ELECTRICITY MARKET LIBERALIZATION AND EFFICIENCY: EVIDENCE FROM SINGAPORE

Qu Feng and Shihao Zhou ()
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Shihao Zhou: Economics Division, School of Social Sciences, Nanyang Technological University, 48 Nanyang Avenue, Singapore 639818

The Singapore Economic Review (SER), 2023, vol. 68, issue 03, 651-669

Abstract: Since 1995 Singapore has launched a series of reforms to liberalize its electricity market. More participants are introduced both in the power generation side as well as wholesale and retail markets to facilitate competition and promote efficiency. This paper aims to examine the efficiency of Singapore’s electricity market by detecting exceptionally high electricity prices as outliers. In particular, we first propose a dynamic regression model that accounts for market demand and supply, production cost, as well as time effects. Based on the regression, an upper bound is then constructed for the identification of outliers. Using a unique data set from 2003 to 2019, we find fewer outliers over time, indicating that Singapore’s electricity market becomes more efficient in recent years. We obtain consistent results by incorporating alternative model specifications such as hybrid model and Least Absolute Shrinkage and Selection Operator (LASSO). The results are also robust to different subsamples and data frequencies. In addition, a more comprehensive set of criterions for model selection is also proposed in this paper.

Keywords: Market liberalization; electricity market; efficiency; USEP; outliers; LASSO (search for similar items in EconPapers)
JEL-codes: C22 C53 Q41 Q47 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S0217590822500667

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