POSSIBLE SOLUTION:POSSIBLE SOLUTION:

Energy Information Administration (EIA) reports that growth in world electricity generation has outpaced consumption. This suggests that import and export would be beneficial. Not only prices, but also Carbon Dioxide (CO2) emission levels would decrease from this co-operation.

HYPOTHESIS: HYPOTHESIS:

This table addresses the hypothesis that import This table addresses the hypothesis that import and export produce lower prices (p2, p2) than no and export produce lower prices (p2, p2) than no import and no export (p3, p3) which is import and no export (p3, p3) which is “a Nash “a Nash

Equilibrium” payoffEquilibrium” payoff, but , but is this hypothesis true?is this hypothesis true?

METHODOLOGY:METHODOLOGY:This study employs Panel Data Analysis, Ordinary Least Square (OLS) by using 29 OECD countries’ yearly data (1980-2008) from IEA.

INTRODUCTION: INTRODUCTION:

Currently, there is a serious problem with regard to the high price of electricity around the world. There

is also the issue of electricity shortage in some countries coexisting with surplus in others. “The Absolute Advantage” (1776) of Adam Smith and “Pareto Principle” (1906) of Vilfredo Pareto both suggest mutual advantages that can arise from

efficient import and export of electricity. This study examines whether electricity co-operation (import & export) between countries can help redress the

problem of high electricity prices.

What action is being taken by governments?What action is being taken by governments?4

Countries 1 & 2 : import & export electricity Countries 3 & 4 : negotiate co-operation Country 5 : no import & no export Other countries : undecided

RESULT:RESULT:

ln (Pit) = α + β1 Cit + β2 Git + β3 Mit + β4 Xit + εit

Electricity generation produces lower household and industry prices than import + export, which is

opposite from the hypothesis. However, generation subsidies in OECD countries are higher than 10%, hence the real prices of electricity for generation (+ subsidies) are higher than for import + export.

Subsidies come from taxes, and taxes come from people’s income. So when governments subsidize,

the people pay for electricity indirectly.

Kwanruetai Boonyasana Supervisors: Department of Economics Prof. Wojciech Charemza Correspondence: kb200@le.ac.uk Dr. Subir Bose

Things Things CheaperCheaper, World, World GreenerGreener,,

When We When We LinkLink Electricity Together Electricity Together

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When We When We LinkLink Electricity Together Electricity Together

1 23 4 5

Subsidies involve Moral Hazard by discouraging efficiency of electricity generators – the result being

prices may not decrease in the long run.

CONCLUSION:CONCLUSION:

Both import and export countries Both import and export countries will gain a benefit from electricity will gain a benefit from electricity co-operation. Electricity prices co-operation. Electricity prices in import countries will decrease, in import countries will decrease, and export countries will gain and export countries will gain more income.more income.

FURTHER STUDY:FURTHER STUDY:

- What impact does electricity - What impact does electricity co-operation have on COco-operation have on CO22 emission levels?emission levels? - What role should government subsidies take in- What role should government subsidies take in encouraging electricity co-operation?encouraging electricity co-operation?

The table shows coefficients (βj) of price function at significant level 1%.

Original picture from: iStockphoto LP

THAILANDTHAILANDUSAUSA

Country B

Country A

M & X Import: M Export: X no M & no X

M & X p2 , p2 p4 , p1 p2 , p4 p3 , p3

Import: M p1 , p4 p5 , p5 p1 , p4 p5 , p3

Export: X p4 , p2 p4 , p1 p4 , p4 p4 , p3

no M & no X p3 , p3 p3 , p5 p3 , p4 p3 , p3

ElectricityPrice:

P

Consumption:C

(+ Demand)

Generation:G

(+ Supply)

Import:M

(+ Supply)

Export:X

(- Supply)

M + X

Household +9.37% - 8.73% -12.28% +7.71% -4.57%

Industry +8.84% -8.23% -11.83% +6.57% -5.26%

P is electricity price and p1P is electricity price and p1< < p2 p2 < < p3 p3 < < p4 p4 << p5 p5

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Year

Ele

ctri

city

Pri

ce I

nd

ex,

1990

= 1

Net ElectricityGeneration

Total EnergyConsumption

History Projection

- electricity prices- electricity prices - - COCO22 emission emission

levelslevels - government - government subsidies subsidies for generationfor generation

DecreaseDecrease

IncreaseIncrease

- security of - security of electricity supplyelectricity supply - income from - income from electricity exportelectricity export - co-operation - co-operation between between countriescountries

When the world prices of electricity decrease, it will help people to have a higher standard of living and also reduce the cost of industry and business.

MODEL:MODEL: Representation of Electricity MarketRepresentation of Electricity Market

Developed from “Model Representation of a Commodity Market” (Walter C. Lays & Peter K. Pollack, 1984)

Electricity Electricity DemandDemand

Electricity Electricity Supply Supply

Electricity Electricity Supply Supply

Electricity Electricity

PricePrice

Electricity Electricity InventoryInventory

Generation Generation CapacityCapacity

External Influences:External Influences:

- Import- Import

- Export- Export

- Transmission Loss- Transmission Loss

- Government Subsidy- Government Subsidy

We consume

resources to produce

electricity, but we don’t

use it.