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Electricity Market Reform in the European Union: Review of Progress toward Liberalization & Integration

Tooraj Jamasb and Michael Pollitt

Year: 2005
Volume: Volume 26
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-NoSI-2
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Abstract:
The energy market liberalisation process in Europe is increasingly focused on electricity market integration and related cross border issues. This signals that the liberalisation of national electricity markets is now closer to the long-term objective of a single European energy market. The interface between the national electricity markets requires physical interconnections and technical arrangements. However, further progress towards this objective also raises important issues regarding the framework within which the integrated market is implemented. This paper reviews the progress towards a single European electricity market. We then discuss the emerging issues of market concentration, investments, and security of supply as well as some aspects of market design and regulation that are crucial for dynamic performance of a single European market.



Electricity Distribution in the UK and Japan: A Comparative Efficiency Analysis 1985-1998

Toru Hattori, Tooraj Jamasb and Michael Pollitt

Year: 2005
Volume: Volume 26
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No2-2
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Abstract:
This paper examines the relative performance of electricity distribution systems in the UK and Japan between 1985 and 1998 using cost-based benchmarking with data envelopment analysis (DEA) and stochastic frontier analysis (SFA) methods. The results suggest that the productivity gain in the UK electricity distribution has been larger than in the Japanese sector. In particular, productivity growth accelerated during the last years when the UK utilities were operating under tightened revenue caps. It also suggests that efficiency scores are higher for UK utilities. The findings also highlight the advantages of using multiple techniques in comparative analysis and in incentive regulation.



Technical Change Theory and Learning Curves: Patterns of Progress in Electricity Generation Technologies

Tooraj Jamasb

Year: 2007
Volume: Volume 28
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No3-4
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Abstract:
Better understanding of the role of learning in technical progress is important for the development of innovation theory and technology policy. This paper presents a comparative analysis of the effect of learning and technical change in electricity generation technologies. We use simultaneous two-factor learning and diffusion models to estimate the effect of learning by doing and learning by research on technical progress for a range of technologies in four stages of development. We find learning patters broadly in line with the perceived view of technical progress. The results generally show higher learning by research than learning by doing rates. Moreover, we do not find any development stage where learning by doing is stronger than learning by research. We show that simple learning by doing curves overstate the effect of learning in particular for newer technologies. Finally, we find little substitution potential between learning by doing and research for most technologies.



Willingness-to-Pay for Quality of Service: An Application to Efficiency Analysis of the UK Electricity Distribution Utilities

William Yu, Tooraj Jamasb, Michael Pollitt

Year: 2009
Volume: Volume 30
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No4-1
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Abstract:
Efficiency analysis of electricity distribution networks is often limited to technical or cost efficiency measures. However, some important non-tradable aspects of their service such as quality of service and network energy losses are often not part of the analysis. Moreover, technical or cost efficiency should not be achieved at the expense of allocative and economic efficiency. Valuation of service quality for regulatory models is particularly difficult. This paper presents an empirical approach to measure and incorporate service quality and energy losses into the analysis of technical and allocative efficiency of the utilities. We apply our method to the case of the distribution networks in the UK between 1990/91 and 2003/04 using the data envelopment analysis technique. We find that the efficiency of the utilities improved during the first and second five-year distribution price control reviews but exhibited a slight decline during the third review period. We find relatively low allocative efficiency � i.e. a mismatch in allocating resources among expenditures, service quality, and network energy losses. The results suggest that currently the utilities may not be correctly incentivised to achieve socially optimal trade-offs between these.



Diversity in Unity: An Empirical Analysis of Electricity Deregulation in Indian States

Anupama Sen and Tooraj Jamasb

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-4
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Abstract:
As developing countries seek to improve their economic prospects, electricity reform has been widely viewed as a central part of this effort. While the focus of most research to date has been at economy or utility level, there has been much less research on regional outcomes. India presents a unique case, as its states share a common economic and political system, whilst having been given considerable flexibility in how they implement reform, thus allowing a comparative analysis of alternative approaches to reform. This study presents an econometric analysis of the determinants and impact of electricity reform in India, giving special regard to its political economy and regional diversity. It assesses how electricity reform in India has affected key economic variables that determine sectoral efficiency, prices and investment flows. We use panel data for 19 states, spanning 1991-2007, using dynamic panel data estimators. Results show that individual reform measures have affected key economic variables differently; thus the nature of reform in individual states would determine these economic outcomes. Findings suggest that due to political economy factors, outcomes have tended to be adverse in the initial stages of reform, as previously hidden distortions become apparent. The performance of reforms, however, may improve as the reform progresses beyond a `baseline' level.

