Economic Research and Perspectives

Economic Research and Perspectives

Measuring the Level of Competitiveness in the Iranian Electricity Industry, Structural and Non-Structural Approach Aimed at Achieving Sustainable Economic Growth

Authors
Maedeh Azarbayejani 1
mostafa emadzadeh 2
majeed sameti 3
1 Ph.D. candidate in Economics, Islamic Azad University, Isfahan Branch (Khorasgan), Isfahan, Iran
2 Professor of Economics, Sheikhbahaei University, Isfahan, Iran
3 Professor of Economics , Isfahan University, Isfahan, Iran.
Abstract
Introduction:

According to the models of growth, renewable and non-renewable energy affect economic growth, but the consumption of renewable energy due to less pollution, contributes to sustainable growth. So, countries strive to create the conditions for the use of renewable energy, such as electricity. By balancing competition in market such as the electricity market, on the micro level surplus of consumer and producer welfare is maximized without government intervention, and the incentive for the private sector to enter the market increases. On the macro level, due to lower prices and increased production, electricity consumption as renewable energy increases and reduces environmental degradation and increases sustainable growth. Over the past decades, in the electricity industry, natural monopoly conditions have been established in the sectors of production, transmission and distribution, and the surplus of consumer and producer welfare has not been maximized, so government intervention was justified. In recent years, due to technological advances and the elimination of natural monopolies, the incentive for the private sector to enter the electricity sector has been strengthened. The purpose of this article is to measure the degree of competition in 9 electricity companies in Iran during the period 2011-2019.




Methodology:


In order to measure the degree of competition in Iran's electricity industry, two structural approaches, i.e., Entropy coefficient and non-structural Panzar-Rosse were used.
The entropy measure is used as an alternative to variance, in fact entropy is the inverse measure of concentration, when entropy increases, concentration decreases:

E=i=1nSi.log1Si , 0≤E≤log⁡(n) (1)

Si is the market share and the value of this index is equal to zero for the monopoly market and increases nonlinearly as the market becomes more competitive.

Measurement of degree of competition by Panzar-Ross method, using the GMM method is as fallows:

LnTRit=α0+α1LnQit+βLLnWLit+βKLnWKit+βELnWEit (2)


WLit
 is the labor input price, WKit
 is the capital input price, WEit
 is the energy input price of the power generation company i in the time period t. TRit
 is total revenue, Qit
 is production of the i-th power generation company at time t. In the dynamic specification, the Panzar-Rosse criterion for evaluating the market structure is defined as follows:
PRH=i=13βi1-α1 (3)

If i=13βi=1 , the market is competitive and a decrease (increase) in the price of inputs causes the same decrease (increase) in marginal cost and marginal revenue. If 0<i=13βi<1 , the market has monopolistic competition and is between competition and monopoly.




Results and Discussion:


The calculation of entropy coefficient, which is one of the structural methods in measuring competitiveness, obtained a number equal to 0.215 for the Iranian electricity industry during 2011-2019. Considering that the mentioned number is between zero and one, it shows that the concentration in Iran's electricity industry has decreased during the period under review and this industry has been placed in a state between competitive and monopoly. In other words, the conditions of the electricity industry have moved out of the traditional state and full monopoly, although it still needs to establish arrangements to become more competitive and close to full competition. On the other hand, Panzar-Rosse non-structural method was also estimated and its index was calculated, which obtained a value of 0.253. This amount of Panzar-Rosse non-structural index also confirms the results of the non-structural approach in Iran's electricity industry. Due to the fact that the results of both structural and non-structural approaches in calculating the level of competitiveness in Iran's electricity industry confirm each other, more confidence is created regarding the obtained result.





Conclusion:


Considering the important and effective role of electricity in other industries of the country, the existence of more competition that leads to a decrease in the price and increase in the production of electricity, from a micro point of view, it has led to an increase in consumer and producer surplus, and from a macro point of view, it has also led to a reduction in environmental pollution. Reducing the exploitation of non-renewable energies and as a result of intergenerational justice and ultimately the realization of sustainable growth and development. Although the results of the calculation of competitiveness indicators indicate that the electricity industry is moving away from the monopoly state and moving towards the competitive state, more efforts should be made in order to increase the degree of competition and achieve complete competition in the country.


In this way, the country's economic managers and policy makers should increase the number of power plants in Iran's electricity network while removing the existing legal obstacles on the path of restructuring from monopoly to full competition in the country's electricity industry in order to reduce the level of concentration and monopoly in Iran's electricity market. On the other hand, creating a suitable environment for the correct and healthy competition of electricity companies, improving the productivity of production inputs and using the optimal combination of inputs through research and development, as well as short-term and long-term planning to improve the level of production and improve the cost structure, and encouraging and supporting elites and inventors in line with the development of new electricity production plans and technologies such as solar electricity technology can help to make the structure of the electricity industry more competitive.
Keywords
Competition
Market Power
Electricity Market
Sustainable Economic Growth

Subjects

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Economic Research and Perspectives
Volume 22, Issue 4
Winter 2023
Pages 261-281