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Cost efficiency and electricity market structure: a case study of OECD countries
The OECD electricity sector has witnessed significant institutional restructuring for the past three decades. As a consequence, many power generation utilities now act as unregulated companies that technically compete to sell power on an open market. This paper analyses the performance in term of co...
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| Format: | Default Article |
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2017
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| Online Access: | https://hdl.handle.net/2134/25134 |
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| _version_ | 1818171202315747328 |
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| author | Victor Ajayi Thomas G. Weyman-Jones Anthony Glass |
| author_facet | Victor Ajayi Thomas G. Weyman-Jones Anthony Glass |
| author_sort | Victor Ajayi (1255098) |
| collection | Figshare |
| description | The OECD electricity sector has witnessed significant institutional restructuring for the past three decades. As a consequence, many power generation utilities now act as unregulated companies that technically compete to sell power on an open market. This paper analyses the performance in term of cost efficiency for electricity generation in OECD power sector while accounting for the impact of electricity market structures. We employ the short-run cost function in which capital stock is treated as a quasi-fixed factor input. Empirical models are developed for the cost function as a translog form and analysed using panel data of 25 countries during the period 1980 to 2009. Our results show that cost efficiency scores as well as their ranking are sensitive to the choice of model specification. We show that it is necessary to model latent country-specific heterogeneity in addition to time-varying inefficiency. The estimated economies of scale are adjusted to take account of the importance of the quasi-fixed capital input in determining cost behaviour, and long run constant returns to scale are verified for the OECD generation sector. The research findings suggest there is a significant impact of electricity market regulatory indicators on cost. In particular, public ownership and vertical integration are found to have significant and sizable increasing impacts on cost, thereby indicating policy lessons on the desirable ways to implement structural electricity generation reforms. |
| format | Default Article |
| id | rr-article-9494183 |
| institution | Loughborough University |
| publishDate | 2017 |
| record_format | Figshare |
| spelling | rr-article-94941832017-05-11T00:00:00Z Cost efficiency and electricity market structure: a case study of OECD countries Victor Ajayi (1255098) Thomas G. Weyman-Jones (7153352) Anthony Glass (1250598) Other economics not elsewhere classified Mechanical engineering not elsewhere classified Cost efficiency Stochastic frontier Heterogeneity Market reform indicators Mechanical Engineering Economics not elsewhere classified The OECD electricity sector has witnessed significant institutional restructuring for the past three decades. As a consequence, many power generation utilities now act as unregulated companies that technically compete to sell power on an open market. This paper analyses the performance in term of cost efficiency for electricity generation in OECD power sector while accounting for the impact of electricity market structures. We employ the short-run cost function in which capital stock is treated as a quasi-fixed factor input. Empirical models are developed for the cost function as a translog form and analysed using panel data of 25 countries during the period 1980 to 2009. Our results show that cost efficiency scores as well as their ranking are sensitive to the choice of model specification. We show that it is necessary to model latent country-specific heterogeneity in addition to time-varying inefficiency. The estimated economies of scale are adjusted to take account of the importance of the quasi-fixed capital input in determining cost behaviour, and long run constant returns to scale are verified for the OECD generation sector. The research findings suggest there is a significant impact of electricity market regulatory indicators on cost. In particular, public ownership and vertical integration are found to have significant and sizable increasing impacts on cost, thereby indicating policy lessons on the desirable ways to implement structural electricity generation reforms. 2017-05-11T00:00:00Z Text Journal contribution 2134/25134 https://figshare.com/articles/journal_contribution/Cost_efficiency_and_electricity_market_structure_a_case_study_of_OECD_countries/9494183 CC BY-NC-ND 4.0 |
| spellingShingle | Other economics not elsewhere classified Mechanical engineering not elsewhere classified Cost efficiency Stochastic frontier Heterogeneity Market reform indicators Mechanical Engineering Economics not elsewhere classified Victor Ajayi Thomas G. Weyman-Jones Anthony Glass Cost efficiency and electricity market structure: a case study of OECD countries |
| title | Cost efficiency and electricity market structure: a case study of OECD countries |
| title_full | Cost efficiency and electricity market structure: a case study of OECD countries |
| title_fullStr | Cost efficiency and electricity market structure: a case study of OECD countries |
| title_full_unstemmed | Cost efficiency and electricity market structure: a case study of OECD countries |
| title_short | Cost efficiency and electricity market structure: a case study of OECD countries |
| title_sort | cost efficiency and electricity market structure: a case study of oecd countries |
| topic | Other economics not elsewhere classified Mechanical engineering not elsewhere classified Cost efficiency Stochastic frontier Heterogeneity Market reform indicators Mechanical Engineering Economics not elsewhere classified |
| url | https://hdl.handle.net/2134/25134 |