The effect of geographic factors on the reliability of supply and tariffs in the electricity distribution network

Norwegian distribution companies operate under different geographic conditions that may influence the reliability of supply and tariffs in the electricity distribution network. This master thesis has estimated the effect of geographic factors on the reliability of supply and tariffs among 121 Norwegian distribution companies in the period 2007-2013. The research question is to find the extent to which geographic factors influence the reliability of supply and tariffs in the electric distribution network. The thesis also investigates two hypothesis: (1) Distribution companies with difficult geographic conditions have a lower reliability of supply, (2) Distribution companies with difficult geographic conditions have higher tariffs. The research question and hypotheses are investigated by using econometric analysis based on three different panel data sets: (i) Long interruptions > 3 minutter (ii) Short interruptions ≤ 3 minutter (iii) Tariffs for households Data are gathered from the Norwegian Water Resources and Energy Directorate (NVE). Dataset (i) and (ii) are obtained from NVE’s statistics on interruptions and dataset (iii) is obtained from NVE’s statistics on distribution tariffs. Both structural and geographic factors are used as explanatory variables, where the geographic factors are time-invariant. The reliability of supply is defined by the frequency and duration of interruptions. Therefore, several dependent variables are used to describe interruptions, as they addresses various aspects of interruptions. To analyse the effect of geographic factors, I have used an estimation method which takes unobserved effects into account. I assume that the unobserved effects are independent from the explanatory variables through a random effects (RE) model. The results imply that geographic factors have a limited influence on the reliability of supply and tariffs. I discuss how other factors can influence the reliability of supply and tariffs, and how the chosen method have an impact on the results.M-ECO