4" , l~i ELSEVIER Resource and Energy Economics 19 (1997) 241-259 RESOURCE and ENERGY ECONOMICS Gas power production, surplus concepts and the transformation of hydro electric rent into resource rent Eirik S. Amundsen Department of Economics, University of Bergen, Fosswinckelsgt. 6, N-5007 Bergen, Norway Received 7 February 1994; accepted 16 September 1996 Abstract The paper considers the effects of introducing large scale gas power production capacity into an electricity sector based on hydropower. In this process the economic rent is transmitted from the hydro power sector to the resource rent in the gas power sector, but is along the way intermingled with ordinary producer surplus and quasi-rent stemming from increasing cost conditions in the production infrastructure and capacity constraints. The net effect on total rent generated depends on development in demand, demand elasticities, costs saved from delaying hydropower projects and the existence of producer surplus in gas power generation. The paper closes with a discussion of possible tax base changes following from the introduction of a thermal power system based on natural gas. © 1997 Elsevier Science B.V. JEL classification: Q30; Q32; Q40 Keywords." Thermal power; Hydropower; Economic rent 1. Introduction In many countries the share of natural gas as a fuel in electricity generation has been increasing as compared to oil, coal, nuclear and hydropower. This develop- ment can be attributed to several factors, e.g. extensive off-oil programs following in the aftermath of the oil price shocks of the 1970s, cost lowering technological progress, the flexibility of natural gas in combined heat and power generation (CHP) and the prospects of sizable future CO2-taxes favoring natural gas as 0928-7655/97/$17.00 © 1997 Elsevier Science B.V. All rights reserved. PH S0928-7655(96)00018-8