Analyzing the effect of electric power industry reforms in Korea

Abstract

In this paper we introduce a general framework for evaluating the effect of first stage of electric power industry reforms in Korea by measuring and comparing the performance of electric power industry before and after the initiation of reforms. Understanding the effect of the first stage of reform can provide some valuable guidelines to how to implement the reforms. Keep in mind that the CBP market in Korea created through the implementation of the first stage of reforms is quite different from the usual sense of markets being implemented in US and other restructured regions. The proposed framework is constructed by first breaking the industry into essential functions that need to be carried out through value-chain analysis. Then, focusing on the generation business area, the specific functions and the sub-functions are defined and put into the form suitable for applying so-called performance-benchmarking technique. Once the specific functions are defined, then the efficiency measures are computed per each function using one of many effective methods. After evaluating the performance of industry through efficiency measures using the performance-benchmarking technique within the proposed framework, the externalities are considered such that the factors which affect the performance but have little to do with industry reforms are reasoned out thus forming a logical counterfactual. The comparison of industry performance between the actual outcome and the logical counterfactual leads to the proper evaluation. An illustrative example is presented in that the general framework introduced in this paper is then used to measure the efficiency of generation companies and/or generation units carrying out their respective functions from 1995 to 2006 and calculates the performance of electric power industry in Korea associated with these efficiency measures.