Abstract: Wherever consumers obtain electricity supply from an integrated network, altering supply to any one consumer generally affects the cost of supplying remaining consumers connected to the network. In particular, an anticipated expansion of demand in one location could affect the type and level of capital investment in many parts of the network. This consideration is particularly important in a country such as Mexico that is likely to experience not only a rapid expansion in total demand for electricity over the next decade but also a geographical pattern of demand growth that differs somewhat from the historical experience. In this paper, we first present a model for forecasting electricity demand in Mexico. The model has two components. Forecasts of the aggregate demand for electricity are derived by fitting a time series model to the aggregate production data. Using data disaggregated to the regional level we also estimate a model of regional demand shares. The two models are then combined to yield a forecast of demand at the regional level. In section 3 of the paper, we present a simplified model of the Mexican electricity transmission network. We use the model to approximate the marginal cost of supplying electricity to consumers in different locations and at different times of the year. In the final section of the paper, we examine how costs and system operation will be affected by proposed investments in generation and transmission capacity and the forecast growth in regional electricity demands. The analysis presented in the paper has implications for a number of critical policy issues. In particular, our model reveals that the marginal costs of supplying customers differ from electricity prices. Subsets of consumers are either being taxed or subsidized, albeit often in a hidden or implicit way. Since such taxes or subsidies affect the efficiency of resource use, they ought to be important to policy discussions regarding the electricity industry. The marginal cost of supplying electricity in different locations or under different load conditions also has implications for how regulatory reform is likely to affect different types of customers and therefore the political feasibility of reform. The largest obstacle to such reforms is that they are likely to induce substantial cost reductions, primarily through the elimination of excess employment in the industry. Current employees in the industry therefore constitute a
Publication Year: 2002
Publication Date: 2002-01-01
Language: en
Type: article
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Cited By Count: 2
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