Steam-Electric Scale Economies and Construction Lead Times

There was a widespread belief in the 1970s that the construction of coal and nuclear generating units exhibited positive economies of scale. Recent empirical literature has confirmed this belief for coal plants. But these studies have not considered the relationships among cost, plant size, and the building period. This paper derives and estimates a model in which construction cost and lead time are jointly determined. Constant returns to scale are not rejected for nuclear units. While coal units may exhibit positive returns to scale, because larger plants take longer to build, these returns are lower than previously estimated.