The Journal of Energy and Development

THE JOURNAL OF ENERGY AND DEVELOPMENT
Mehdi Sadeghi, Alimorad Sharifi, and Masoumeh Torki,
Social Cost Analysis for Electricity Generation Based on Sulfur Dioxide Emissions: Empirical Evidence from Iran,
Volume 36, Number 2
Copyright 2012
SOCIAL COST ANALYSIS FOR ELECTRICITY GENERATION BASED ON SULFUR DIOXIDE EMISSIONS: EMPIRICAL EVIDENCE FROM IRAN
Mehdi Sadeghi, Alimorad Sharifi, and Masoumeh Torki*
ach electricity generation option, aside from its beneficial consequences to society, causes some unwanted side effects, the most damaging being environmental degradation. An objective and thorough comparison of various electricity generation options and their resulting impacts is still a highly controversial issue, mostly because these environmental impacts are very divergent. Electricity production can influence a wide set of end points: soil, noise, visibility, global climate, human health, visual amenity, and the like; thus, in order to compare various
*Mehdi Sadeghi, Associate Professor at the Imam Sadiq University in Tehran, Iran, holds a Ph.D. in economics from Tehran University and a masters degree and a bachelors degree in economics from Imam Sadiq University. The authors areas of academic expertise are economic planning, econometrics, energy economics, and energy demand and supply modeling. Dr. Sadeghi previously held positions with the Iranian Ministry of Energy and is currently President of Imam Sadiq Universitys School of Economic Sciences. The author, who has served as Scientific Secretary of the Eighth International Energy Conference held in Iran, has participated in projects dealing with energy economics and presented papers at international conferences. Alimorad Sharifi, Assistant Professor at the University of Isfahan in Iran, holds a Ph.D. in economics from Gothenburg University (Sweden) and a masters and bachelors degree in economics from Imam Sadiq University. With a specialization in the Iranian electricity sector, the authors areas of academic expertise are industrial organization and energy and electricity economics. He has been involved in numerous research projects focusing on energy economics and has published and presented his academic papers at various international energy conferences and forums. Masoumeh Torki currently holds a Research Expert position at the University of Economic Sciences and earned bachelors and masters degrees in environment from Islamic Azad University in Iran. The author has worked on several research projects related to energy and environmental economics. The Journal of Energy and Development, Vol. 36, Nos. 1 and 2 Copyright 2012 by the International Research Center for Energy and Economic Development (ICEED). All rights reserved.
197
198
electricity production technologies and their environmental impacts, a common denominator must be determined. Today, the most widely accepted common denominator is external costs, i.e., the monetary value of damages caused by electricity production.1 The price of electricity in Iran, as in other developing countries, encompasses only part of the production costs and ignores any other externalities. Externalities are those costs that affect third parties that are not incorporated into the production costs, such as health care expenditures and environmental damages. In order to obtain a rational economic decision regarding the choice of an energy source, it is important to know how the different energy output options are going to be evaluated.2 The use of the word external implies that some costs do not accrue to the firms production costs but are imposed on all of society or, at least, on a subset of relevant households or firms. Such costs are outside the market system and are not reflected in relative market prices.3 External costs of electricity generation represent the uncompensated monetary value of environmental and health damages it causes. These costs are imposed on society and the environment and are not accounted for by the producers or the consumers of electricity. External costs should reflect the value of the damage caused by electricity generation and associated processes. There are significant negative effects on human health, built environment, crops, forests and ecosystems, but the most thoroughly investigated among them are impacts on human health.4 The estimation of all these damages is more difficult due to the lack of data and incomplete knowledge about the parameters influencing the type and magnitude of the related impacts. The private cost of electricity generation is considered to include only expenses related to the production factors contributing to the power generation process. Total social costs are defined as the sum of the private costs of the firm and any external costs. The cost of electricity generation includes only expenses related to the production factors contributing to the power generation processes, and these cost components systematically are recorded by the utilities and actually constitute the basis for the economic valuation of different power generation alternatives.5 Other cost elements that are paid for by third parties not involved in the production or consumption of the product do not show up in prices and are not considered in standard cost comparisons. These cost elements are normally referred to as external costs that consist of various side effects of the production process imposed on society as a whole. External costs that generally are not incorporated in the private cost of electricity include negative effects on the environment and human health due to air pollution or any other environmental repercussions associated with the electricity generation process.6 For this paper, we have analyzed the Shahid Rajaee Power Plant, which is a fueloil-gas-fired plant located in Iran. The most significant environmental impact associated with this power facility is air pollution caused by fuel combustion. In this analysis, the public health impacts resulting from the annual operation of the
SOCIAL COST OF ELECTRICITY GENERATION IN IRAN
199
Shahid Rajaee Power Plant have been assessed. The most important pollution stemming from this power plant is sulfate aerosols. Although impacts of acidifying pollutants act over 1,000 kilometers or even greater distances, in this study only the impacts arising on the Shahid Rajaee Power Plant territory have been analyzed. The justification is the gradual decrease of ambient concentrations as the distance from the power plant increases. The valuation attempted in this research only takes into consideration environmental damages and impacts on human health due to air pollution. Thus, the social cost of electricity generation will be estimated as the sum of private costs and of the above-defined external cost components. In this paper we will present an overview of the literature on the impact of external costs of production on the market, then present several case studies on electricity generation and accompanying social costs, followed by our model, its results, and our conclusions.
Literature Review on the Impact of External Costs of Production on the Market Economists have long recognized that the private market system often has undesirable effects regarding the environment. Familiar examples of such effects are the noxious smoke and polluted water emissions of modern industrial plants. In such circumstances, the technical nature of the production process generates a distinct output effect from the final marketed product. The spillover effects of modern industrial production result in deteriorating environmental quality, an output that the firm does not and, of course, could not sell. On the contrary, households and other firms affected by the pollutant spillovers experience real opportunity costs in many different forms and would be willing to pay various amounts if they effectively could stop or lessen the firms polluting activities (any cost, that is, additional to the costs resulting from the production outlays of the firm is an external or spillover cost). Eq0 is the initial point (defined by initial demand Q0 and initial price P0). External costs will increase the cost of supply (electricity) and the new equilibrium price moves to Pt. In figure 1, equilibrium is shifted to the point Eqt defined by a new demand Qt (which is lower than the original Q0) and a new price Pt (which is higher than the original P0). The equilibrium is found when the area composed by the producer surplus (A) and consumer surplus (B) is maximized.7 Studies focusing on the issue of energy pricing were particularly topical in the 1990s and 2000s. Increasingly, academic research has focused on identifying the external costs, including global warming and climate change, with the production and consumption of different sources of energy. The policy response taken by many countries has been the proposal for various types of energy or carbon taxes to incorporate externalities into their costs. At the same time, as proposals for environmental taxes have been forthcoming, in much of the industrialized world
200
THE JOURNAL OF ENERGY AND DEVELOPMENT Figure 1

