Electricity Markets during the Liberalization: The Case of a European Union Country

Štefan Bojnec,Alan Križaj

doi:10.3390/en14144317

Abstract

This paper analyzes electricity markets in Slovenia during the specific period of market deregulation and price liberalization. The drivers of electricity prices and electricity consumption are investigated. The Slovenian electricity markets are analyzed in relation with the European Energy Exchange (EEX) market. Associations between electricity prices on the one hand, and primary energy prices, variation in air temperature, daily maximum electricity power, and cross-border grid prices on the other hand, are analyzed separately for industrial and household consumers. Monthly data are used in a regression analysis during the period of Slovenia’s electricity market deregulation and price liberalization. Empirical results show that electricity prices achieved in the EEX market were significantly associated with primary energy prices. In Slovenia, the prices for daily maximum electricity power were significantly associated with electricity prices achieved on the EEX market. The increases in electricity prices for households, however, cannot be explained with developments in electricity prices on the EEX market. As the period analyzed is the stage of market deregulation and price liberalization, this can have important policy implications for the countries that still have regulated and monopolized electricity markets. Opening the electricity markets is expected to increase competition and reduce pressures for electricity price increases. However, the experiences and lessons learned among the countries following market deregulation and price liberalization are mixed. For industry, electricity prices affect cost competitiveness, while for households, electricity prices, through expenses, affect their welfare. A competitive and efficient electricity market should balance between suppliers’ and consumers’ market interests. With greening the energy markets and the development of the CO2 emission trading market, it is also important to encourage use of renewable energy sources.

Highlights

The electricity markets in developed and developing countries have undergone substantial reforms that have been induced by market deregulation and price liberalization [1,2,3,4,5], with an aim to become more competitive and efficient [6,7,8,9,10]
It affects industrial cost competitiveness and expenses of households [13,14]. This explains, for example, why the European Union (EU) member states aim to develop a competitive and efficient electricity market [15,16,17]. Such a market allows the development of the CO2 emission trading market, encouraging the use of renewable energy sources, and contributing to greenhouse gas emission reduction, which is important in the fight against climate change [18,19,20,21,22,23]
H3a: whether electricity consumption in industry in Slovenia is significantly associated with primary sources of energy prices, CO2 emission coupon prices, variation in air temperature, daily maximum electricity power and industrial production index

Summary

Introduction

The electricity markets in developed and developing countries have undergone substantial reforms that have been induced by market deregulation and price liberalization [1,2,3,4,5], with an aim to become more competitive and efficient [6,7,8,9,10]. Electricity is one of the key goods in consumers’ daily needs, and as such, is at the core of economy cost efficiency and household welfare [11,12] It is one of the most important factors of production and consumption. It affects industrial cost competitiveness and expenses of households [13,14] This explains, for example, why the European Union (EU) member states aim to develop a competitive and efficient electricity market [15,16,17]. The EU, as well as most other countries in the world, aims to increase its final energy consumption with renewable energy sources [24,25,26]

Methods

Results

Discussion

Conclusion