TY - JOUR
T1 - Is electricity deregulation beneficial to Israel?
AU - Tishler, Asher
AU - Woo, Chi Keung
PY - 2007
Y1 - 2007
N2 - Purpose - The objective of the paper is to analyse the economic justification of introducing deregulation to Israel's regulated electricity market and infer whether such a policy change makes sense for the country. Design/methodology/approach - The paper employs an analytical model of electricity market equilibrium under regulation and deregulation. It considers two technologies - coal-fired generators and combined cycle gas turbines, and two time-of-day prices - peak and off-peak. It analyzes pricing, revenues, profits and consumer surplus both for the regulated industry and the deregulated industry where firms compete, during the peak and off-peak periods, according to the Cournot conjecture. The model is then applied to the Israeli case. Findings - The analysis shows that a workably competitive electricity market with financially viable firms does not improve net benefits to Israeli society. A deregulated market is likely to yield smaller net benefits than a regulated market, and certainly a smaller consumer surplus. This happens since efficiency improvements in generation costs under deregulation will not be sufficient to compensate for the reduction in consumer surplus due to higher electricity prices under deregulation. Research limitations/implications - The simplifications used in the analytical model for ease of analysis and presentation could have influenced some results. Practical implications - The findings of the paper would have significant relevance for electricity sector deregulation in Israel and other regions that currently have a regulated electricity sector (e.g. Hong Kong, Africa, and many parts of North America). Originality/value - The value of the paper lies in its ability to demonstrate the inherent weaknesses of the deregulation policy through an analytical model.
AB - Purpose - The objective of the paper is to analyse the economic justification of introducing deregulation to Israel's regulated electricity market and infer whether such a policy change makes sense for the country. Design/methodology/approach - The paper employs an analytical model of electricity market equilibrium under regulation and deregulation. It considers two technologies - coal-fired generators and combined cycle gas turbines, and two time-of-day prices - peak and off-peak. It analyzes pricing, revenues, profits and consumer surplus both for the regulated industry and the deregulated industry where firms compete, during the peak and off-peak periods, according to the Cournot conjecture. The model is then applied to the Israeli case. Findings - The analysis shows that a workably competitive electricity market with financially viable firms does not improve net benefits to Israeli society. A deregulated market is likely to yield smaller net benefits than a regulated market, and certainly a smaller consumer surplus. This happens since efficiency improvements in generation costs under deregulation will not be sufficient to compensate for the reduction in consumer surplus due to higher electricity prices under deregulation. Research limitations/implications - The simplifications used in the analytical model for ease of analysis and presentation could have influenced some results. Practical implications - The findings of the paper would have significant relevance for electricity sector deregulation in Israel and other regions that currently have a regulated electricity sector (e.g. Hong Kong, Africa, and many parts of North America). Originality/value - The value of the paper lies in its ability to demonstrate the inherent weaknesses of the deregulation policy through an analytical model.
KW - Electricity industry
KW - Government policy
KW - Israel
KW - Market economy
KW - Regulation
UR - http://www.scopus.com/inward/record.url?scp=44249111708&partnerID=8YFLogxK
U2 - 10.1108/17506220710836066
DO - 10.1108/17506220710836066
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AN - SCOPUS:44249111708
SN - 1750-6220
VL - 1
SP - 322
EP - 341
JO - International Journal of Energy Sector Management
JF - International Journal of Energy Sector Management
IS - 4
ER -