ILLUSTRATION OF PARTIAL EQUILBRIUM BETWEEN DEMAND AND SUPPLY BEFORE AND AFTER EXTERNAL COST CONSIDERATION
competition has emerged as a dominant public policy goal. Competition policy is driven by the belief that competitive markets perform allocative functions better than government-owned or regulated institutions do. Accordingly, competitive markets should be used as much as possible to perform these tasks and benefits are expected to be allocative, productive, and possess dynamic efficiency. However, reliance on markets does not imply that a laissez-faire approach to pricing is appropriate in obvious cases of market failures (such as external costs of production). Recent literature has stressed that in the long run, economically inefficient energy pricing is likely to lead to investments in energy supply that result in annually recurring misallocations of resources.8 Thus, the inclusion of external costs of production into the pricing model will lead to better resource allocation. Previous Studies We shall provide a brief overview of some of the previous work that has been presented on electricity generation and external costs. There is one analysis that has been carried out for the nine thermal power plants in Croatia. The emissions stemming from thermal power plants are similar regardless of the fossil fuel used; the most important emissions are those from sulfur dioxide (SO2). Various types of power plants differ in the magnitude of emissions, depending upon fuel type, generation processes, and power plant efficiency. The SO2 emissions from the Croatian thermal power plant study are given in table 1.
SOCIAL COST OF ELECTRICITY GENERATION IN IRAN Table 1

EMISSIONS FROM THE CROATIAN THERMAL POWER PLANTS, 2000 Sulfur Dioxide Emissions Power plant Sisak Plomin Rijeka Jertovec TETO Zagreb ELTO Zagreb TETO Osijek PTE Osijek Tons 4,852 7,015 5,341 0 2,707 833 434 2
201
Milligrams per Kilowatt-Hour 4,738 5,007 8,843 2,085 627 27 1,021 0
Source: M. Bozicevic, Z. Tomsic, and N. Debrecin, External Cost of Electricity Generation: Case Study Croatia, Energy Policy, vol. 33, no. 11 (2005), pp. 1385395.
Dispersion has been modeled by the EcoSense program package developed for the European Commissions ExternE project.9 The model used is the Harwell trajectory model that belongs to the Lagrangian group of models. In the EcoSense package database, Europe has been presented by the EUROGRID co-ordinate system. The entire area is divided into grid cells. Each grid cell has an area of 10,000 square kilometers (km2) and all properties of a grid cell are assumed to be constant. One output datum of the modeling process is ambient concentration of SO2. Twenty-three grid cells from the EUROGRID coordinate system contain the complete Croatian territory. Because of the models limitations, calculated ambient concentrations are constant within a grid cell. An exposure-response function presents a relationship between an incremental change in ambient concentrations of a pollutant and the additional number of health disorder occurrences. The exposureresponse functions for the analyzed health endpoints both for PM10 (that is, for particulate matter in the atmosphere with a diameter of less than or equal to a nominal 10 micrometers) and its subset PM2.5 (which is a measure of smaller particulates in the air of 2.5 micrometers or less in size) are presented in table 2. Both PM10 and PM2.5 particles are known to produce respiratory and cardiovascular illness and are small enough to invade even the smallest airways, making them a particular health hazard to humans, most especially problematic for the elderly and very young. However, PM2.5, which is 100 times thinner than a human hair, is considered to have more severe health effects. PM2.5 particles are lighter, can travel further, and stay in the air longer (days or weeks) than the larger particles. Prolonged exposure to elevated concentrations of particulate matter also is associated with increased hospital and doctor visits and, more importantly, mortality. Burning fuels such as gasoline, oil, diesel, or wood produce most of the PM2.5 pollution found in outdoor air and much of the PM10.
202
THE JOURNAL OF ENERGY AND DEVELOPMENT Table 2

