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Does Market Liberalization Lead to Lower Household Electricity Rates? An Empirical Analysis of the European Union Member-States.

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https://ir.library.oregonstate.edu/concern/graduate_projects/9306t090n

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  • Liberalization of electricity markets has become a dominant energy sector reform for most of the European Union (EU) countries since 1990s. Despite initial expectations that liberalization will reduce electricity prices and strengthen overall energy security, outcomes of the deregulation reforms proved to be unclear and even contradictory. This study seeks to examine the impact of electricity market liberalization on household electricity prices for EU-27 member-states (Croatia excluded) over a time period of 2000 – 2014. The paper adopts neoliberal classical framework based on assumptions that liberalization introduces competition into previously monopolized electricity markets, which leads to more efficient market outcomes including lower household electricity rates. The results were obtained by conducting panel data analysis where the main dependent variable was “household electricity rates excluding taxes” and the main independent variables were indexes that measure an extent of liberalization. The key results suggest that liberalization does not have a statistically significant impact on household electricity rates for the EU-15 states. However, liberalization proved to have an impact on electricity prices for New Member States (NMS) of the EU. This impact is asymmetric and depends on a specific liberalization sub-component. When “softening entry regulations” tends to result in more expensive electricity, “vertical disintegration of generation, transmission, and distribution” is likely to decrease household electricity rates. Overall competition seems to have limited effect on electricity prices, especially for the EU-15.
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