chemical and paper industries) suggest that industrial self-generation is determined by the derived demand for electricity, price of purchased electricity, and marginal cost of self-generation. The buyback rate was found to be important only when certain economic and engineering conditions are met -- such as a relatively low marginal cost and/or a sufficiently high buyback rate. The evidence presented suggests that for most firms the buyback rate play’s no role in determining the quantity of electricity demanded or produced. The results indicate that policy actions related to industrial cogeneration should focus on the price of electricity and factors that affect the plant's marginal cost of producing electricity.
AmemiyaT. (1974). “Multivariate Regression and Simultaneous Equation Models When the Dependent Variables are Truncated Normal.” Econometrica42: 999-1012.
2.
AmemiyaT. (1979). *The Estimation of a Simultaneous-Equation Tobit Model.” International Economic Review 20: 169-181.
3.
“Anti-Cogeneration Utility Rates and Practices Seen on the Rise.” Inside FERC. New York: McGraw Hill (May, 1987a).
4.
BarclayP.GegaxD.TschirhartT. (1989). “Industrial Cogeneration and Regulatory Policy.* Journal of Regulatory Economics1: 225-240.
5.
Code of Federal Regulations (1987). Conservation of Power and Water Resources 18: Pans 280 to 399. Washington, D.C.: The National Archives of the United States (April1).
6.
Code of Federal Regulations (1988). Conservation of Power and Water Resources 18: Parts 35 to 293. Washington, D.C.: The National Archives of the United States (March16).
7.
Conference Report on H.R. 4018 (1978). “Public Utility Regulatory Policies Act of 1978.” House Report No. 1750, 95th Congress, 2nd Session.
8.
Dun and Bradstreet (1985). Major Industrial Plant Database. Cambridge, MA:: Technical Economic Services (now Houston, TX: Petroleum Information).
9.
Dun and Bradstreet (1987a). Gas Marketing Services, Product Guide, Version 3.0. Cambridge, MA:: Technical Economic Services (now Houston, TX: Petroleum Information).
Edison Electric Institute (1987). Statistical Yearbook of the Electric Utility Industry/1986. Washington, D.C.
12.
Electric Power Research Institute (1985). Electricity Outlook: The Foundation for EPRI R&D Planning. Palo Alto, CA.
13.
Electricity Consumers Resource Council (1983). “Industrial Cogeneration: A Background Paper.” Washington, D.C.
14.
Energy User News. New York: Fairchild Publishers (Sept. 9 — Nov. 11, 1985).
15.
HessR. W. (1983). “Factors Affecting Industry’s Decision to Cogenerate.” Santa Monica, CA: Rand Corporation Report R-2950-DOE.
16.
“Hesse: PURPA Allows Competitive Bidding Without Efficiency Rule.” Inside FERC. New York: McGraw Hill (Sept. 21, 1987b).
17.
HughesT. P. (1983). Networks of Power. Baltimore, MD: The Johns Hopkins University Press.
18.
JoskowP. L. (1982a). “The Effects of Fuel and Electricity Prices on Cogeneration in the Pulp and Paper Industry.” MIT Energy Laboratory Discussion Paper 18: MIT-EI. 82-020WP.
19.
JoskowP. L. (1982b). “Industrial Cogeneration and Electricity Production in the United States.” In CrewM., ed., Regulatory Reform and Public Utilities. Lexington, MA: Lexington Books.
20.
JoskowP. L.JonesD. R. (1983). “The Simple Economics of Industrial Cogeneration.” The Energy Journal4: 1-22.
21.
KahnE. P.GoldmanC. A.StoftS.BermanD. (1989). “Evaluation Methods in Competitive Bidding for Electric Power.” Barkeley, CA: Lawrence Berkeley Laboratory LBL-26924 UC-101.
22.
KimJ.AhnB. (1990). “On the Economics of Cogeneration: Pricing and Efficiency in Government Owned Utilities.” The Energy Journal11: 87-97.
