Testing for cross-subsidisation in the combined heat and power generation sector: a comparison of three tests

Eirik S Amundsen; Per  Andersen; Frank Jensen

doi:10.1016/j.eneco.2010.12.013

Testing for cross-subsidisation in the combined heat and power generation sector: a comparison of three tests

Eirik S Amundsen, Per Andersen, Frank Jensen

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Abstract

In this paper we examine cross-subsidisation among combined heat and power producers in Denmark.Information on stand-alone costs for heat generation allows us to empirically compare the Faulhaber tests,tests with an upper bound on stand-alone costs (the Palmer tests) and the fully distributed cost test (FDC). All
tests indicate a substantial amount of cross-subsidisation from heat generation to power generation. It is shown that the FDC test is closer to that of the Faulhaber tests in its results than the Palmer tests. Thus as the Faulhaber tests are considered in the literature to be the theoretically correct tests, the FDC test is shown to be
the best approximation for tests of cross-subsidisation for this specific sector.

Original language	English
Journal	Energy Economics
Volume	33
Issue number	5
Pages (from-to)	750–757
Number of pages	8
ISSN	0140-9883
DOIs	https://doi.org/10.1016/j.eneco.2010.12.013
Publication status	Published - Sept 2011

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10.1016/j.eneco.2010.12.013

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