Determinants of investment under incentive regulation: The case of the Norwegian electricity distribution networks

Rahmatallah Poudineh and Tooraj Jamasb

Energy Economics, 2016, vol. 53, issue C, 193-202

Abstract: 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.

Keywords: Electricity networks; Investment incentive; Regulation; Bayesian model averaging (search for similar items in EconPapers)
JEL-codes: C11 D21 L43 L51 L52 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Determinants of Investment under Incentive Regulation: The Case of Norwegian Electricity Distribution Networks (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:53:y:2016:i:c:p:193-202

DOI: 10.1016/j.eneco.2014.08.021

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