ALTERNATIVE SCALE MEASURES AND THE BEHAVIOR OF AVERAGE COSTS IN STEAM ELECTRIC GENERATION

A lack of consensus exists in studies of electricity generation concerning the appropriate measure of scale: cumulative output or generation capacity. This paper argues that the correct measure of scale is dictated by the technical characteristics of the output and institutional constraints. While for many products cumulative output is appropriate, the inability to store electricity and the institutional requirement that instantaneous demand be satisfied suggests that generation capacity is the correct measure of scale. This study estimates two models of coal-fired plant technology under emissions constraints using alternative measures of scale. The results indicate that models which use cumulative output to represent scale over-estimate the extent of economies of scale. There isalso evidence that emission constraints have reduced economies of scale. © 1991.