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Effects of long-term tariff regulation on investments under low credibility of rules: Rate-of-return and price cap in Russian electricity grids

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  • Avdasheva, Svetlana
  • Orlova, Yulia

Abstract

The transition from a short-term cost-plus tariff regulation to either a long-term rate-of-return or long-term price cap regulation in Russia started in 2009 and was completed in 2012, causing substantial changes in investment over the course of the reform. We estimate panel data of 46 Russian electricity distribution entities with a dynamic investment model using the system generalized method of moments and addressing potential endogeneity issues. We show that, despite the noncredible regulatory policy, the transition from short-to long-term regulation had a positive and significant effect on the investment rate of regulated entities. The specific long-term regulation design applied in Russia from 2008 to 2017 (either rate-of-return or price cap) had no effect on the investment rate. These results are important for the introduction of changes in regulatory frameworks in developing countries.

Suggested Citation

  • Avdasheva, Svetlana & Orlova, Yulia, 2020. "Effects of long-term tariff regulation on investments under low credibility of rules: Rate-of-return and price cap in Russian electricity grids," Energy Policy, Elsevier, vol. 138(C).
  • Handle: RePEc:eee:enepol:v:138:y:2020:i:c:s0301421520300367
    DOI: 10.1016/j.enpol.2020.111276
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    More about this item

    Keywords

    Electricity distribution grids; Reforms; Rate-of-return regulation; Incentive regulation; Long-term tariff regulation; Russia;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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