The impact of power market reforms on electricity price-cost margins and cross-subsidy levels: A cross country panel data analysis

Abstract

One of the main expectations from power market reform has been a reduction in both price-cost margins and cross-subsidy levels between industrial and residential consumers. This paper focuses on this issue by looking at the impact of the electricity industry reforms on residential and industrial electricity price-cost margins and their effect on cross-subsidy levels between consumer groups. Using panel data for 63 developed and developing countries covering the period 1982–2009, empirical models are developed and analyzed. The research findings suggest that there is no uniform pattern for the impact of reform process as a whole on price-cost margins and cross-subsidy levels. Each individual reform step has different impact on price-cost margins and cross-subsidy levels for each consumer and country group. Our findings imply that reform steps have different impacts in different countries, which supports the idea reform prescription for a specific country cannot easily and successfully be transferred to another one. So, transferring the formal and economic structure of a successful power market in a developed country to developing countries is not a sufficient condition for good economic performance of the electricity industries in developing countries. Furthermore, the study suggests that power consumption, income level and country-specific features constitute other important determinants of electricity price-cost margins and cross-subsidy levels.