Investments in the urban energy infrastructure for distributing electricity and natural gas are analyzed using (1) property data measuring distribution plant value at the local/tax district level, and (2) system outputs such as sectoral numbers of customers and energy sales, input prices, company-specific characteristics such as average wages and load factor. Socio-economic and site-specific urban and geographic variables, however, often been neglected in past studies. The purpose of this research is to incorporate these site-specific characteristics of electricity and natural gas distribution into investment cost model estimations. These local characteristics include (1) socio-economic variables, such as income and wealth; (2) urban-related variables, such as density, land-use, street pattern, housing pattern; (3) geographic and environmental variables, such as soil, topography, and weather, and (4) company-specific characteristics such as average wages, and load factor. The classical output variables include residential and commercial-industrial customers and sales.
In contrast to most previous research, only capital investments at the local level are considered. In addition to aggregate cost modeling, the analysis focuses on the investment costs for the system components: overhead conductors, underground conductors, conduits, poles, transformers, services, street lighting, and station equipment for electricity distribution; and mains, services, regular and industrial measurement and regulation stations for natural gas distribution. The Box-Cox, log-log and additive models are compared to determine the best fitting cost functions. The Box-Cox form turns out to be superior to the other forms at the aggregate level and for network components. However, a linear additive form provides a better fit for end-user related components. The results show that, in addition to output variables and company-specific variables, various site-specific variables are statistically significant at the aggregate and disaggregate levels.
Local electricity and natural gas distribution networks are characterized by a natural monopoly cost structure and economies of scale and density. The results provide evidence for the economies of scale and density for the aggregate electricity and natural gas distribution systems. However, distribution components have varying economic characteristics. The backbones of the networks (overhead conductors for electricity, and mains for natural gas) display economies of scale and density, but services in both systems and street lighting display diseconomies of scale and diseconomies of density.
Finally multi-utility network cost analyses are presented for aggregate and disaggregate electricity and natural gas capital investments. Economies of scope analyses investigate whether providing electricity and natural gas jointly is economically advantageous, as compared to providing these products separately. Significant economies of scope are observed for both the total network and the underground capital investments.