PARTICULATE MATTER: ADDITIONAL NUMBER OF HEALTH 3 a INCIDENTS PER mg/m FOR PM10 AND PM2.5 Number of Health Incidents per mg/m
3
Types of Health Incidents Respiratory diseaseshospital admissions Congestive heart failureelderly Cerebrovascular diseaseshospital admissions Chronic bronchitischildren Chronic coughchildren Acute mortality Restricted activity daysadults Chronic bronchitisadults Chronic mortality
PM10 2.07 * 10 -5 1.85 * 10 -6 5.04 * 10 -3 1.61 * 10 -3 2.07 * 10 0.040% 0.025 -5 4.9 * 10 0.39%
-6
PM2.5 3.46 * 10 -5 3.09 * 10 -6 8.42 * 10 -3 2.69 * 10 -3 3.46 * 10 0.068% 0.042 -5 7.8 * 10 0.64%
-6
mg/m = micrograms per cubic meter of air.
To calculate the additional health effect of an incremental particulate matter (PM) concentration, the number of people exposed should be known. To be able to combine data on population density and calculated ambient concentrations of PM, geographic information software has been used. Based on exposure-response functions and incremental concentrations of PM associated with power plant operations, an increase in observed health disorders can be calculated. Additional health disorders caused by increased concentrations of particulate matter have been calculated according to the following equation: Additional disorders conc density area expres where conc is the incremental concentration of PM (mg/m3), density is the population density in the observed area (km1), area is the area (km2), and exp-res is the number of incidents caused by PM increase of 1 mg/m3. The number of various health incidents has been established for pollution originating from each of the analyzed power plants in each of the 111 polygons. A monetary value can be attached to each of the analyzed health disorders. The values used in this study are strongly dependent upon studies carried out in the United States. While there are a number of studies on the value of mortality impacts in Europe, there have been few attempts to value the impacts on morbidity. Similar studies have not been undertaken in Croatia; hence, the reliance on the U.S. and European Union analyses is inevitable. The costs attached to the analyzed health disorders are presented in table 3.

