FOI Seminar 6 May 2011

Frank Jensen (FOI):

 

Testing for Cross-Subsidisation in the Combined Heat and Power Generation Sector: A Comparison of Three Tests

(joint with Eirik S. Amundsen and Per Andersen)

 

Friday 6 May 2011, 12.30-13.30, Building A, seminar room 1

Abstract:

In this paper we examine cross-subsidisation among combined heat and power producers in Denmark. Information on stand-alone costs for heat generation allows us to empirically compare the Faulhaber tests, tests with an upper bound on stand-alone costs (the Palmer tests) and the fully distributed cost test (FDC). All tests indicate a substantial amount of cross-subsidisation but at a varying degree. It is shown that the FDC test is closer to that of the Faulhaber tests in its results than the Palmer tests. Thus, as the Faulhaber tests are considered in the literature to be the theoretically correct tests, the FDC test is shown to be the best approximation for tests of cross-subsidisation for this specific sector.