Erdogdu, Erkan (2010): Electricity Market Reform: Lessons for developing countries.
Download (632kB) | Preview
One of the main targets of power market reforms in the world has been price-cost margins. This paper focuses on this issue by looking at the impact of the power market reforms on the convergence of residential and industrial electricity price-cost margins in diverse countries towards their average value and on cross-subsidy levels between consumer groups. Using panel data for 63 developed and developing countries covering the period 1982–2009, empirical models are developed and analyzed. The research findings suggest that, in most cases, reform process causes price-cost margins in different countries to move towards their average value. Besides, it is found that there is a negative relationship between absolute value of deviation from unit industrial/residential price ratio and the shift towards a competitive market model, meaning that as countries take more reform steps the size of cross subsidy between consumer groups tends to decline. Overall, based on empirical evidence, the study found that application of competitive market models in electricity industries makes electricity price-cost margins converge towards the average and prices more cost-reflective by reducing the size of cross subsidies between industrial and residential consumers, after controlling for industry and country-specific variables. Furthermore, the study suggests that power consumption, income level, electricity losses and country specific features constitute other important determinants of convergence towards average electricity price-cost margin and cross-subsidy levels between consumer groups.
|Item Type:||MPRA Paper|
|Original Title:||Electricity Market Reform: Lessons for developing countries|
|Keywords:||Models with Panel Data; Power Market Reform; Price-cost margin|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
Y - Miscellaneous Categories > Y4 - Dissertations (unclassified) > Y40 - Dissertations (unclassified)
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C33 - Models with Panel Data; Longitudinal Data; Spatial Time Series
|Depositing User:||Erkan Erdogdu|
|Date Deposited:||11. Dec 2010 00:42|
|Last Modified:||11. Feb 2013 19:00|
ABBOTT, M. 2006. The Performance of an Electricity Utility: The Case of the State Electricity Commission of Victoria, 1925–93. Australian Economic History Review, 46, 23-44.
AMUNDSEN, E. S. & BERGMAN, L. 2006. Why has the Nordic electricity market worked so well? Utilities Policy, 14, 148-157.
ANAYA, K. L. 2010. The Restructuring and Privatisation of the Peruvian Electricity Distribution Market. EPRG Working Paper, No: 1009. Cambridge, UK: University of Cambridge, Electricity Policy Research Group.
ASANO, H. 2006. Regulatory reform of the electricity industry in Japan: What is the next step of deregulation? Energy Policy, 34, 2491-2497.
BACON, R. W. & BESANT-JONES, J. 2001. Global Electric Power Reform, Privatization and Liberalization of the Electric Power Industry in Developing Countries. Annual Review of Energy and the Environment, 26, 331-359.
BHATTACHARYYA, S. C. 2007. Sustainability of power sector reform in India: what does recent experience suggest? Journal of Cleaner Production, 15, 235-246.
CHAN, C. T. 2006. What are the alternatives available to Hong Kong in structuring the electricity supply industry? Energy Policy, 34, 2891-2904.
CHERNI, J. A. & KENTISH, J. 2007. Renewable energy policy and electricity market reforms in China. Energy Policy, 35, 3616-3629.
CHERNI, J. A. & PRESTON, F. 2007. Rural electrification under liberal reforms: the case of Peru. Journal of Cleaner Production, 15, 143-152.
CRAMPES, C. & FABRA, N. 2005. The Spanish Electricity Industry: Plus ça change. Energy Journal, 127-153.
DE SOUZA, F. C. & LEGEY, L. F. L. 2010. Dynamics of risk management tools and auctions in the second phase of the Brazilian Electricity Market reform. Energy Policy, In Press, Corrected Proof.
DEFEUILLEY, C. 2009. Retail competition in electricity markets. Energy Policy, 37, 377-386.
DIACONU, O., OPRESCU, G. & PITTMAN, R. 2009. Electricity reform in Romania. Utilities Policy, 17, 114-124.
DOMAH, P. & POLLITT, M. G. 2001. The restructuring and privatisation of the electricity distribution and supply businesses in England and Wales: a social cost-benefit analysis. Fiscal Studies, 22, 107-146.
