Title: The Capital Efficiency of Hydroelectric Power Plants

Candidate: Kim Hoye

Time and Date: 9am, Friday 30 July 2021

Zoom link: https://uqz.zoom.us/j/89538564239


The Australian Electricity Security Board (ESB) is reforming the Australian Electricity Market to meet the future challenges of energy supply, including reducing carbon emissions. One of the objectives of the ESB reform is maximizing capital efficiency. Independent of the ESB reforms, governments around Australia have made announcements for major electricity capital investments, including the Australian Government’s support for the Snowy 2.0 pumped hydro scheme with a price of over $5 billion. The willingness of governments to make capital investment decisions outside of the energy market highlights the need for a clear method for measuring capital efficiency. This paper will consider capital efficiency at three levels of decision making. Chapter 2 will focus on how plant managers can maximise the capital efficiency of pumped hydroelectric power plants.  Chapters 3 and 4 will consider how boards of directors and governments can maximise capital efficiency.

Chapter 2 will use a data envelopment analysis framework (DEA) to analyse the capital efficiency of plant managers for 15 hydroelectric power plants in Italy from 2016 to 2020. We solve a DEA problem keeping capital inputs and environmental variables fixed but allowing output and other inputs to vary. We decompose our measure of capital efficiency into technical efficiency and allocative efficiency. We find that not all plant managers are using their plant capital efficiently. We conclude that other factors are affecting the decisions of plant managers, such as a need to maximise revenue rather than capital efficiency.