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

Poudineh, R. and Jamasb, T. (2016) 'Determinants of investment under incentive regulation : the case of the Norwegian electricity distribution networks.', Energy economics., 53 . pp. 193-202.


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 in previous period, social-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.

Item Type:Article
Keywords:Electricity networks, Investment incentive, Regulation, Bayesian model averaging.
Full text:(AM) Accepted Manuscript
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Publisher statement:NOTICE: this is the author’s version of a work that was accepted for publication in Energy Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Energy Economics, Volume 53, January 2016, Pages 193-202, 10.1016/j.eneco.2014.08.021.
Record Created:02 Sep 2014 15:50
Last Modified:29 Feb 2016 14:39

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