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

  • Erdogdu, Erkan

One of the main expectations from power market reform has been a reduction in both price-cost margins and cross-subsidy levels between industrial and residential consumers. This paper focuses on this issue by looking at the impact of the electricity industry reforms on residential and industrial electricity price-cost margins and their effect 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 there is no uniform pattern for the impact of reform process as a whole on price-cost margins and cross-subsidy levels. Each individual reform step has different impact on price-cost margins and cross-subsidy levels for each consumer and country group. Our findings imply that reform steps have different impacts in different countries, which supports the idea reform prescription for a specific country cannot easily and successfully 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.

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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 39 (2011)
Issue (Month): 3 (March)
Pages: 1080-1092

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Handle: RePEc:eee:enepol:v:39:y:2011:i:3:p:1080-1092
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