What happened to efficiency in electricity industries after reforms?

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 2 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. Keywords: Models with panel data (C33); model construction and estimation (C51); electric utilities (L94); power market reform; electricity industry efficiency

Power Sector Reforms and Technical Performance: Good News from an Instrumental Variable Analysis

“…The data are from Erdogdu (2011), who has collected information on the presence of eight different power sector reforms: framework liberalization law, corporatization of electric utilities, presence of independent regulatory agency, admission of independent power producers, unbundling (generation, transmission, distribution), privatization, establishment of wholesale electricity markets, and choice of supplier by retail customers. For each type of reform, he follows the standard definition from the literature and identifies the first instance of reform.…”

“…Zhang and others (2008) use panel data for 36 developing and transitional countries over the period [1985][1986][1987][1988][1989][1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003] to conduct an econometric assessment of the effects of privatization, competition, and regulation on sector performance, but again their regressions do not have credible identification strategies. Erdogdu (2011) uses panel data from 92 countries covering the period 1982-2008. After controlling for country-specific variables, he finds that application of liberal market models in electricity industries slightly increases efficiency in the power sector.…”

“…By 2008, 92 countries had enacted at least one reform to dismantle the traditional system of vertically integrated electricity generation under the control of the state (Erdogdu, 2011). Have these reforms improved technical performance?…”

“…Using data from Erdogdu (2011), we see that by 2008, 60 non-OECD countries had established an independent regulatory agency but only 40 had privatized power sector assets. Even more strikingly, only nine non-OECD countries allowed consumers to choose their supplier or had created wholesale markets for power.…”

It Is All about Political Incentives: Democracy and the Renewable Feed-in Tariff

“…Since large electricity markets create more opportunities for independent power generators, they may be more conducive to the growth of renewable energy through FIT adoption. Fourth, we also control for power sector reform with data from Erdogdu (2011), which measures how many reform steps (0-8) a country has implemented on its way to electricity market liberalization. 8 Since FIT policies introduce competition among power producers, incentives to adopt these policies should be higher in countries with advanced levels of electricity market liberalization.…”