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Measuring Energy Efficiency: An Application of Stochastic Frontier Production Function Analysis to Power Sector in Kerala

Pillai N., Vijayamohanan (2019): Measuring Energy Efficiency: An Application of Stochastic Frontier Production Function Analysis to Power Sector in Kerala.

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Abstract

Traditionally, there are two basically reciprocal energy efficiency Indicators: one, in terms of energy intensity, that is, energy use per unit of activity output, and the other, in terms of energy productivity, that is, activity output per unit of energy use. The enquiry that has proceeded from the problems associated with this method of a single energy input factor in terms of productivity has led to multi-factor productivity analysis. We have here two approaches: parametric and non-parametric. Parametric approach famously includes two methods: the erstwhile popular total factor energy productivity analysis and the currently fanciful stochastic frontier production function analysis; The non-parametric approach is popularly represented by data envelopment analysis. The present paper is an attempt to measure efficiency in electrical energy consumption in Kerala, India. We apply the parametric method of stochastic frontier production function analysis on a panel data of the Kerala power sector with three sectors (Primary, Secondary and Tertiary) for the period from 1970-71 to 2016-17. For a comparative purpose, we also have a regression with a pooled data stochastic frontier. The results indicate that the sector-wise technical efficiency estimates of the Kerala power sector are independent of time, which can significantly refer to a technically stagnant situation in energy efficiency. The implication of the time-varying decay model, even though statistically insignificant, of a falling trend in the technical efficiency of all the three sectors also is a hot matter of serious concerns.

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