Scale economies, technological change and capacity factor: an economic analysis of thermal power generation in Japan

Abstract

This study basically attempts to determine the technological characteristics which are responsible for productivity changes in thermal power generation in Japan over the period of 1964-1988. Specific objectives are to estimate the magnitude of scale economies, technological change, capacity factor effect, elasticity of substitution between input factors and movements of total factor productivity in thermal power generation in Japan and derive policy implications regarding thermal power in the future generation mix. To achieve the objectives, a translog cost function incorporating variable representing technological change and capacity factor, in addition to the basic four variables, is used. Several major findings and conclusions are: (1) There exist economies of scale in thermal power generation in 1964-1988, although the magnitude of economies of scale is very small. (2) The rate of technological improvement clearly declined after the period 1971-1975. (3) The capacity factor is critical in determining movements in total factor productivity. (4) Findings of this study suggest that the outlook for thermal power generation is dim, which calls for much broader policy options to revamp the Japanese electric power industry.