| In the section | Articles |
| Title of the article | Economy of Scale in Russian Retail Electricity Market: On One Natural and One Unnatural Monopoly |
| Pages | 39-66 |
| Author |
Maxim Valerievich Kukoverov Researcher Russian Presidential Academy of National Economy and Public Administration 82/1, pr. Vernadskogo, Moscow, Russia, 119571 This email address is being protected from spambots. You need JavaScript enabled to view it. ORCID: 0000-0003-1689-3045 |
| Abstract | The paper presents an econometric analysis of the economy of scale in retail electricity markets in respect to the main service providers in the retail markets, which are territorial distribution grid companies and energy sales companies – guaranteeing suppliers. The research was made for the regions included in so-called ‘price zones’ of the wholesale electricity market (European part, Urals, Siberia). The paper provides econometric estimates of economies of scale both for distribution companies and for guaranteeing suppliers, obtained with the least squares method on cross-sectional regional data. The paper also provides the confirmation of the statistical hypotheses of the existence of the economy of scale in energy distribution and in retail supply. The existence of the economy of scale in energy distribution is quite natural and is consistent with the existing status of distribution grid companies as natural monopolies. Indeed, economy of scale usually results from significant capital expenditures. With small volumes of production, the role of capital costs in average costs is significant, but decreases with the increase of production volumes. In the case of distribution grid companies, which are responsible for the operation of power grid equipment, the obtained econometric results are consistent with economic theory. The existence of economies of scale in retail supply is not as natural as in the case of energy distribution. Energy sales do not require significant capital expenditures. Historically, apparently this fact (the absence of significant capital costs) is the reason why energy sales activity is considered as potentially competitive one, and was privatized. Nevertheless, retail energy supply today is, in fact, monopolized for some groups of commercial customers. The paper concludes with the regulatory recommendations about the sensibility of delivering the policies to implement competition in the energy sale sector in the retail markets |
| Code | 333+338 |
| JEL | C44, L4, L94 |
| DOI | 10.14530/se.2018.4.039-066 |
| Keywords | retail electricity markets ♦ economy of scale ♦ retail electricity supply ♦ guaranteeing suppliers ♦ unnatural monopoly ♦ energy sector regulation ♦ operations research ♦ econometric estimation |
| Download | |
| For citation | Kukoverov M.V. Economy of Scale in Russian Retail Electricity Market: On One Natural and One Unnatural Monopoly. Prostranstvennaya Ekonomika = Spatial Economics, 2018, no. 4, pp. 39-66. DOI: 10.14530/se.2018.4.039-066. (In Russian). |
| References | 1. Katyshev P.K., Chernavskiy S.Ya., Eismont O.A. Estimation of the Cost Function of Electricity Generation in Russia. XII International Scientific Conference on Economic and Social Development. Book 4. Moscow: National Research University Higher School of Economics, 2012, pp. 120–130. (In Russian). 2. Kukoverov M.V. On the Alternative of Marginal Pricing in the Electricity Market. IX Moscow International Conference on Operations Research (ORM2018). Vol. II. Moscow: MAKS Press, 2018. Pp. 253–256. (In Russian). 3. Christensen L.R., Greene W.H. Economies of Scale in U.S. Electric Power Generation. Journal of Political Economy, 1976, vol. 84, no. 4, pp. 655–676. DOI: 10.1086/260470 4. Cobb C.W., Douglas P.H. A Theory of Production. The American Economic Review, 1928, vol. 18, no. 1, pp. 139–165. 5. Depoorter B.W.F. Regulation of Natural Monopoly. Encyclopedia of Law and Economics. Edward Elgar, 1999, 2000 p. 6. Estache A., Rossi M., Ruzzier C. The Case for International Coordination of Electricity Regulation: Evidence from the Measurement of Efficiency in South America. Journal of Regulatory Economics, 2004, vol. 25 (3), pp. 271–295. DOI: 10.1023/B:REGE.0000017750.21982.36 7. Filippini M. Are Municipal Electricity Distribution Utilities Natural Monopolies? Annals of Public and Cooperative Economics, 1998, vol. 69, no. 2, pp. 157–174. DOI: 10.1111/1467-8292.00077 8. Growitsch C., Jamasb T., Pollitt M. Quality of Service, Efficiency and Scale in Network Industries: An Analysis of European Electricity Distribution. Applied Economics, 2009, vol. 41, no. 20, pp. 2555–2570. DOI: 10.1080/00036840701262872 9. Joskow P.L. Regulation of Natural Monopoly. Handbook of Law and Economics, 2007, chapter 16, vol. 2, pp. 1227–1348. DOI: 10.1016/S1574-0730(07)02016-6 10. Kmenta J. On Estimation of the CES Production Function. International Economic Review, 1967, vol. 8, no. 2, pp. 180–189. DOI: 10.2307/2525600 11. Leontief W. Structural Matrices of National Economies. Econometrica, 1949, vol. 17, pp. 273–282. DOI: 10.2307/1907314 12. Nerlove M. Returns to Scale in Electricity Supply. Measurement in Economics: Studies in Mathematical Economics and Econometrics in Memory of Yehuda Grunfeld. California: Standford University Press, 1963, pp. 167–198. DOI: 10.1086/258861 13. Sharkey W.W. The Theory of Natural Monopoly. Cambridge Books, 1982, 229 p. DOI: 10.1017/CBO9780511571817 14. Shephard R. Cost and Production Functions. Princeton: Princeton University Press, 1953, 104 p. DOI: 10.1002/nav.3800010218 15. Shephard R. Theory of Cost and Production Functions. Princeton: Princeton University Press, 1970, 308 p. DOI: 10.1017/S002205070007457X 16. Walters A. A. Production and Cost Functions: An Econometric Survey. Econometrica, 1963, vol. 31, no. 1/2, pp. 1–66. DOI: 10.2307/1910949 |