What happened to efficiency in electricity industries after reforms?

Erdogdu, Erkan (2011): What happened to efficiency in electricity industries after reforms? Forthcoming in: Energy Policy

Abstract

The last two decades have witnessed widespread power market reforms in both developed and developing countries that have cost billions of dollars. Among the key aims (and assumptions) of these reforms, there has always been realization of improvements in power sector efficiency. This paper questions the validity of this hypothesis. Using panel data from 92 countries covering the period 1982–2008, empirical models are developed and analyzed. The research findings suggest that the impact of the reforms on electricity industry performance is statistically significant but also limited. The results imply that, after controlling for country-specific variables, application of liberal market models in electricity industries slightly increases efficiency in power sector. Besides, we detect a positive relationship between reform process and the percentage share of network (transmission and distribution) losses in total electricity supplied; meaning that as countries take more reform steps the network losses as a fraction of power generated tend to increase. Moreover, the study puts forward that income level and other country specific features are more important determinants of industry efficiency than the reform process. Overall, contrary to expectations of substantial increases in sector efficiency, the paper concludes that introducing a decentralized market model with competition in the electricity sector has a limited increasing effect on power industry performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Models with panel data (C33); model construction and estimation (C51); electric utilities (L94); power market reform; electricity industry efficiency
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities

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