Internalization of External Cost in the Geothermal Power Generation on Social Welfare Maximization

Abstract

Against the background of the deleterious impacts of fossil fuel power generation, considerable attention has been given to developing renewable and clean sources of energy. Over the past few decades, geothermal energy has increased significantly across the world due to its low impact on climatic change. Although it is considered one of the most promising sources of renewable and clean energy, it is not exempt from environmental and social well-being drawbacks. In this study, we evaluate the external cost of electricity generated by geothermal power plants in Kenya. Both survey data and secondary data were used. The analysis was conducted using externality valuation and welfare maximization approaches, and the research hypotheses were tested using a negative binomial regression model. The results of both survey data and secondary data analysis show that geothermal power generation is attributed to negative environmental, public health, and socio-economic impacts as a result of emissions and sitting. Overall, the geothermal power generation annual external cost ($/2022) was determined to be $ 162,330.75 with the following distribution: Environmental at $ 90,905.22, Public health at $ 42,206.00, and Socio-economic at $ 29,219.53. Equally, the geothermal power generation marginal social cost ($/2022) was determined to be 0.02 $cents/kWh with the following distribution: Marginal Private Cost (MPC) at 0.02 $cents/kWh, and Marginal External Cost (MEC) at 0.000045 $cents/kWh. The established marginal social cost (MSC) (i.e. Σ MPC+MEC) was 0.02 ($cents/kWh). This is less than the established social marginal benefit (SMB) of 0.089 ($ cents/kWh); hence, we conclude that the burden of social welfare loss is insignificant, making geothermal power a sustainable energy source.