The paradox of energy regulation: The inefficiency of nuclear production

ABSTRACT

The main objective of this research is to assess the levels of technical efficiency of European electricity companies depending on whether energy is generated through nuclear or other sources in their country of origin. To this end, stochastic frontier models were used to analyze the period from 2005 to 2014.

The results show a significant negative effect of nuclear energy production compared to other alternatives in the country in which the company undertakes its electricity generation activity. We believe that this negative effect may be due to regulations which impose the maximum levels for nuclear production which are significantly lower than the installed capacity at nuclear plants.

KEYWORDS:

• Electricity
• nuclear
• regulation
• stochastic frontier
• technical efficiency

Notes

¹ Analysis undertaken for European countries, with the exception of Eurasia (Armenia, Azerbaijan, Cyprus, Georgia, Kazakhstan, Russia and Turkey) as data on their European sides could not be found.

² As demonstrated by Wang and Schmidt (2002), one stage reduces potential biases and contradictions in the calculation which are introduced in models with successive steps.

³ The hypothesis testing involving the parameter γ were performed using the χ²-mixed distribution (Kodde and Palm, 1986)

⁴ For the test of constant returns to scale in the production of electrical energy, Wald’s methodology was used.

⁵ The significant installed capacity of nuclear production facilities can meet high levels of demand at peak times. However, their normal production is limited by maximum levels, which drives down the normal levels of technical efficiency, and hence favours production using other technologies.