MONETARY VALUES ATTACHED TO THE ANALYZED HEALTH DISORDERS (in 1995 U.S. dollars) Health Disorder Acute mortality Chronic mortality Respiratory disease Cerebrovascular disease Congestive heart failure Chronic bronchitischildren Chronic bronchitisadults Chronic coughchildren Restricted activity days Cost
203
148,500 1,375,000 10,300 10,300 10,300 300 138,000 300 100
Source: M. Bozicevic, Z. Tomsic, and N. Debrecin, External Cost of Electricity Generation: Case Study Croatia, Energy Policy, vol. 33, no. 11 (2005), pp. 1385395.
The morbidity costs have been calculated by establishing the costs individuals are willing to pay in order to avoid a certain risk, e.g., disease. The mortality costs are based upon the following assumptions. First, the monetary value of life has been assumed to equal $4.07 million. Further, it has been assumed that in death cases caused in accidents, 31.65 years of life are lost. These assumptions are based upon a 3-percent discount rate given the value of a lost year of life of $198,000. Many people whose deaths were linked to air pollution had been suspected of having a shorter life expectancy. It has been assumed that acute mortality resulting from excessive air pollution shortens the average life expectancy by 9 months and chronic mortality caused by exposure to air pollution by 5 years or more. Decision making in energy and environment calls increasingly for a better evaluation of the possible impacts of any envisaged policy and measure, such as a renewable electricity target, an energy tax, a quantified objective to reduce greenhouse gas emissions, a voluntary agreement between public authorities and industries, a state aid exception for clean energies, a standard for energy efficiency, and an internalization of external costs.10 In another pivotal work assessing the social costs of electricity generation from fossil fuels, D. Dalianis et al. offers a case study of Greece.11 The importance of this researchs calculations is that they allow for a more realistic comparison between the actual price of electricity and the electricity produced by renewable energy sources, mainly wind and solar/photovoltaic. The estimated external cost of energy was found to be in the range of 7.3 to 15.4 Greek drachma per kilowatthour (kWh).
204
In order to allow an overall evaluation of the total external cost of electricity generation from fossil fuels in Greece, the results of the previous analysis are presented in table 4. From table 4, the reader can see that an additional amount of between 7.3 and 15.4 Greek drachma per kilowatt hour, in 1990 rates, must be added to the price of electricity. The importance of this analysis is that taking this external cost of energy into account in the various scenarios related to energy development options changes the attractiveness, in particular in the case of renewable energy resources such as wind or solar/photovoltaic. Without the inclusion of these external social costs, renewables appear relatively expensive, which results in a greater time required for their penetration into the energy market.12 Thus, the inclusion of social costs can have a significant impact when comparing various and competing sources of energy generation. Another relevant work on the subject is presented in S. Mirasgedis et al., which deals with the impact of social costing on the competitiveness of renewable energies in the case of Crete.13 These researchers investigated the effect of social costing in energy decision making and, more specifically, in the comparison of alternative action plans to satisfy electricity demand. The examined case study refers to the autonomous electricity system of Crete. The results show that the higher the penetration of renewable energy into the energy system, the lower the social costs (i.e., the sum of the private and external costs) of electricity imposed on the society as a whole. Crete is the fourth largest island in the Mediterranean, with a population marked in recent years by a net increasing trend and economic growth rates double Table 4
TOTAL EVALUATION OF EXTERNAL COSTS OF ELECTRICITY GENERATION FROM FOSSIL FUELS IN GREECE External Cost (Greek drachmas per kilowatt hour) 0.093 0.518 to 1.485 0.45 to 2.13 4.3 to 9.71 1.895 0.0275 0.023 7.3 to 15.4
External Effects Fauna flora Mankind Materials Climate Depletion of nonrenewable source Public expenditure for general services Public expenditure for research and development Total external cost of electricity
Source: D. Dalianis, D. Petassis, M. Santamouris, A. Argiriou, C. Cartalis, and D. Asimakopoulos, Social Cost of Electricity Generation in Greece, Renewable Energy, vol. 12, no. 3 (1997), pp. 28189.
205
the national Greek average. The electricity system of Crete is an autonomous system that almost totally depends upon fuel oil imports from the mainland. Electricity generation is accomplished by a network of conventional power plants with a total capacity of approximately 521 megawatts (MW). There are six system turbines of a total capacity amounting to 111.25 MW, internal combustion engine of 49.12 MW, a combined-cycle power plant of 134.4 MW, and 218.7 MW of gas turbine generators. These last units use old technology and, therefore, are characterized by high levels of fuel consumption. Because of the islands high level of tourism and its overall economic development, electricity demand increases rapidly and presents high seasonal variations. More specifically the annual rate of increase of electricity demand in Crete is around 8 percent, while the corresponding Greek national figure is 3.5 percent. This results in power inefficiency problems that require expensive solutions for coping with the peak power load mainly due to the overuse of the gas turbine generators. Therefore, it is generally accepted that there is an urgent need for expanding the electricity generation system with the installation of new power plants. However, there is not a unanimous view as to the type of plants to be installed. The main conflict is whether renewable energy sources should be utilized in the system and to what extent. Table 5 provides a comparison of the private cost elements of various power sources in Crete. Table 5
PRIVATE COST ELEMENTS OF THE REFERENCE POWER UNITS IN CRETE Variable Operation & Maintenance (millions of euros/kilowatt hour) 1.2 1.8 0.9 0.7 0.7 Negligible 1.2 Negligible
Power units Steam Diesel Combined cycle Gas turbines (old technology) Gas turbines (new technology) Wind Biomass Hydro
Investment (euros/kilowatt year) 1,478 1,398 728 353 353 1,250 2,000 1,700
Fixed Operation & Maintenance (euros/kilowatt year) 18.1 10.3 24.3 27.4 27.4 5.9 20 25
Fuel (millions of euros/kilowatt hour) 30 26 53 153 64 0 44 0
Source: S. Mirasgedis, D. Diakoulaki, L. Papagiannakis, and A. Zervos, Impact of Social Costing on the Competitiveness of Renewable Energies: The Case of Crete, Energy Policy, vol. 28, no. 1 (2000), pp. 6573.
206
External costs of electricity generation have been assessed for each specific power plant category. For the conventional oil-fired units these costs include damages of air pollution (especially suspended particulates, SO2, nitrogen oxides, and the secondarily produced aerosols that mainly comprise sulfates and nitrates) on human health, agriculture and materials, damages due to occupational accidents, and to the global warming effect, as well as damages due to upstream impacts (oil transportation and refining). As shown in table 6, mortality and the global warming effect are the most important components of the externalities calculated for the conventional power plants. In particular, the cost assigned to the mortality effects relies on the years of life lost (YOLL) approach, which applies a value of 90,000 euros for each year of life lost and takes into account the mean age of the affected population.14 In addition, a 3-percent discount rate has been adopted for reducing future damages to present value. The resulting damage cost can increase considerably if a lower discount rate is used. An even higher damage cost is obtained if the valuation procedure is based on the value of statistical life (VSL) approach, where a value of 3.1 million euros is assigned to human life independently from age or physical situation. The figures applied for the VSL and the YOLL have been derived from a large number of European studies using wage-risk, contingent valuation, and marked-based techniques; hence, they provide a willingness to pay or willingness to accept this type of estimate. The private, external, and social cost figures obtained for the three alternative plans are presented in table 7. They are from the base-case damage estimates assigned to mortality and the global warming effect (YOLL 3 percent and 18 euros per ton of carbon dioxide). Based on table 7, it can be seen that with respect to private costs, the conventional action plan appears as the most economical solution for the systems expansion: the annual expenses for electricity generation by the year 2005 would reach 156.84 million euros while a restricted or extensive exploitation of renewable energy system assumed in the renewable-constrained or intensive plans increase these costs by 4.6 percent or 9.5 percent, respectively. However, the three plans are inversely ranked if compared on the basis of their external costs. The conventional plan generates a total external cost amounting to 106.82 million euros on an annual basis, which is higher by 22.8 percent and 43.2 percent compared to the renewableconstrained and the intensive plans, respectively. The cost difference is so large that it overcompensates for the benefits from the lower private costs. Hence, the same ranking is obtained if the comparison is made on the basis of the total social costs associated with the three action plans. The total social cost of the conventional plan is 12.6 million euros higher than the renewable constrained plan and 17.35 million euros higher than the intensive one. On a per-unit of electricity basis, this means that the realization of the conventional plan leads to a considerable increase of the social cost of electricity amounting to 5 million to 6.8 million euros/kWh in comparison
Table 6
EXTERNAL COSTS RELATED TO ELECTRICITY GENERATION FROM CONVENTIONAL a AND RENEWABLE POWER PLANTS (in millions of euros per kilowatt hour)
Diesel Mortality (PM10 and aerosols) 45.2 12.4 Acute mortality (SO2) 1.55 5.8e-2 0.93 0.12 5.6e-3 6.7e-3 0.12 0.12 4.8e-3 1.58 0.89 3.6e-2 4e-2 0.96 1.06 0.9 3.4e-2 1.44 0.12 6.2e-3 Negl. 2e-2 7e-4 0.34 0.12 6e-4 7 11.3 25.5 41.4 9.7 2.7
Steam (existing) Wind Biomass
Steam (scheduled)
Combined Cycle
Gas Turbines (old technology)
Gas Turbines Wind (new technology)
Hydro
Value of statistical life -
105.6 7.4
179.9
27.2
Years of life lost
28.9
49.2
Value of statistical life 0.85 0.42

