Finding opportunity in economic power dispatch: Saving fuels without impacting retail electricity prices in fuel-producing countries

Marie Petitet, Frank A. Felder and Amro M. Elshurafa

Energy Economics, 2024, vol. 138, issue C

Abstract: In many oil- and natural gas-producing countries, fuels are allocated to the electricity sector at administratively set prices below international market prices for domestic policy reasons. This article shows that dispatching power units based on the opportunity costs of domestically used fuels can yield significant efficiencies, while end-user electricity prices can continue to reflect administratively set fuel prices. In addition, opportunity cost dispatch can bring environmental benefits when it results in switching the priority of oil and gas units in the merit order and facilitating investments in renewable energy. Therefore, this approach can support long-term net-zero emission targets. It can also resolve cross-border electricity trading issues faced by fuel-rich countries, which are reluctant to base their electricity exports on domestic fuel prices.

Keywords: Power system; Dispatch; Opportunity cost (search for similar items in EconPapers)
JEL-codes: D62 L94 P18 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:138:y:2024:i:c:s0140988324005498

DOI: 10.1016/j.eneco.2024.107841

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