Abstract
In this study, we analyzed the effects of electricity market reform on investment in generation facilities. We used the data of 27 OECD member countries and considered ownership structure, horizontal and vertical unbundling, change of transaction method, and government regulation as explanatory variables for market reform. We used four regression models, in which we examined the effects of market reform on the capacity of generation facilities, supply reserve ratio, total investment, and base-load share, respectively. For each panel regression model, we performed a Hausman test to identify the model between random effect and fixed effect. Based on the estimation results, we found that electricity market reform has a negative effect on generation facilities in most countries. Both privatization and regulation have negative impacts on the generation facility and base-load share. On the other hand, the level of liberalization of transactions have positive effects on the generation facility, supply reserve ratio, and base-load share. The empirical analysis also showed that horizontal unbundling does not have a meaningful effect on investment, but vertical unbundling contributes to increasing the supply reserve ratio.
Highlights
A long-term investment plan is essential for stable power supply because the construction process takes a long time from the investment decision to completion of the facilities
We performed four panel regression models using the data of 27 OECD countries
The panel data analysis showed that the electricity market reform has a negative effect on the generation facility, and has no statistically significant effect on supply reserve ratio, the amount of investment, and base-load share
Summary
A long-term investment plan is essential for stable power supply because the construction process takes a long time from the investment decision to completion of the facilities. Investment decision-making in the event of a power shortage cannot resolve the imbalance of the supply and demand of electricity. In the case of South Korea, construction times are 6–7 years for a nuclear power plant, 4–5 years for a bituminous coal-fired power plant, and 2–3 years for a gasification combined cycle power plant [1] Korea refers to the Republic of Korea (ROK)). In Korea, it is impossible to import electricity in an emergency due to the isolated power grid. Optimum investment beforehand is crucial to maintaining a stable power supply
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