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Economic Effects of Market Liberalization for Electricity


  • Drago Papler
  • Štefan Bojnec


Gradual deregulation and liberalization of the electricity distribution market have created increasing competition in the electricity market. The increased number of suppliers has reduced market concentration. In the initial phase after the partial opening of the electricity market for the industry in 2001 with increasing pressures from competitors in the electricity market this has led to a reduction in real prices. After its full opening for households in 2007, the real price of electricity increased. Expectation that the market liberalization will lead to a real reduction in electricity prices, they were significantly higher than the empirical results suggest from the conducted research on the economic effects of market liberalization in distribution of electricity in Slovenia. In order to test the main thesis of research, we have set hypotheses, which were tested on the basis of the collected secondary data. In the quantitative analysis and in empirically tested hypotheses are used measures of concentration, statistical and regression analysis. Time series data variables and in-depth surveys with consumers are used in the empirical analysis. The liberalization of the electricity market has led to changes in structures of supply, with an initial increase in the number of competitors. The degree of concentration in sales of electricity to business and household consumption has fluctuated over the years with a downward trend. The market shares of suppliers have changed: significantly reduced or redistributed among more suppliers. The structure of the electricity market has changed by the reduced the market shares of suppliers from the group distribution enterprises and increased the market shares of new traders. In the initial phase of market opening and the entry of new competitors out of the distribution enterprises, have occurred the expected reduction in electricity prices. However, with the full opening of the electricity market, the prices have increased. The price function has confirmed that the cost of wages, the cost of taxes and the price of substitutes, such as natural gas, have positive impact on the real retail price of electricity. The revenue function was found that revenues of the enterprise are significantly affected by revenue from electricity sales to business consumption (industry and other electricity consumption). The consumption function has confirmed that the sale of electricity in industry is closely linked to economic growth, which reflects the growth of the gross domestic product. The sales of electricity to households are associated with income households and with endowment of households with consumer durables such as household appliances. Since the consumption of electricity increases, importance are gaining the prices of substitutes such as electrical energy, natural gas and petroleum products and efficient electrical and mechanical devices that use less energy. The cost function confirmed that liberalization does not reduce the cost. For a competitive business distribution companies are important costs, which are significantly influenced by the purchase price of electricity and the cost of goods and material costs, labor costs and depreciation in the electricity distribution enterprise. The liberalization of the electricity market did not affect the decline in the real total cost, but vice versa, it has increased because of adaptation to the changed market requirements with investments in information and communication technology, branding and promotion. The production function confirmed the importance of labor productivity with significant association with investment in capital in the form of tangible fixed assets and human capital, which reflects the professional qualifications of the labor force, obtained by the number of years of education. Demand for electricity in the segmented markets for distribution of electricity is typically linked to prices and incomes, which affects customer satisfaction. The factor analysis is based on the survey research based on 1506 questionnaires on competitive electricity supply and electricity supply factors. The empirical analysis confirmed that the performance of electricity suppliers in liberalized markets depends on customer satisfaction, which is reflected through relationship with customers and advice by sales staff, and quality factors of supply of electricity through competitive pricing, reliable delivery and efficient energy use and the cost of electricity.

Suggested Citation

  • Drago Papler & Štefan Bojnec, 2015. "Economic Effects of Market Liberalization for Electricity," Faculty of Management Koper Monograph Series, University of Primorska, Faculty of Management Koper, number 978-961-266-191-5, June.
  • Handle: RePEc:mgt:fmkmon:978-961-266-191-5

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    References listed on IDEAS

    1. Hung-po Chao, 1983. "Peak Load Pricing and Capacity Planning with Demand and Supply Uncertainty," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 179-190, Spring.
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    3. Lester D. Taylor, 1975. "The Demand for Electricity: A Survey," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 74-110, Spring.
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