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Excessive entry and investment in deregulated markets: Evidence from the electricity sector

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  • Hill, Alexander

Abstract

The staggered and partial restructuring of state electricity markets beginning in 1996 is leveraged to identify the effect of entry deregulation on investment in generation capacity during the U.S. Gas Boom. Using synthetic control to construct the counterfactual outcome, this paper finds restructuring led to a 17 percent increase in capacity beyond the counterfactual in the seven years following restructuring. The overinvestment of the electricity industry is consistent with market coordination failure, contagion and low real interest rates, leading to an environmental welfare gain of $27.6 billion but overall net welfare loss of $18.85 billion.

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  • Hill, Alexander, 2021. "Excessive entry and investment in deregulated markets: Evidence from the electricity sector," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:jeeman:v:110:y:2021:i:c:s0095069621001030
    DOI: 10.1016/j.jeem.2021.102543
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    Cited by:

    1. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
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    4. Alexander Hill, 2023. "Price freezes and gas pass-through: an estimation of the price impact of electricity market restructuring," Journal of Regulatory Economics, Springer, vol. 63(1), pages 87-116, April.
    5. Lebeau, Alexis & Petitet, Marie & Quemin, Simon & Saguan, Marcelo, 2024. "Long-term issues with the Energy-Only Market design in the context of deep decarbonization," Energy Economics, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Gas Boom; Electricity restructuring; Excessive investment;
    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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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