Introduction :

The electricity sector is a main part of the energy sector which in turn is a major component of the country’s macro economic model. Nowadays, the electricity sector in most countries lay under the burden of severe debts due to the large investments and rising cost of power production, transmission, and distribution. On the other hand, the demand for electric power keeps expanding at a rate faster than the development of the supply means which are constrained by several technical, financial, and manpower related factors for a large number of developing countries.

Moreover, the supply demand policy for the power sector is subject to different constraints such as social equity needs, prevention of unemployment, inadequate usage of resources, inefficient pricing of electricity, sector taxing policy regarding sector surpluses, cross subsidies, incorrect price signals, and load pattern behavior. A key factor to the cost effective design, planning, maintenance, and operation of the power sector is the implementation of an appropriate tariff structure and pricing policy.

Objective :

Traditionally, electric power pricing policy in most countries has been determined mainly on the basis of financial or accounting criteria that meets the utility’s financial requirements of its operation and future expansion. Such financial or accounting criteria could be raising sufficient sales revenues to meet operating expenses and debt service requirements while providing an acceptable contribution towards the capital required for future expansion plans. However, in recent times several new factors, like rapid demand growth and fuel price increases, have arisen and pushed towards the implementation of economic principles for the purpose of producing and consuming electric power efficiently, while conserving scarce resources and meeting other various national objectives. More recently, the power economists have focused their attention on the objectives of efficiency in its national context rather than its supply side only. The implementation of such economic principles could have a significant effect on the demand side, mainly through the application of appropriate tariff policies based on the principles of marginal cost theory. Moreover, in this competition age where different privatization approaches principles prevail and with development of the state of the art techniques in metering and control, such tariff policies could serve as one of the main tools for the purpose of restructuring the power sector and electric utilities.

In brief, the objectives of this thesis are (1) to provide an overview of the economic principles, tariff policies, and engineering economic models in power sector (2) to analyze all factors affecting production, transmission, and distribution of electricity with the possibility of assessing these costs for different scenarios considering the uncertainty of those factors (3) to build a software package for LRMC (Long Run Marginal Cost) and SRMC (Short Run Marginal Cost) and modify this software algorithms to account for the specifics of the power sectors under fast growth rate in developing countries (4) to recommend the use of the state of the art methods and techniques developed for the competition age of the power sector and implement them on utilities under centralized planning and control (5) to implement all the above for the specifics of Lebanese electric power sector especially that the Lebanese electric utility lies under the burden of the costs of rehabilitation, reconstruction and expansion plans presently being carried on.

Plan of work :

1. A wide Literature survey which involve a comprehensive overview over the latest economical concepts including a comparative analysis between marginal cost based tariff and average cost criterias.
   
   
2. Determination of all elements contributing to the total cost of production, transmission, and distribution of electric power for fast growing sectors in developing countries and classifying those elements with flexibility to assess different costs scenarios for different modes of power sectors.
   
   
   
3. Designing an algorithm to calculate LRMC and SRMC with the consideration of uncertain factors.
   
   

   1- Use state of the art techniques and methodologies to build marginal cost algorithms
   

   2- Modify such techniques to meet the requirements of the power sectors under fast growth rate.
   

   3- Implementation of the algorithm using software tools.

4. Implement a trade-off methodology between LRMC and SRMC in order to determine the actual cost of the kw-hr.
   
   
5. Propose a tariff structure and a pricing methodology that best fast growing power sectors.
   
   

   1- Time Dimension :
   

   - Daily Dimension : Determination off-peak, intermediate, peak periods
   

   - Yearly Dimension : Determination of seasonal peaks and off peaks
   

   2- Price Dimension :
   

   - Determination in which time periods to use Marginal cost and when to use average cost methodology
   

   3- Present economic effects of proposed tariff structure :
   

   - Tariff versus Annual personal income
   

   - Tariff versus minimum salary
   

6. Implement all the above for the specifics of Lebanese electric power sector and provide recommendations.