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Please use this identifier to cite or link to this item: https://dspace.lboro.ac.uk/2134/25134

Title: Cost efficiency and electricity market structure: a case study of OECD countries
Authors: Ajayi, Victor A.
Weyman-Jones, Thomas G.
Glass, Anthony J.
Keywords: Cost efficiency
Stochastic frontier
Market reform indicators
Issue Date: 2017
Publisher: © Elsevier
Citation: AJAYI, V.A., WEYMAN-JONES, T.G. and GLASS, A.J., 2017. Cost efficiency and electricity market structure: a case study of OECD countries. Energy Economics, 65, pp. 283–291.
Abstract: 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.
Description: This paper is closed access until 11th November 2018.
Version: Accepted for publication
DOI: 10.1016/j.eneco.2017.05.005
URI: https://dspace.lboro.ac.uk/2134/25134
Publisher Link: https://doi.org/10.1016/j.eneco.2017.05.005
ISSN: 1873-6181
Appears in Collections:Closed Access (Economics)

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