(continued)
1.35
20.2
Years of life lost
5.1
0.76
Morbidity
3.7
6.2
Occupational accidents
0.12
0.12
Impacts on agriculture
1.2
6.2
207
208
Table 6 (continued)
EXTERNAL COSTS RELATED TO ELECTRICITY GENERATION FROM CONVENTIONAL a AND RENEWABLE POWER PLANTS (in millions of euros per kilowatt hour)
Diesel
Steam (existing) Wind
Steam (scheduled)
Combined Cycle
Gas Turbines (old technology)
Gas Turbines Wind (new technology)
Biomass
Hydro
Impacts on materials 9.6e-2 Negl. Global Warming 11.6 2.5 to 89.9 1.81 1.81 5.6 to 204.6 26.5 11.2 2.4 to 86.1 1.81 1.1 N.E. Negl. Negl. Negl. Negl. 0.14 8.6e-2 0.13 7.3e-2-5 1.6e-2 Negl. 1.34
0.31
0.75
Noise
Negl.
Negl.
Best estimate
11.5
13.3
13.3
Range of estimates
2.4 to 88.5 1.81
2.8 to 102.6
2.8 to 102.6
Upstream impacts
1.81
1.81
a Discount rate used is 3 percent; Negl. = negligible; N.E. = not estimated; PM = particulate matter; SO2 = sulfur dioxide. Source: S. Mirasgedis, D. Diakoulaki, L. Papagiannakis, and A. Zervos, Impact of Social Costing on the Competitiveness of Renewable Energies: The Case of Crete, Energy Policy, vol. 28, no. 1 (2000), pp. 6573.
209
ESTIMATED COST OF ELECTRICITY GENERATION IN CRETE BY THE YEAR 2005 (assessment made in 2000) Action plan Private Cost External Cost Social Cost
Annual expenses (millions of euros) Conventional 156.84 Renewable constrained 164.04 Renewable intensive 171.71 Electricity cost (thousands of euros/kilowatt hour) Conventional 60.72 Renewable constrained 63.45 Renewable intensive 66.41
106.82 87.02 74.60 41.35 33.66 28.85
263.66 251.06 246.31 102.07 97.11 95.26
Source: S. Mirasgedis, D. Diakoulaki, L. Papagiannakis, and A. Zervos, Impact of Social Costing on the Competitiveness of Renewable Energies: The Case of Crete, Energy Policy, vol. 28, no. 1 (2000), pp. 6573.
with the two other alternative plans outlined in table 7. Therefore, it can be stated that the higher the contribution of renewable energy in the electricity system, the lower the social cost of the generated electricity.15 Methodology of Social Cost Evaluation Now we turn to a presentation of the methodology used in assessing the external cost of electricity generation for our model. External costs are not generally incorporated into the private cost of electricity, including damages to the environment and human health due to air pollution or other environmental repercussions. All these damages are difficult to estimate because of a lack of data and an incomplete knowledge regarding the parameters influencing the type and magnitude of the related impacts. The evaluation used in this research only considers the impacts on human health due to SO2 emission from the Shahid Rajaee Power Plant (SRPP). This is because SO2 emissions have significant effects on human health and it is a very important gas in this power plant in the fall and winter seasons as the primary fuels used by this plant are fuel oil and gas oil. Thus, the social cost of electricity generation will be estimated as the sum of the private costs and the external cost. SC PC EX where SC = social cost, PC = private cost, and EX = external cost.
The Private Cost Calculation: The private cost of electricity generation includes
the investment cost discounted on an annual basis (I), the operations and maintenance costs (M), and the fuel cost (F). All these cost components vary according
210
to the types of energy carriers and energy technologies used and can be expressed as an unique cost figure (PC) on a kilowatt-hour (kWh) basis by taking into account the annual electricity production (Q) of the specific power plant. The annual investment cost is estimated in relation with a life-time duration (N), installation period (nb), and the discount rate (r = 10 percent). This method is adapted from S. Mirasgedis et al.16 P C0 1 rnb 1 r1 rnb1 1 rN 1 2
I P
r1 rN nb1
where C9 = C/nb, C = investment cost, nb = installation period, r = discount rate, and N = life-time duration. The operation and maintenance costs (M) are broken down into two parts: (1) fixed costs including all onsite labor and insurance costs and (2) variable costs including fuel storage, and electricity supply, repair, and maintenance work. To carry out the analysis, two scenarios are considered for fuel cost. One is based on the free-on-board (FOB) price and the other is based on the subsidized price. The private cost of electricity generation is calculated by the following formula: PC I=Q FIXO&M=Q VARO&M=Q F=Q 4
where I = investment cost, FIXO&M = fixed operation and maintenance cost, VARO&M = variable operation and maintenance cost, and F = fuel cost.
The External Cost Calculation: External costs of electricity generation in steam units have been evaluated. These costs include damages of air pollution on human health. The methodology applied in this paper has been developed within the external costs of air pollution on human health in Tehran. The data used in this paper are completely dependent on studies carried out in Tehran. Some parameters are evaluated to recognize economic damages on human health because of air pollution: disease signs, cost of illness, and premature mortalitywhich are used for the determination of the contingent valuation method, cost of illness, and value of statistical life. The evaluation of disease signs includes: acute mortality, chronic mortality, respiratory disease, cerebrovascular disease, congestive heart failure, chronic bronchitis (children), chronic cough (children), chronic bronchitis (adults), and restricted activity days. The contingent valuation method is used for economic evaluation of the aforementioned signs. In this method for the economic evaluation of the disease signs, a questionnaire was utilized to provide a conditional evaluation.17 The respondents willingness to pay and disease signs were
211
gained from 3,000 questionnaires and through the use of related statistical software. In the illness-costing method, specific numbers of public hospitals with their classification and coding system are selected. Some dossiers of related diseases from air pollution are selected and their information on the costing are extracted. Finally, the average full cost of the disease is determined from statistical software. The morbidity and mortality costs have been calculated with the costs that individuals are willing to pay in order to avoid a certain risk. The monetary value of one unit of SO2 emission has been assumed as U.S. $7,739.00 per unit. This value was applied in this paper to calculate damages to human health from the Shahid Rajaee Power Plant using the contingent valuation method (CVM) and the value of statistical life (VSL) method, which also has been used by the Ministry of Health and Medical Education in its 2004 Tehran project report. Hence, the results of the evaluation procedure will indicate the value of SO2 emission from SRPP. The emissions stemming from SRPP are from fossil fuels. The most important gas is sulfur dioxide because the SO2 emissions are very high in the fall and winter seasons. Hence, only sulfur dioxide, which harms human health, has been included in our analysis. When we factor in the size of Tehran (864,000,000 m2), along with the size of the Shahid Rajaee Power Plant (9,000,000 m2), and the monetary value of one unit of SO2 emission in Tehran ($7,739), then we determine the value of one unit of SO2 emission for 96 square meters is U.S. $81.00 (as presented below). 864;000;000 9;000;000 96 m2 $7;739=96 $81 To estimate the external costs, the SO2 emission is compared with the air quality standard and the external cost was evaluated by considering the quantity of electricity production during a 24-hour period and the value of a unit of SO2 emission. Weather forecasting information (wind speed, weather temperature), chimney conditions, and air velocity output gas were used. Then we determine the dispersion and value of SO2 at a distance of between 500 to 5,000 meters from the chimney at peak and off-peak-load periods for all four seasons, which captures the importance of seasonal variations. We shall now turn to our models applications and findings.
Application of the Model for the Shahid Rajaee Power Plant