DU, L., MAO, J. & SHI, J. 2009. Assessing the impact of regulatory reforms on China's electricity generation industry. Energy Policy, 37, 712-720.
DUBASH, N. K. 2003. Revisiting electricity reform: The case for a sustainable development approach. Utilities Policy, 11, 143-154.
DUTRA, J. & MENEZES, F. 2005. Lessons from the Electricity Auctions in Brazil. The Electricity Journal, 18, 11-21.
ENGOIAN, A. 2006. Industrial and institutional restructuring of the Russian electricity sector: Status and issues. Energy Policy, 34, 3233-3244.
ERDOGDU, E. 2007. Regulatory reform in Turkish energy industry: An analysis. Energy Policy, 35, 984-993.
ERDOGDU, E. 2009. Some thoughts on the Turkish electricity distribution industry. Renewable and Sustainable Energy Reviews, 13, 1485-1494.
ERDOGDU, E. 2010. A paper on the unsettled question of Turkish electricity market: Balancing and settlement system (Part I). Applied Energy, 87, 251-258.
ERNST & YOUNG 2006. Final Report Research Project: the Case for Liberalization.
FERRARI, A. & GIULIETTI, M. 2005. Competition in electricity markets: international experience and the case of Italy. Utilities Policy, 13, 247-255.
FIORIO, C. V., FLORIO, M. & DORONZO, R. 2007. The Electricity Industry Reform Paradigm in the European Union: Testing the Impact on Consumers. Consumers and Utility Reforms in the European Union Conference, June 8-9, 2007. Milan.
FLORIO, M. 2007. Electricity Prices as Signals for the Evaluation of Reforms: An Empirical Analysis of Four European Countries. International Review of Applied Economics, 21, 1-27.
GABRIELE, A. 2004. Policy alternatives in reforming energy utilities in developing countries. Energy Policy, 32, 1319-1337.
GRATWICK, K. N. & EBERHARD, A. 2008. Demise of the standard model for power sector reform and the emergence of hybrid power markets. Energy Policy, 36, 3948-3960.
HAMMONS, T. J. 2003. Electricity Deregulation after California. Electric Power Components & Systems, 31, 349.
HASELIP, J. & POTTER, C. 2010. Post-neoliberal electricity market [`]re-reforms' in Argentina: Diverging from market prescriptions? Energy Policy, 38, 1168-1176.
HATTORI, T. & TSUTSUI, M. 2004. Economic impact of regulatory reforms in the electricity supply industry: a panel data analysis for OECD countries. Energy Policy, 32, 823-832.
HOGAN, W. W. 2002. Electricity Market Restructuring: Reforms of Reforms. Journal of Regulatory Economics, 21, 103-132.
HROVATIN, N., PITTMAN, R. & ZORIC, J. 2009. Organisation and reforms of the electricity sector in Slovenia. Utilities Policy, 17, 134-143.
IDA, T., ITO, E. & KINOSHITA, S. 2007. Post-regulatory reform productivity gains in Japan's electricity industry. Applied Economics Letters, 14, 975-979.
IEA 2010a. Energy Prices and Taxes (Edition: 2010, Quarter 1), Natural Gas Import Costs. International Energy Agency.
IEA 2010b. Energy Prices and Taxes (Edition: 2010, Quarter 1), OECD: Coal Import Costs and Indices by Importing Country. International Energy Agency.
IEA 2010c. Energy Prices and Taxes, End-use Prices (Edition: 2009, Quarter 4). International Energy Agency.
IEA 2010d. World Energy Balances. International Energy Agency.
IEA 2010e. World Energy Statistics. International Energy Agency.
IKEME, J. & EBOHON, O. J. 2005. Nigeria's electric power sector reform: what should form the key objectives? Energy Policy, 33, 1213-1221.
ILIADOU, E. N. 2009. Electricity sector reform in Greece. Utilities Policy, 17, 76-87.
JAMASB, T. 2006. Between the state and market: Electricity sector reform in developing countries. Utilities Policy, 14, 14-30.
JAMASB, T., NEWBERY, D. & POLLITT, M. 2004. Core Indicators for Determinants and Performance of Electricity Sector Reform in Developing Countries. Cambridge Working Papers in Economics, CWPE 0438.