Keywords: Electricity, India, Reform, Deregulation, Regional impacts



Necessity or Luxury Good? Household Energy Spending and Income in Britain 1991-2007

Helena Meier, Tooraj Jamasb, and Luis Orea

Year: 2013
Volume: Volume 34
Number: Number 4
DOI: 10.5547/01956574.34.4.6
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Abstract:
In recent years, many households around the world have experienced reductions in real incomes and higher energy prices, both of which have important demand and welfare implications. A better understanding of the socio-economic determinants of household energy demand and spending is therefore important from a welfare perspective. This is particularly useful in the case of liberalised energy markets where there is a need to devise new and innovative energy policies for the residential sector. This paper explores British household spending on energy in total and on electricity and gas separately. As the relative importance of essential or luxury services of energy varies with income, we focus our analysis on this driver of energy spending and estimate Engel spending curves using static and dynamic models for a panel dataset comprising over 77,000 observations for the 1991-2007 period. The lack of household level price data is common in liberalized retail energy markets. This issue is addressed by a new modeling approach based on within and between differences in regional energy prices. We find that the Engel spending curves are S-shaped. Income elasticities for energy spending are, however, U-shaped and smaller than unity, suggesting that energy services are a necessity for households.



A New Perspective: Investment and Efficiency under Incentive Regulation

Rahmatallah Poudineh and Tooraj Jamasb

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.rpou
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Abstract:
Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have adopted incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising their networks. This paper studies the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 129 Norwegian distribution companies from 2004 to 2010. We introduce the concept of "no impact efficiency" as a revenue-neutral efficiency effect of investment under incentive regulation that makes a firm "investment efficient" in cost benchmarking. Also, we estimate the observed efficiency effect of investments and compare these with the no impact efficiency. Finally, we discuss the implications of cost benchmarking for investment behaviour of network companies.



Electricity Supply Interruptions: Sectoral Interdependencies and the Cost of Energy Not Served for the Scottish Economy

Rahmatallah Poudineh and Tooraj Jamasb

Year: 2017
Volume: Volume 38
Number: Number 1
DOI: 10.5547/01956574.38.1.rpou
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Abstract:
Modern economies and infrastructure sectors rely upon secure electricity supplies. Due to sectoral interdependencies, major interruptions cause cascading effects in the economy. This paper investigates the economic effects of major power supply disruptions taking such interdependencies into account. We apply a dynamic in-operability input-output model (DIIM) to 101 sectors, including households, of the Scottish economy in 2009 to explore the direct, indirect, and induced effects of supply interruptions. We estimate the societal cost of energy not supplied (SCENS) due to an interruption. The results show that the most economically affected industries, following an outage, are different from the most inoperable ones. The results also indicate that SCENS varies with the duration of a power cut, ranging from �4,300/MWh for a one-minute outage to �8,100/MWh for a three-hour (and higher) interruption. The results can be used to design policies for contingencies and preventive investments in the power sector.



A Quarter Century Effort Yet to Come of Age: A Survey of Electricity Sector Reform in Developing Countries

Tooraj Jamasb, Rabindra Nepal, and Govinda R. Timilsina

Year: 2017
Volume: Volume 38
Number: Number 3
DOI: 10.5547/01956574.38.3.tjam
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Abstract:
More than two decades have passed since the start of the worldwide market-oriented electricity sector reforms. The reforms have varied in terms of structure, market mechanisms, and regulation. However, the passage of time calls for taking stock of the performance of the reforms in developing countries. This paper surveys the empirical literature on electricity sector reforms and draws some conclusions with a view to the future. Overall, the reforms have tended to improve the technical efficiency of the sector. The macroeconomic benefits of reforms are less clear and remain difficult to identify. Also, the gains from the reforms have often not trickled down to consumers because of institutional and regulatory weaknesses. In order to achieve lasting benefits, reforms need to adopt measures that align their pursuit of economic efficiency with those of equity and provision of access. Reforms can deliver more economic benefits and alleviate poverty when the poor have access to electricity. New technologies and institutional capacity building can help improve the performance of reforms.



Regulating Heterogeneous Utilities: A New Latent Class Approach with Application to the Norwegian Electricity Distribution Networks

Luis Orea and Tooraj Jamasb

Year: 2017
Volume: Volume 38
Number: Number 4
DOI: 10.5547/01956574.38.4.lore
View Abstract

Abstract:
Since the 1990s, electricity distribution networks in many countries have been subject to incentive regulation. The sector regulators aim to identify the best performing utilities as frontier firms to determine the relative efficiency of firms. This paper develops a nested latent class (NLC) model approach where unobserved differences in firm performance are modelled using two `zero inefficiency stochastic frontier' (ZISF) models nested in a `latent class stochastic frontier' (LCSF) model. This captures the unobserved differences due to technology or environmental conditions. A Monte Carlo simulation suggests that the proposed model does not suffer from identification problems. We illustrate the proposed model with an application to Norwegian distribution network utilities for the period 2004-2011. We find that the efficiency scores in both LCSF and ZISF models are biased, and some firms in the ZISF model are wrongly labelled as inefficient. Conversely, inefficient firms may be wrongly labelled as being fully efficient by the ZISF model.




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