TY - JOUR
T1 - Determinants of Investment under Incentive Regulation
T2 - The Case of the Norwegian Electricity Distribution Networks
AU - Poudineh, Rahmatallah
AU - Jamasb, Tooraj
PY - 2016
Y1 - 2016
N2 - Investment in electricity networks, as regulated natural monopolies, is among the highest regulatory and energy policy priorities. The electricity sector regulators adopt different incentive mechanisms to ensure that the firms undertake sufficient investment to maintain and modernise the grid. Thus, an effective regulatory treatment of investment requires understanding the response of companies to the regulatory incentives. This study analyses the determinants of investment in electricity distribution networks using a panel dataset of 129 Norwegian companies observed from 2004 to 2010. A Bayesian Model Averaging approach is used to provide a robust statistical inference by taking into account the uncertainties around model selection and estimation. The results show that three factors drive nearly all network investments: investment rate in previous period, socio-economic costs of energy not supplied and finally useful life of assets. The results indicate that Norwegian companies have, to some degree, responded to the investment incentives provided by the regulatory framework. However, some of the incentives do not appear to be effective in driving the investments.
AB - Investment in electricity networks, as regulated natural monopolies, is among the highest regulatory and energy policy priorities. The electricity sector regulators adopt different incentive mechanisms to ensure that the firms undertake sufficient investment to maintain and modernise the grid. Thus, an effective regulatory treatment of investment requires understanding the response of companies to the regulatory incentives. This study analyses the determinants of investment in electricity distribution networks using a panel dataset of 129 Norwegian companies observed from 2004 to 2010. A Bayesian Model Averaging approach is used to provide a robust statistical inference by taking into account the uncertainties around model selection and estimation. The results show that three factors drive nearly all network investments: investment rate in previous period, socio-economic costs of energy not supplied and finally useful life of assets. The results indicate that Norwegian companies have, to some degree, responded to the investment incentives provided by the regulatory framework. However, some of the incentives do not appear to be effective in driving the investments.
KW - Electricity networks
KW - Investment incentive
KW - Regulation
KW - Bayesian model averaging
KW - Electricity networks
KW - Investment incentive
KW - Regulation
KW - Bayesian model averaging
UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954921369597&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes
U2 - 10.1016/j.eneco.2014.08.021
DO - 10.1016/j.eneco.2014.08.021
M3 - Journal article
AN - SCOPUS:84956641295
VL - 53
SP - 193
EP - 202
JO - Energy Economics
JF - Energy Economics
SN - 0140-9883
IS - January
ER -