The Australian Electricity Industry’s Productivity Dynamics: Impacts of Electricity Reform

What is it about?

The Australian electricity industry has undergone significant reform since the mid-1990s. Key changes comprised functional unbundling, market restructuring, regulatory reform, public corporatisation and privatisation. Technological development has been another indisputable constituent of these changes in the wake of the ICT revolution. The principal rationale behind these changes has been that they would improve the productivity of the industry and the social well-being of people. This paper examines the dynamics of productivity changes in the Australian electricity industry. It conducts several hypotheses-testings to identify whether the industry's efficiency measures are truly improved due to the reform-driven changes. Malmquist Total Factor Productivity Index approach and ANOVA are used for this purpose. The results reveal that the productivity gains in the industry have been largely driven by technological improvements and, to a lesser extent, by reform-induced comparative efficiency gains. On average, at the national level and for the entire industry, there are efficiency gains that, to large extents, can be attributed to functional unbundling and public corporatisation and, to a lesser extent, to market restructuring and privatisation. The results, however, reveal that the reform-driven changes have made an insignificant contribution to comparative efficiency at the level of thermal generation.

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Photo by Matthew Henry on Unsplash

Photo by Matthew Henry on Unsplash

Why is it important?

Highlights ► The dynamics of productivity changes in the Australian electricity industry are examined. ► Several hypotheses are also tested against reform-driven changes. ► Technology impact is proved to be far larger than reform-induced impacts. ► Unbundling and corporatisation had larger impacts than market restructuring and privatisation. ► At the thermal generation level, no reform-induced impact is encountered.