Hydropower and potential for interfuel substitution: The case of electricity sector in Malaysia

The electricity sector in Malaysia is dominated by fossil fuels. This has immensely increased the amount of CO2 emissions and other pollutants. The objective of this paper is to investigate the potential for inter fuel substitution between the four major fuels of coal, gas, oil, and hydropower that are currently being used in the generation of electricity in Malaysia. Using a translog production function, the study adopted a ridge regression procedure to estimate the parameters. The results suggest a potential for substitution among the fuels. Hydropower is observed to be a substitute for other fossils fuels which is an indication that the country can gradually move towards adopting a cleaner fuel in the generation of electricity. We also extended the analysis to Thailand and China to show the consistency of the method when applied to different countries. (C) 2018 Elsevier Ltd. All rights reserved.