Effects of Market Reform on Facility Investment in Electric Power Industry: Panel Data Analysis of 27 Countries

Abstract

In this study, we analyzed the effects of electricity market reform on investment in generation facilities. We used the data of 27 OECD member countries and considered ownership structure, horizontal and vertical unbundling, change of transaction method, and government regulation as explanatory variables for market reform. We used four regression models, in which we examined the effects of market reform on the capacity of generation facilities, supply reserve ratio, total investment, and base-load share, respectively. For each panel regression model, we performed a Hausman test to identify the model between random effect and fixed effect. Based on the estimation results, we found that electricity market reform has a negative effect on generation facilities in most countries. Both privatization and regulation have negative impacts on the generation facility and base-load share. On the other hand, the level of liberalization of transactions have positive effects on the generation facility, supply reserve ratio, and base-load share. The empirical analysis also showed that horizontal unbundling does not have a meaningful effect on investment, but vertical unbundling contributes to increasing the supply reserve ratio.