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Incentive regulation, productivity growth and environmental effects: the case of electricity networks in Great Britain

Author

Listed:
  • Victor Ajayi

    (EPRG, CJBS, University of Cambridge)

  • Karim Anaya

    (EPRG, CJBS, University of Cambridge)

  • Michael Pollitt

    (EPRG, CJBS, University of Cambridge)

Abstract

We analyse the productivity growth of electricity transmission and distribution networks in Great Britain and how changes in incentive mechanism have influenced the measured total factor productivity (TFP). In doing so we are also concerned to examine the effects of quality of service and environmental targets on measured productivity growth. It is increasingly important that productivity measures adjust for the increasing regulatory pressure to reduce the wider societal impacts of the electricity sector and improve quality of service. Failure to do so, may mean that productivity growth may look slower than it actually is. We employ a DEA technique which considers the underlying data without a stochastic element. Our findings show that productivity growth is consistently low for the period we examine, in the region of 1% p.a. over the 29 years from 1990/1991-2018/2019. For both electricity transmission and electricity distribution we try to monetise a wider range of quality and emissions variables in order to show the difference their inclusion makes to measured productivity growth. We show that it can make a difference both positively and negatively, though often this difference is small (e.g. 0.1% p.a.). However, the impact can be much larger (c. 1% p.a.), especially with respect to improvements in quality of service in the distribution network. In the context of generally slow productivity growth, we therefore show the importance of appropriate measurement.
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Suggested Citation

  • Victor Ajayi & Karim Anaya & Michael Pollitt, 2021. "Incentive regulation, productivity growth and environmental effects: the case of electricity networks in Great Britain," Working Papers EPRG2126, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg2126
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    Cited by:

    1. Newbery, D., 2023. "Regulation of access, fees, and investment planning of transmission in Great Britain," Cambridge Working Papers in Economics 2335, Faculty of Economics, University of Cambridge.
    2. Ajayi, V. & Pollitt, M .G., 2022. "Green growth and net zero policy in the UK: some conceptual and measurement issues," Cambridge Working Papers in Economics 2255, Faculty of Economics, University of Cambridge.
    3. Ganepola, Chanaka N. & Shubita, Moade & Lee, Lillian, 2023. "The electric shock: Causes and consequences of electricity prices in the United Kingdom," Energy Economics, Elsevier, vol. 126(C).
    4. Dariusz Sala & Iryna Bashynska & Olena Pavlova & Kostiantyn Pavlov & Nelia Chorna & Roman Chornyi, 2023. "Investment and Innovation Activity of Renewable Energy Sources in the Electric Power Industry in the South-Eastern Region of Ukraine," Energies, MDPI, vol. 16(5), pages 1-21, March.
    5. David Newbery, 2023. "Regulation of access, fees, and investment planning of transmission in Great Britain," Working Papers EPRG2307, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Lee, Chien-Chiang & Hussain, Jafar, 2023. "Energy sustainability under the COVID-19 outbreak: Electricity break-off policy to minimize electricity market crises," Energy Economics, Elsevier, vol. 125(C).

    More about this item

    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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