Performance measurement of thermoelectric generating plants with undesirable outputs and random parameters

Conventional paradigms measuring energy efficiency without considering pollution would be biased, as the plants can lose their productive efficiency from the negative output. To rectify this problem, this paper attempts to incorporate both desirable and undesirable outputs in the same model to assess the net efficiency. A distance frontier model is adopted to rank the plants according to their total productivity for the period 1995–2010. Moreover, a random frontier model is adopted to distinguish between homogenous and heterogeneous variables. The results display strong evidence that the rankings of technical efficiency with adjustments for pollution differs significantly from the rankings that do not take pollution into account. Policy implications are derived.

► This paper analyses the technical efficiency of Portuguese thermoelectric plants between 1995 and 2010.
► Undesirable outputs are heterogeneous among thermoelectric plants.
► Thermoelectric plants are relatively homogenous in terms of labour and capital.
► Sustainable production is ultimately a return on the unique assets owned and controlled by the thermoelectric plants.