Estimating the economic costs of electricity deficit using input–output analysis: the case of Brazil

Abstract

The objective of this article is to present a methodology to estimate the marginal cost of electric energy deficit in the long-term using input–output (I–O) analysis. We obtain a deficit marginal cost (DMC) curve that is not limited to a small number of levels, such as the curve used currently in Brazil, which is limited to four levels. The marginal cost of deficit is an important exogenous parameter used in the model’s chain to calculate the operation’s marginal cost and short-term market pricing. The electric energy deficit is a temporary lack of continuity in meeting demand, which is usually predictable and involves prior notice to the consumer. The cause of this deficit may be a lack of investment and/or low water inflows that impact the production of hydroelectric power plants. In this study, the marginal cost of the deficit is obtained from restrictions on the provision of electricity for productive sectors and by calculating the corresponding impact on the gross domestic product. The proposed methodology can be used with data from the I–O matrix of any country to estimate its marginal cost of electric energy deficit.

Keywords:

• input–output analysis
• marginal cost of electric energy deficit
• hydrothermal system

JEL Classification:

• C67
• L94
• O13
• Q41
• Q42

Notes

¹ The values presented in this article were converted from the Brazilian real into the US dollar using the exchange rate for 30 December 2012: R$2.0435 = $1.00.