Characteristics of the Shahid Rajaee Power Plant: The Shahid Rajaee Power
Plant is located northwest of Tehran, the capital of Iran, and has a nominal generation capacity of 2,000 MW. The major fuels consumed by this power plant are
212

ENERGY CONSUMPTION COMBINATION FOR THE SHAHID RAJAEE POWER PLANT, 2005 Natural Gas (cubic meter) 1,077,788 1,065,983 Gas Oil (liter) 112 87,487 Fuel Oil (liter) 506,243 0
Units Steam units Combined-cycle units
Source: Tavanir Management Group, Electricity Industry Statistic Yearbook (Tehran, Iran: Tavanir, 2005).
fuel oil, gas oil, and natural gas. The power generating system has 13 units, including both steam and combined-cycle types. There are four steam turbines units generating 1,000 MW electricity and six gas turbines units and three steam units with 640 MW and 375 MW capacities, respectively. Table 8 provides an overview of the energy consumption combination at the SRPP. Table 9 shows the plants annual electricity production provided by the different units in 2005.
The Private Cost Calculation Results: The private costs of electricity generation from SRPP include the investment cost, the operation and maintenance costs, and the fuel cost. The annual private costs of electricity generation for each category have been estimated by implementing equations (2) through (4) and by using data concerning the annual electricity production from each power plant category and the cost elements presented in tables 10 and 11. These analyses have been implemented for two pricing scenarios: FOB and subsidized prices of fuels. The External Cost Calculation Results: The external costs of electricity generation also have been assessed for steam units. The combined cycle consume natural gas and gas oil so its air pollution is lower than standardized concentration and have low effects on human health. Hence, the highest SO2 emission originates from steam units; thus, the total costs of human health effects are greater from
Table 9
ENERGY PRODUCTION FOR THE SHAHID RAJAEE POWER PLANT, 2005 (in megawatt-hours) Units Steam units Combined-cycle units Gross Production 6,730,045 5,054,138
Source: Tavanir Management Group, Electricity Industry Statistic Yearbook (Tehran, Iran: Tavanir, 2005).