23.
KresgeD. T. (1986). Dun and Bradstreet Technical Economic Services Major Industrial Plant Database (draft). Cambridge, MA:: Dun and Bradstreet, Technical Economic Services (now Houston, TX: Petroleum Information).
24.
McDonaldJ. F.MoffittR. A. (1980). The Uses of Tobit Analysis.” The Review of Economics and Statistics 62: 318-321.
25.
National Independent Energy Producers (1990). Bidding for Power: The Emergence of Competitive Bidding in Electric Generation. Washington, D.C.
26.
NelsonF.OlsonL. (1978). “Specification and Estimation of a Simultaneous Equation Model with Limited Dependent Variables.” International Economic Review19: 695-709.
27.
Office of Technology Assessment (1983). Industrial and Commercial Cogeneration. Washington, D.C.: Congress of the United States.
28.
Pacific Gas and Electric Company (1987). “Delivery Patterns and Reliability of Qualifying Facilities.” Paper presented to AEIC Load Research Committee, San Francisco, CA.
29.
RavidS. A. (1987). “On Marginal Cost Pricing When Consumers Can Also Produce.” The Energy Journal8: 17-22.
30.
RoseK. (1986). “Factors Influencing Industrial Cogeneration.” In Proceedings of the 16th Annual Meeting of the Illinois Economic Association. Chicago, IL.
31.
RoseK. (1988). “Economic Analysis of Electricity Self-Generation by Industrial Firms.” Ph.D. dissertation. University of Illinois at Chicago.
32.
RoseK.McDonaldJ. F. (1987). “Relative Importance of Economic and Engineering Factors Influencing Industrial Cogeneration.” In Proceedings Ninth International Conference, World Energy Markets: Coping with Instability. Calgary, Alberta, Canada.
33.
RozekR. P. (1989). “Competitive Bidding in Electricity Markets: A Survey.” The Energy Journal10: 117-138.
34.
TobinJ. (1958). “Estimation of Relationships for Limited Dependent Variables.” Econometrica26: 24-36.
35.
U.S. Department of Commerce, Bureau of the Census (1976). Historical Statistics of the United States, Colonial Times to 1970.
36.
U.S. Department of Energy (1978). “Cogeneration: Technical Concepts, Trends, Prospects.” Division of Fossil Fuel Utilization, Report DOE/FFU-1703.
37.
U.S. Department of Energy (1983a). “Industrial Cogeneration Case Study #2: American Cyanamid Chemical Company — Bound Brook New Jersey.” Argonne National Laboratory Report CNSV-TM-37, Also in de RenzoD. J., ed., Cogeneration Technology and Economics for the Process Industries. Park Ridge, NJ: Noyes Data Corp.
38.
U.S. Department of Energy (1983b). “Industrial Cogeneration Case Study #3: Mead Corporation Paper Mill - Kingsport, Tennessee.” Argonne National Laboratory Report CNSV-TM-42. Also in de RenzoD. J., ed., Cogeneration Technology and Economics for the Process Industries. Park Ridge, NJ: Noyes Data Corp.
39.
U.S. Department of Energy (1984). “Cogeneration Handbook for the Chemical Process Industry.” Conservation and Renewable Energy Report DOE/NBB-005. Prepared by Pacific Northwest Laboratory.
40.
U.S. Department of Energy (1987a). “Electric Power Annual, 1986.” Energy Information Administration Report DOE/EIA-348(86).
41.
U.S. Department of Energy (1987b). “Energy Security, A Report to the President of the United States.” Report DOE/S-0057.
42.
WooC. (1988). “Inefficiency of Avoided Cost Pricing of Cogenerated Power.” The Energy Journal9: 103-113.
43.
ZweifelP.BeckK. (1987). “Utilities and Cogeneration: Some Regulatory Problems.” The Energy Journal8: 1-15.
