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Capacity, investment and market power in the economic value of energy firms

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  • Salas-Fumás, Vicente
  • Rosell-Martínez, Jorge
  • Delgado-Gómez, José Manuel

Abstract

Regulation of energy firms faces the complex problem of balancing private (earning a fair rate of return on investment) and public (assure safe and reliable supply of energy at the lowest possible costs) goals. Tobin's q is a forward looking indicator on investment opportunities and on market power of firms that energy regulators can use for more effective regulation. This paper presents the empirical evidence on the determinants of differences in observed values of Tobin's q for a sample of large listed energy firms from 10 different countries in the period 2000–2006. We find that adjustment costs represent around sixty percent of the difference between economic and book value of the assets for the representative firm, while rents from market power represent the other forty percent. Therefore, across countries there is room for regulatory actions aiming at reducing energy prices, but less than what may be inferred from the observed average q values.

Suggested Citation

  • Salas-Fumás, Vicente & Rosell-Martínez, Jorge & Delgado-Gómez, José Manuel, 2016. "Capacity, investment and market power in the economic value of energy firms," Energy Economics, Elsevier, vol. 53(C), pages 28-39.
  • Handle: RePEc:eee:eneeco:v:53:y:2016:i:c:p:28-39
    DOI: 10.1016/j.eneco.2015.05.004
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    More about this item

    Keywords

    Economic value; Regulation of energy firms; Adjustment costs; Market power;

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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