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Powering Progress: Restructuring, Competition, and R&D in the U.S. Electric Utility Industry

Paroma Sanyal and Linda R. Cohen

Year: 2009
Volume: Volume 30
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No2-3
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This paper investigates the R&D behavior of regulated firms when they transition to a competitive environment. Using data from the US electricity market from 1990-2000, we analyze how competition, institutional changes, and political constraints have contributed to the precipitous decline in R&D expenditure by regulated utilities. We find that firms reduce their R&D significantly at the very early stages of restructuring or even when they expect restructuring to occur. Once the emerging institutional structure becomes clear, R&D spending recovers but is later offset by another decline when restructuring legislation is enacted. In addition, greater competition and the nearing of such competition adversely affects research spending. In aggregate, R&D declines by 78.6 percent after electricity markets are restructured. Firm and state characteristics matter, and a majority of the research is conducted by large generation companies located in pro-research states, especially if they are part of a larger holding company. Such characteristics have a different impact on research spending in the pre-and post-restructured periods.

Have Model, Will Reform? Assessing the Outcome of Electricity Reforms in Non-OECD Asia

Anupama Sen, Rabindra Nepal, and Tooraj Jamasb

Year: 2018
Volume: Volume 39
Number: Number 4
DOI: 10.5547/01956574.39.4.asen
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Non-OECD Asian economies comprise about 34% of world primary energy demand, 60% of population and 65% of the world's poor, and will account for more than 60% of the total increase in energy consumption between 2015 and 2040. Energy sector reforms in non-OECD Asia are thus significant for global energy use, sustainability and socio-economic welfare. The region has experienced a slow and difficult reform path and after more than two decades of reform efforts it is time to take stock of their outcomes. Using a novel dataset assembled for this purpose for the period 1990-2013 for 17 non-OECD Asian countries, we apply instrumental variables regression techniques to several electricity sector reform outcome models. We find that the standard reform model has had limited benefits, largely due to sectoral heterogeneity and institutional endowments. We also show empirical evidence of the theoretical trade-offs between technical efficiency, economic and welfare objectives of reforms. The results call for rethinking of the effectiveness of reforms and awareness of the effects of key reform steps on different outcomes. This is useful for balancing the trade-offs among competing reform objectives.

Avoiding Pitfalls in China’s Electricity Sector Reforms

Michael R. Davidson and Ignacio Pérez-Arriaga

Year: 2020
Volume: Volume 41
Number: Number 3
DOI: 10.5547/01956574.41.3.mdav
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China has recently reinvigorated reforms to its electricity sector, focusing on increasing the role of markets and improving regulation. While restructuring an electricity sector is difficult and can require years of detailed planning, China's approach relies upon broad central guidelines with many details and initiatives left to provincial governments. We assess the current state of reform efforts through the lens of five "pitfalls" based on well-established regulatory economics literature and international lessons, focusing on contract structure, system operation, and regulation. We find that while market efforts are likely to achieve efficiency gains with respect to the planned system, they may fall short of crucial functions of a market, such as incentivizing flexibility given increasing renewable energy penetrations. Making markets work will likely require a stronger centralization of market design and regulatory oversight authorities.

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