PRIVATE COST ELEMENTS OF THE REFERENCE POWER UNITS UNDER SUBSIDIZED FUEL PRICES (in 2000 U.S. dollars per kilowatt-hour)
213
Power Units Steam unit Combined-cycle units
Investment 0.013 0.014
Fixed Operation & Variable Operation & Maintenance Maintenance Fuel Total 0.006 0.003 0.004 0.006 0.008 0.015 0.009 0.016
Source: Authors calculations.
the operation of steam units. This analysis was conducted under normal conditions (off peak) and peak-load periods for all four seasons. The SO2 emissions concentration resulting from the steam units operation in the year 2004 are presented in table 12. The SO2 emissions were compared against air quality standards set by the U.S. Environmental Protection Agency because there are no national environmental standards in Iran. The existing standard is shown in table 13. The primary standards are limits set to protect public health, including the health of sensitive members of the population such as asthmatics in children and the elderly. Considering the highest SO2 emissions resulted in the fall and winter seasons, the external costs of electricity generation have been assessed for steam units. These costs included damages of air pollution (especially SO2 emissions) on human health only. The procedure for the external cost evaluation is as follows: Tehran area / power plant area = 96 m2 Evaluation of one unit of SO2 emission = $7,739/96 = $81 External cost of SO2 emission at the off-peak-load condition = $81*147.9 = $11,935 $81*164.3 = $13,259 Table 11
PRIVATE COST ELEMENTS OF THE REFERENCE POWER PLANT UNITS WITH FREE-ON-BOARD PRICE OF FUEL (in 2000 U.S. dollars per kilowatt-hour) Fixed Operation & Variable Operation & Maintenance Maintenance Fuel Total 0.006 0.003 0.004 0.006 0.021 0.036 0.015 0.030
Power Units Steam units Combined-cycle units
Investment 0.013 0.014
214

SULFUR DIOXIDE (SO2) EMISSION CONCENTRATION FROM a THE SHAHID RAJAEE POWER PLANT, 2004 Maximum Pollution Concentration(mg/m )
3
Seasons Spring Summer Fall Winter
(off-peak-load condition) 349.4 339.0 512.9 529.3
(peak-load condition) 360.7 355.2 607.1 624.7
External cost of SO2 emission at the peak-load condition = $81*242.1 = $19,537 $81*259.7 = $20,957 External cost of SO2 emission at the off-peak condition / electricity production in one year (in 2000 U.S. dollars/kWh): $11,935 / 768,271 = 0.015 $13,259 / 768,271 = 0.017 External cost of SO2 emission at the peak-load condition / electricity production in one year (in 2000 U.S. dollars/kWh): $19,537 / 768,271 = 0.025 $20,957 / 768,271 = 0.027
Table 13
SLOPE VALUE OF SULFUR DIOXIDE (SO2) CONCENTRATIONS a AT PEAK AND OFF-PEAK CONDITIONS Off-Peak Condition Concentration 3 Seasons (mg/m ) Spring Summer Fall Winter 349.4 339.0 512.9 529.3 Peak-Load Condition
Concentration Slope Concentration Slope Standard Value Concentration Standard Value 3 3 3 3 3 (mg/m ) (mg/m ) (mg/m ) (mg/m ) (mg/m ) 365 365 365 365 147.9 164.3 360.7 355.2 607.1 624.7 365 365 365 365 242.1 259.7

THE EXTERNAL COSTS OF SULFUR DIOXIDE (SO2) EMISSION AT THE OFF-PEAK CONDITION (in 2000 U.S. dollars per kilowatt-hour) Seasons Fall Winter Source: Authors calculations.
215
External Costs 0.015 0.017
The costs of human health impacts associated with the steam units (based on per unit electricity generation) are presented in tables 14 and 15. A comparative view of the externalities estimated for off-peak and peak-load conditions clearly reveals that in steam units the external cost of peak-load electricity production is significantly higher than the external cost at the off-peak condition.
The Social Cost Assessment of Electricity with Respect to SO2 Pollutants: The social cost of electricity generation is the sum of the private and external costs. In our research, the social costs of steam units were calculated under relevant price scenarios and for two conditions (off-load and peak load) for different seasons. We report the damage estimates based upon the mortality and morbidity effects of our various scenarios in tables 16 and 17, respectively.
Conclusion The complete costs of using fossil fuels to power electricity generation have not been calculated in their entirety; in particular, the negative externalities caused by pollution and health effects have not been taken into consideration. These damages often times impose negative external costs that sometimes exceed the private costs. While electricity production is advantageous for a country, it also can have harmful and damaging by-products such as environmental destruction and emissions. The Table 15
THE EXTERNAL COSTS OF SULFUR DIOXIDE (SO2) EMISSION AT THE PEAK- LOAD CONDITION (in 2000 U.S. dollars per kilowatt-hour) Seasons Fall Winter Source: Authors calculations. External Costs 0.025 0.027
216

