The impact of power market reforms on electricity price-cost margins and cross-subsidy levels: A cross country panel data analysis

Abstract

One of the main expectations from power market reform has been a reduction in price-cost margins and cross-subsidy levels between industrial and residential consumers. This paper 2 findings imply that reform steps have different impacts in different countries, which supports the idea that reform prescription for a specific country cannot easily be transferred to another one. So, transferring the formal and economic structure of a successful power market in a developed country to developing countries is not a sufficient condition for good economic performance of the electricity industries in developing countries. Furthermore, the study suggests that power consumption, income level and country specific features constitute other important determinants of electricity price-cost margins and cross-subsidy levels.

Assessing the determinants of household electricity prices in the EU: a system-GMM panel data approach

“…One of the earliest analyses of the reform process and electricity prices is the empirical analysis by Steiner [38], as previously stated by Erdogdu [10,11]. Steiner [38] studied the effect of regulatory reforms on the retail prices for large industrial customers as well as the ratio of industrial price to residential price, using data for 19 OECD countries for the period 1986-1996.…”

Restructuring European electricity markets – A panel data analysis

“…However, he does find that, in the presence of an independent regulator, unbundling is associated with lower prices, and that other reforms, such as privatisation, reduce prices in some regions but not others. Using a panel of 63 developed and developing countries, Erdogdu (2011) finds no consistent effects of restructuring on electricity price-cost margins. He concludes that reforms have heterogenous impacts across countries.…”

“…This variable comes from the data set used by Erdogdu (2011), and is a 0/1 dummy variable that indicates whether or not there was a wholesale market for electricity in place in a given country, in a given year. As the data used by Erdogdu (2011) end in 2009, I check for more recent developments in countries which did not have a wholesale market in place by 2009 using individual country profiles prepared by the European Commission 9 and from the CEER country-level reports.…”

“…This variable comes from the data set used by Erdogdu (2011), and is a 0/1 dummy variable that indicates whether or not there was a wholesale market for electricity in place in a given country, in a given year. As the data used by Erdogdu (2011) end in 2009, I check for more recent developments in countries which did not have a wholesale market in place by 2009 using individual country profiles prepared by the European Commission 9 and from the CEER country-level reports. While this variable indicates whether or not there was a market in place for trading wholesale electricity, it does not differentiate between the types of markets -whether it is a formal market, i.e., a power exchange, or an over-the-counter market comprising bilateral contracts between parties.…”

“…Thus, while the main motivation behind electricity market reform is to increase efficiency which, all other things equal, should result in lower electricity prices, different reform steps may have opposite effects on prices. Indeed research by Apt (2005) and Erdogdu (2011), amongst others, has not found a clear effect of reform on prices. have highlighted the need for more empirical studies on the effect of electricity market restructuring.…”