JAMASB, T. & POLLITT, M. 2005. Electricity Market Reform in the European Union: Review of Progress toward Liberalization & Integration. Energy Journal, 11-41.
JAMASB, T. & POLLITT, M. 2007. Incentive regulation of electricity distribution networks: Lessons of experience from Britain. Energy Policy, 35, 6163-6187.
JOSEPH, K. L. 2010. The politics of power: Electricity reform in India. Energy Policy, 38, 503-511.
JOSKOW, P. L. 2008. Lessons Learned From Electricity Market Liberalization. Energy Journal, Special Issue, 9-42.
KWOKA, J. 2008. Restructuring the U.S. Electric Power Sector: A Review of Recent Studies. Review of Industrial Organization, 32, 165-196.
LAM, P.-L. 2004. Hong Kong's electricity market beyond 2008. Energy Policy, 32, 851-854.
LEE, B.-H. & AHN, H.-H. 2006. Electricity industry restructuring revisited: the case of Korea. Energy Policy, 34, 1115-1126.
LITTLECHILD, S. C. 2008. Symposium on electricity reform in Argentina. Energy Economics, 30, 1279-1283.
LOCK, R. 2005. The New Electricity Model in Brazil: An Institutional Framework in Transition. The Electricity Journal, 18, 52-61.
MEHTA, A., RAO, H. S. & TERWAY, A. 2007. Power sector reform in Central Asia: observations on the diverse experiences of some formerly Soviet Republics and Mongolia. Journal of Cleaner Production, 15, 218-234.
MOTA, R. 2003. The Restructuring and Privatisation of Electricity Distribution and Supply Business in Brazil: A Social Cost-Benefit Analysis. DAE Working Paper Series. Cambridge, UK: University of Cambridge, Department of Applied Economics.
MOTA, R. 2004. Essays on The Impact of Electricity Sector Reforms in Developing Countries. PhD, University of Cambridge.
NAGAYAMA, H. 2007. Effects of regulatory reforms in the electricity supply industry on electricity prices in developing countries. Energy Policy, 35, 3440-3462.
NAGAYAMA, H. 2009. Electric power sector reform liberalization models and electric power prices in developing countries: An empirical analysis using international panel data. Energy Economics, 31, 463-472.
NAGAYAMA, H. & KASHIWAGI, T. 2007. Evaluating electricity sector reforms in Argentina: lessons for developing countries? Journal of Cleaner Production, 15, 115-130.
NAKANO, M. & MANAGI, S. 2008. Regulatory reforms and productivity: An empirical analysis of the Japanese electricity industry. Energy Policy, 36, 201-209.
NEWBERY, D. 2009. Electricity Investment in South Africa. EPRG Spring Seminar, 15.05.2009. Cambridge: Electricity Policy Research Group.
NEWBERY, D. M. & POLLITT, M. G. 1997. The Restructuring and Privatisation of Britain's CEGB: Was It Worth It? Journal of Industrial Economics, 45, 269-303.
NILLESEN, P. & POLLITT, M. 2008. Ownership unbundling in electricity distribution: empircal evidence from New Zealand. EPRG Working Paper, No: 0820. Cambridge, UK: University of Cambridge, Electricity Policy Research Group.
OLADE 2010. Energy Statistics Report. OLADE (Latinamerican Energy Organization).
PÉREZ-REYES, R. & TOVAR, B. 2009. Measuring efficiency and productivity change (PTF) in the Peruvian electricity distribution companies after reforms. Energy Policy, 37, 2249-2261.
PINEAU, P.-O. 2002. Electricity sector reform in Cameroon: is privatization the solution? Energy Policy, 30, 999-1012.
PINEAU, P.-O. & HÄMÄLÄINEN, R. P. 2000. A perspective on the restructuring of the Finnish electricity market. Energy Policy, 28, 181-192.
POLLITT, M. 2004. Electricity reform in Chile: Lessons for developing countries. Journal of Network Industries, 5, 221-262.
POLLITT, M. 2008a. Electricity reform in Argentina: Lessons for developing countries. Energy Economics, 30, 1536-1567.