THE SOCIAL COSTS OF ELECTRICITY GENERATIONSUBSIDIZED ENERGY PRICE (in U.S. dollars per kilowatt-hour) Scenario 1 (off-peak in the autumn) 0.030 Scenario 2 (off-peak in the summer) 0.032 Scenario 3 (peak in the autumn) 0.040 Scenario 4 (peak in the summer) 0.042
Power Plant Steam unit
major challenge from both an economic and public health perspective is that the price of electricity in Iranas in other developing countriesencompasses only the production costs and ignores any other externalities. In evaluating electricity generation technologies, fuel selection, and environmental impacts, special attention should be paid to social costs and developing objective forms of analysis. In this paper, the social costs of SO2 emissions have been calculated for the Shahid Rajaee Power Plant. The social costs were obtained based on eight scenarios for two seasons with the summation of both the private and external costs. The results show that in comparison with other units, the social costs of steam units are considerable, which is due to the high consumption of fuel oil. An energy policy will be needed to internalize all external cost elements that are not presently included in energy prices in order to secure a sound future development of the countrys energy systems and a sustainable development for its inhabitants. This could be done by levying taxes on specific activities, inducing substantial external costs. This analysis indicates the importance of external costs of energy in the various scenarios related to energy price options. It also emphasizes the marketing interest for other mainly renewable energies like wind or solar/ photovoltaic, which seem expensive yet result in lower external costs. Table 17
THE SOCIAL COSTS OF ELECTRICITY GENERATIONFREE-ON-BOARD ENERGY PRICE (in U.S. dollars per kilowatt-hour) Scenario 5 (off-peak in the autumn) 0.051 Scenario 6 (off-peak in the summer) 0.053 Scenario 7 (peak in the autumn) 0.061 Scenario 8 (peak in the summer) 0.063
Power Plant Steam unit
217
The most significant impact of routine operations in typical thermal power plants is air borne pollution and consequently public health degradation. The costs of public health degradation could be reduced by improving the efficiencies of power plants and locating pollution sources further from densely populated areas. Moreover, introducing clean technologies to reduce harmful emissions can be considered in future expansion plans.
NOTES
1 European Commission, Research Results on Socio-Environmental Damages Due to Electricity Transport (Brussels: European Commission, 2003); Oak Ridge National Laboratory and Resources for the Future (ORNL-RFF), External Costs and Benefits of Fuel Cycles: Reports 1-8 (Oakridge, Tennessee and Washington, D.C.: ORNL-REF, 19921998); and Robert D. Rowe et al., New York State Environmental Externalities Cost Study (New York: Farrar, Straus, and Giroux, 1996). 2 D. Dalianis, D. Petassis, M. Santamouris, A. Argiriou, C. Cartalis, and D. Asimakopoulos, Social Cost of Electricity Generation in Greece, Renewable Energy, vol. 12, no. 3 (1997), pp. 28189.
Michael Taussig and Joseph Seneca, Environmental Economics (Englewood Cliffs, New Jersey: Prentice-Hall, 2002). Jonathan Koomey and Florentin Krause, Introduction to Environmental Externality Costs, Energy Analysis Program, Applied Science Division, Lawrence Berkeley Laboratories, Berkeley, California, 1997.
5 S. Mirasgedis, D. Diakoulaki, L. Papagiannakis, and A. Zervos, Impact of Social Costing on the Competitiveness of Renewable Energies: The Case of Crete, Energy Policy, vol. 28, no. 1 (2000), pp. 6573. 6 7 4
Ibid.
P. Rafaj and S. Kypreos, Internalization of External Cost in the Power Generation Sector: Analysis with Global MultiRegional MARKAL Model, Energy Economics Modeling Group, Report CH-5232, Paul Scherrer Institute (PSI), Villigen, Switzerland, 2004. Roger Lawrey, Full Social Cost Pricing in the Energy Sector: The Case of Electricity Generation in New South Wales and Victoria, International Journal of Social Economics, vol. 26, nos. 7/8/9 (1999), pp. 92544.
9 8
European Commission, op. cit.
M. Bozicevic, Z. Tomsic, and N. Debrecin, External Cost of Electricity Generation: Case Study Croatia, Energy Policy, vol. 33, no. 11 (2005), pp. 1385395.
11 12 13 14
10
D. Dalianis et al., op. cit. Ibid. S. Mirasgedis et al., op. cit. European Commission, op. cit.
218
15 16

S. Mirasgedis et al., op. cit. Ibid.
17 Number of patients = 3,000, protest indexes = 0.02, certainty coefficient = 95 percent, and delicacy = 0.05.

The Journal of Energy and Development

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Journal of Energy and Development

Uploaded by

Copyright:

Available Formats

THE JOURNAL OF ENERGY AND DEVELOPMENT

Mehdi Sadeghi, Alimorad Sharifi, and Masoumeh Torki,