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What happened to efficiency in electricity industries after reforms?

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  • Erdogdu, Erkan

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 efficiency. This paper questions the validity of this hypothesis. Using panel data from 92 countries covering the period 1982–2008, empirical models are developed and analyzed. The research findings suggest that the impact of the reforms on electricity industry performance is statistically significant but also limited. The results imply that, after controlling for country-specific variables, application of liberal market models in electricity industries slightly 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.

Suggested Citation

  • Erdogdu, Erkan, 2011. "What happened to efficiency in electricity industries after reforms?," MPRA Paper 32483, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32483
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    References listed on IDEAS

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    1. Yin-Fang Zhang & David Parker & Colin Kirkpatrick, 2008. "Electricity sector reform in developing countries: an econometric assessment of the effects of privatization, competition and regulation," Journal of Regulatory Economics, Springer, vol. 33(2), pages 159-178, April.
    2. Erdogdu, Erkan, 2011. "The impact of power market reforms on electricity price-cost margins and cross-subsidy levels: A cross country panel data analysis," Energy Policy, Elsevier, vol. 39(3), pages 1080-1092, March.
    3. Faye Steiner, 2003. "Regulation, industry structure and performance in the electricity supply industry," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 143-182.
    4. Carlo Fiorio & Massimo Florio & Raffaele Doronzo, 2007. "The Electricity Industry Reform Paradigm in the European Union: Testing the Impact on Consumers," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1066, Universitá degli Studi di Milano.
    5. Jamasb, Tooraj & Newbery, David & Pollitt, Michael, 2005. "Core indicators for determinants and performance of the electricity sector in developing countries," Policy Research Working Paper Series 3599, The World Bank.
    6. World Bank, 2010. "World Development Indicators 2010," World Bank Publications, The World Bank, number 4373, November.
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    Cited by:

    1. repec:aen:journl:ej38-3-stengos is not listed on IDEAS
    2. Andrea Bastianin & Paolo Castelnovo & Massimo Florio, 2017. "The Empirics of Regulatory Reforms Proxied by Categorical Variables: Recent Findings and Methodological Issues," Working Papers 2017.22, Fondazione Eni Enrico Mattei.
    3. Antonio Estache & Stéphane Saussier, 2014. "Public-Private Partnerships and Efficiency: A Short Assessment," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(3), pages 08-13, October.
    4. Karahan, Hatice & Toptas, Mehmet, 2013. "The effect of power distribution privatization on electricity prices in Turkey: Has liberalization served the purpose?," Energy Policy, Elsevier, vol. 63(C), pages 614-621.
    5. repec:eco:journ2:2017-03-02 is not listed on IDEAS
    6. repec:ces:ifodic:v:12:y:2014:i:3:p:19126463 is not listed on IDEAS
    7. Pompei, Fabrizio, 2013. "Heterogeneous effects of regulation on the efficiency of the electricity industry across European Union countries," Energy Economics, Elsevier, vol. 40(C), pages 569-585.

    More about this item

    Keywords

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

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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