POLLITT, M. 2008b. Foreword: Liberalization and Regulation in Electricity Systems - How can We get the Balance Right? In: FEREIDOON, P. S. (ed.) Competitive Electricity Markets. Oxford: Elsevier.
POLLITT, M. 2009a. Electricity Liberalisation in the European Union: A Progress Report. Mercato Concorrenza Regole 3/2009, pp.497-523. [In Italian]; English Version: EPRG Working Paper, No.0929.
POLLITT, M. 2009b. Evaluating the evidence on electricity reform: Lessons for the South East Europe (SEE) market. Utilities Policy, 17, 13-23.
REDDY, A. K. N. 2002. Towards a new paradigm for power sector reform in India. Energy for Sustainable Development, 6, 22-29.
RUFFIN, C. 2003. The Political Economy of Institutional Change in the Electricity Supply Industry: Shifting Currents, Edward Elgar, Cheltenham.
SINGH, A. 2006. Power sector reform in India: current issues and prospects. Energy Policy, 34, 2480-2490.
SIOSHANSI, F. P. 2006a. Electricity market reform: What has the experience taught us thus far? Utilities Policy, 14, 63-75.
SIOSHANSI, F. P. 2006b. Electricity Market Reform: What Have We Learned? What Have We Gained? The Electricity Journal, 19, 70-83.
SIOSHANSI, F. P. 2008. Electricity market reform and ‘reform of the reforms’. Int. J. Global Energy Issues, 29, 3-27.
SIOSHANSI, F. P. & PFAFFENBERGER, W. 2006. Electricity market reform: an international perspective, Amsterdam ; Boston, Elsevier.
STEINER, F. 2001. Regulation, industry structure and performance in the electricity supply industry. OECD Economics Studies. OECD.
SWEENEY, J. L. 2002. The California electricity crisis, Stanford, Calif., Hoover Institution Press ; Stanford Institute for Economic Policy Research.
THOMAS, S. 2004. Evaluating the British Model of Electricity Deregulation. Annals of Public & Cooperative Economics, 75, 367-398.
THOMAS, S. 2006a. Recent evidence on the impact of electricity liberalisation on consumer prices. Public Services International Research Unit (PSIRU).
THOMAS, S. D. 2006b. Electricity industry reforms in smaller European countries and the Nordic experience. Energy, 31, 788-801.
TOBA, N. 2007. Welfare impacts of electricity generation sector reform in the Philippines. Energy Policy, 35, 6145-6162.
TRILLAS, F. 2010. Electricity and telecoms reforms in the EU: Insights from the economics of federalism. Utilities Policy, In Press, Corrected Proof.
US EIA. 2010a. Average Operating Heat Rate for Selected Energy Sources [Online]. U.S. Energy Information Administration. Available: http://www.eia.doe.gov/cneaf/ electricity/epa/epat5p3.html [Accessed 30.07.2010].
US EIA 2010b. International Energy Data and Analysis. US Energy Information Administration.
WILLIAMS, J. H. & GHANADAN, R. 2006. Electricity reform in developing and transition countries: A reappraisal. Energy, 31, 815-844.
WOO, C.-K. 2001. What went wrong in California's electricity market? Energy, 26, 747-758.
WORLD BANK 2010a. World Bank Country Classifications, URL: http://go.worldbank.org/K2CKM78CC0.
WORLD BANK 2010b. World Development Indicators (Edition: April 2010). World Bank.
YEOH, B.-S. & RAJARAMAN, R. 2004. Electricity in China: The Latest Reforms. The Electricity Journal, 17, 60-69.
YI-CHONG, X. 2006. The myth of the single solution: electricity reforms and the World Bank. Energy, 31, 802-814.
ZHANG, Y.-F., PARKER, D. & KIRKPATRICK, C. 2008. Electricity sector reform in developing countries: an econometric assessment of the effects of privatization, competition and regulation. Journal of Regulatory Economics, 33, 159-178.
ZHANG, Y., PARKER, D. & KIRKPATRICK, C. 2005. Competition, regulation and privatisation of electricity generation in developing countries: does the sequencing of the reforms matter? The Quarterly Review of Economics and Finance, 45, 358-379.