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Interfuel Substitution within Industrial Companies: An Analysis Based on Panel Data at Company Level

Abstract:
In this paper we estimate two models for interfuel substitution between electricity, district heating and (other) fuels using a micro panel data set containing information for most Danish industrial companies in the period between 1983 and 1997. The main finding of the study is that interfuel substitution is low within the companies, especially between electricity and other fuels. The partial own-price elasticities estimated are small (between -0.04 and -0.13) both for electricity and other fuels, while it is between -0.44 and -0.50 for district heating. The partial own-price elasticity for electricity is smaller than generally found in macro studies. One explanation may be that the macro studies, in addition to technical substitution, capture some derived demand effect (i.e., aggregation bias).

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Natural Gas – Markets and Prices; Coal – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Interfuel substitution, micro panel data, translog model, electricity, Denmark, district heating

DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No2-1


Published in Volume23, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.