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A New Perspective: Investment and Efficiency under Incentive Regulation

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  • Rahmatallah Poudineh
  • Tooraj Jamasb

Abstract

Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have adopted incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising their networks. This paper studies the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 129 Norwegian distribution companies from 2004 to 2010. We introduce the concept of “no impact efficiency†as a revenue-neutral efficiency effect of investment under incentive regulation that makes a firm “investment efficient†in cost benchmarking. Also, we estimate the observed efficiency effect of investments and compare these with the no impact efficiency. Finally, we discuss the implications of cost benchmarking for investment behaviour of network companies.

Suggested Citation

  • Rahmatallah Poudineh & Tooraj Jamasb, 2015. "A New Perspective: Investment and Efficiency under Incentive Regulation," The Energy Journal, , vol. 36(4), pages 241-264, October.
    • Handle: RePEc:sae:enejou:v:36:y:2015:i:4:p:241-264
    DOI: 10.5547/01956574.36.4.rpou
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    Cited by:

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    2. Mirza, Faisal Mehmood & Mushtaq, Iqra & Ullah, Kafait, 2017. "Assessing the efficiency dynamics of post reforms electric distribution utilities in Pakistan," Utilities Policy, Elsevier, vol. 47(C), pages 18-28.
    3. Llorca, Manuel & Orea, Luis & Pollitt, Michael G., 2016. "Efficiency and environmental factors in the US electricity transmission industry," Energy Economics, Elsevier, vol. 55(C), pages 234-246.
    4. Jamasb, Tooraj & Llorca, Manuel & Meeus, Leonardo & Schittekatte, Tim, 2020. "Energy Network Innovation for Green Transition: Economic Issues and Regulatory Options," Working Papers 18-2020, Copenhagen Business School, Department of Economics.
    5. Brunekreeft Gert & Meyer Roland, 2016. "Anreizregulierung bei Stromverteilnetzen: Effizienz versus Investitionen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 172-187, July.
    6. Poudineh, Rahmatallah & Jamasb, Tooraj, 2016. "Determinants of investment under incentive regulation: The case of the Norwegian electricity distribution networks," Energy Economics, Elsevier, vol. 53(C), pages 193-202.
    7. Ribeiro, Beatriz Couto & Ferrero, Luciane Graziele Pereira & Bin, Adriana & Blind, Knut, 2023. "Effects of innovation stimuli regulation in the electricity sector: A quantitative study on European countries," Energy Economics, Elsevier, vol. 118(C).
    8. Gert Brunekreeft & Roland Meyer, 2015. "Anreizregulierung bei Stromverteilnetzen: Effizienz versus Investitionen," Bremen Energy Working Papers 0021, Bremen Energy Research.
    9. Wenche Tobiasson & Manuel Llorca & Tooraj Jamasb, 2021. "Performance Effects of Network Structure and Ownership: The Norwegian Electricity Distribution Sector," Energies, MDPI, vol. 14(21), pages 1-15, November.

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    More about this item

    Keywords

    Investments; Cost efficiency; Incentive regulation; Distribution network; no impact efficiency;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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