Plant Size, Plant Factor, and the Shape of the Average Cost Function in Electric Power Generation: A Nonhomogeneous Capital Approach

John F. Stewart

Bell Journal of Economics, 1979, vol. 10, issue 2, 549-565

Abstract: This paper models an electricity producing firm's ex ante choice of technology for a generating plant in a way that recognizes that planned output is best described by a load increment composed of an instantaneous rate and a time duration and that the cost of capital equipment is dependent on the size and fuel efficiency of the plant. We estimate the cost of equipment function for a sample of plants and use the results to simulate the ex ante average cost surface over a grid of load increments. The major finding of the paper is that plant size has relatively little effect on the average cost, while the plant utilization factor is the major element leading to reductions in average cost as cumulative output expands.

Date: 1979
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