Business & Socioeconomics (Uge 44)

Question 1

What is included in Society’s costs of electricity (SCOE)?

Answer 1

• Social costs (Decline of house prices around power plants and wind farms)
• Economy and employment (Job creation: Direct, indirect (suppliers) and induced (by additional consumption)
• Geopolitical impact (Hedging against fuel price risk for imported fuels)

Question 2

What is the goal of an business economic analysis?

Answer 2

To provide a clear picture of the current economic condition. Specifically, what the impact of the economic climate is or might be on the company’s ability to operate commercially.

Question 3

What is included and excluded in an socioeconomic assessment?

Answer 3

• Ignores taxes and subsidies
• Adds environmental damages & impacts into the calculation (These environmental damages are monetized)
• Includes net tax factor and tax distortion loss in the economic evaluation

(In our case, we ignore the detailed indirect impacts on the society, such as job creation, health impacts, detailed environmental impact assessment.)

Question 4

What is the purpose of a socio-economic analyses of projects?

Answer 4

Improve the foundation for a qualified social priority of scarce ressources.

Question 5

What are the guidelines for socio-economic evaluation of energy projects?

Answer 5

Set up a reference scenario

• Business as usual (BAU still takes in account for the NPV and changing in energy prices, raw material prices, changing in emission taxes etc.)
• Planned modification etc.

Alternatives are then compared to the reference on the principle of Socio-economic surplus
The analysis is based on Net Present Value (NPV) calculations

Question 6

What are the analysis assumptions for socioeconomics?

Answer 6

• Usually evaluated on a lifetime exceeding 20 years.
• Yearly costs and turnovers are impacted by fuel & utility prices for the respective years. The prices on investment costs, operation and maintenance costs, fuel costs, raw materials, semi-finished products, CO2 quota prices are called factor prices.
• Taxes & subsidies
• Inflation & distortion rates etc.

Question 7

What is the “Net Tax Factor”?

Answer 7

Different input factors (labour, plant, machines, commodities, semi-finished products, etc.) is the value of the consumer goods as these input factors could have produced in alternative applications.

Therefore a net tax factor is employed to adjust for the tax burden

Question 8

At what level has the net tax factor recently been?

Answer 8

28,5%
The factor prices are multiplied by net tax factor to depict the real tax burden on the society by utilizing these resources in an energy project

Question 9

What is the level of DEA’s current recommendation of the discount rate in socioeconomic analysis?

Answer 9

3,5%

Question 10

What is “Tax distortion loss”?

Answer 10

If a project entails a net burden on public finances, this necessarily needs to be financed. In the end, it can only happen through taxation of other activities in society, which causes a distortion of activity in the economy, which is called tax distortion loss in tax financing

Question 11

What is the tax distortion loss estimated to in the Ministry of Finance’s report?

Answer 11

10%

Question 12

What is the total socio-economic cost of the public expenditure on the purchase of goods and services on a krone? (use net taxation factor and tax distortion loss)

Answer 12

1,285 · 1,10 DKK = 1,4135 DKK

Question 13

What is included in the true cost of electricity?

Answer 13

• LCOE (fuel + OPEX + CAPEX + CO2)
• Hidden subsidies (reduced tax on biomass, waste disposal and disaster costs)
• Transmission costs (Grid reinforcements needed for renewable integration)
• Variability costs (Capacity payments to gas plants for providing backup)