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Efficiency of Independent Power Producers: A Fuzzy DEA Approach

This study compares and evaluates the technical efficiency performance of selected Independent Power Producers (IPPs) in Luzon from 2000-2006 using DEA and FDEA models. It examines controllable variables that may affect efficiency and establishes efficiency rankings based on DEA and FDEA.

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Efficiency of Independent Power Producers: A Fuzzy DEA Approach

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  1. Efficiency of Independent Power Producers: A Fuzzy DEA Approach Alter Hall, Fox School of Business And Management Temple University, Philadelphia, USA July 11, 2009 Presentor /co-author: Rene D. Olamita , Emilyn C. Cabandab a Graduate School, University of Santo Tomas, Philippines. bSchool of Global Leadership & Entrepreneurship, Regent University, Virginia Beach, VA 23464 USA.

  2. 1. Introduction

  3. Purpose / Aim • Compare and evaluate the technical efficiency performance (industry-level analysis) of selected IPP firms in Luzon during the period (2000-2006) using the DEA and FDEA Models. • Examine whether the selected controllable variables incur slacks that could affect the technical efficiency of these IPP industries employing Input/ Output Orientation DEA VRS-TE (Slacked Based) Multi Stage Model.

  4. Compare the technical efficiency performance of IPPs for both Non-Fuzzy DEA evaluation. • Establish the efficiency ranking of IPPs based on DEA and FDEA.

  5. Electricity supports society, synergizing globalization

  6. factors Electric Power Sector Efficiency performance Conventional DEA Literature Unconventional DEA Literature

  7. Conventional DEA Literature Hattori, et al., 2002; Managi et al., 2005; Delmas and Tokat, 2005; Cherchye and Post, 2003; Hirschhausen et al., 2006; Korhonen and Syrjanen, 2003; Nemoto and Goto, 2003; Hattori, et al., 2002; Bagdadioglu, et al., 2007; Hollas, et al., 2002. Unconventional DEA Literature • Yang and Pollitt, 2009; • Madlener et al., 2009

  8. Inadequate source of Efficiency Performance… except studies.. CONVENTIONAL DEA • Lavado and Hua,2004; Posadas and Cabanda, 2007; World Bank Groups like Bacon and Besant-Jones, 2001; Ishiguro and Akiyama, 1995; and Jamash et al., 2005. GAP FUZZY DEA Efficiency Performance • Yang and Pollitt, 2009; Madlener et al., 2009

  9. World Bank Study Result Negative Findings • IPPs were inefficient, having incurred substantial losses to a minimum of 18- 22 percent in 1989, • possibly increasing, even doubling at the range of 44 - 50 percent, by the end of the century. • pointed out an astounding approximation of a minimum of $30 billion to as high as $60-70 billion over a decade, • IPPs’ efficiency performance was below standard, • Generating service reliability seemed to be low. Reference : World Bank,1993; Ishiguro and Akiyama, 1995.

  10. 2. The Philippines’ Electric Power Sector

  11. Power Sector Structure NPC Switchyard Generation Transmission Transmission grid & sub-transmission networks IPPs TransCo Note: EPIRA 9136- Implementing laws for restructuring and privatization effort for electric power sector in the Philippines. Distribution RECs

  12. 3. Methodology

  13. Up-to- date Multidimensional Approaches: • Conventional non-Fuzzy DEA DEA-Stage 1 (CVRSTE) • Unconventional Fuzzy DEA FDEA-Stage 2 (UCVRSTE_ I ), FDEA -Stage 3 (UCVRSTE_ O)

  14. Period of Analysis • Seven ( 7 ) years period (Yrs. 2000 – 2006 ) Note: Considering Nine ( 9 ) Selected Independent Power Producers (IPPs).

  15. Input variables Total Number of Employees Depreciation ISO Certification Data : Output variables Total Operating Revenue Total MWH/Sales Age of Technology

  16. Table 1 Selected Independent Power Producers (IPPs) in Luzon Area

  17. 4. Empirical Results

  18. Figure 1 DEA-Stage 1 Technical Efficiency Analysis per IPP Industry (2000- 2006)

  19. Figure 2 DEA-Stage 1 Mean Technical Efficiency per IPP Industry (2000- 2006)

  20. Figure 3 FDEA - Stage 2 Technical Efficiency Analysis per IPP Industry (2000-2006)

  21. Figure 4 FDEA-Stage 2 Mean Technical Efficiency Analysis per IPP Industry (2000-2006)

  22. Figure 5 FDEA-Stage 3 Technical Efficiency Analysis per IPP Industry (2000-2006)

  23. Figure 6 FDEA-Stage 3 Mean Technical Efficiency Analysis per IPP Industry (2000-2006)

  24. Table 2 Note: - none or zero slack

  25. Table 3 Note: - none or zero slack

  26. Table 4 Note: - none or zero slack

  27. Table 5 Comparative Technical Efficiency Performance Analysis of IPPs (%) (DEA-Stage 1, FDEA-Stage 2 & FDEA-Stage 3) (2000-2006)

  28. Table 6 Spearman Rank Correlation Coefficient between DEA-Stage 1 versus FDEA-Stage 2 and DEA- Stage 1 versus FDEA – Stage 3 Note: **. Correlation is significant at the 0.01 level (2-tailed).

  29. Table 7 Stages 1, 2 and 3 Technical Efficiency (%) Performance Ranking Summary of IPP

  30. 5. Conclusion

  31. Findings Suggest • (1) ISO Certification & Age of Technology entry into the IPP firm study characterizes enhanced discriminating power in spite of dropping efficiency score values - connotes the possible loss of precision; • (2) Input and output orientation via UCVRSTE (Stages 2 &3) manifested inefficient results signifies inappropriate use of scale transformation; • (3) Misallocation of input/output resources as evidence of slacks occurrence presented in three stages implies mismanagement of variable alternatives;

  32. (4) An annual average of 1.13 percent yearly for ISO Certification compliance is required for the IPP firms relative technical efficiency and continuous deterrence yields non-compliance of quality standards; • (5) An annual average reduction of 1.22 percent also for old machineries/ facilities refurbishment + updated technologies utilization, pre-requisite for IPP efficiency score- Thus, non adherence means disregard oftechnology rehabilitation/ upgrading.

  33. Findings Uncovered • Clumsy technical efficiency performance of IPP firms needs an • immediate institutional/ restructuring reform, deregulation • full implementation of EPIRA 9136 and other applicable power laws. • create further energy enhancement and sustainable development. • empowers on continuous research program for electricity technology based on new innovations.

  34. (2)Imprecision caused by inefficient managerial capabilities invigorates enormous slacks, (3) Ensure compliance of ISO Certification and full rehabilitation of deteriorating technologies of IPP industry, • proper utilization of input/ output mixes put stoppage on mentioned deficiencies. • apparently, alleviates its huge substantial losses (not proportionate energy production & escalating capital expenditure) and fragile condition.

  35. Finalē FDEA models and findings here shall serve as guidelines for the IPP firm’s management • shall be weighted carefully if they will be used for any managerial decision-making. • shows how the models (Stages 1, 2 & 3) are helpful in the evaluation of IPP sector technical efficiency performance. • models have their own limitations that can be strengthened and enhanced by using other non-parametric or parametric models. • due to the acknowledged limitation of the present research, this area can be addressed by future investigation.

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