The Impact of Regulatory Change on EU Energy Utility Returns: The Three Liberalization Packages

Posted: 17 Aug 2017

See all articles by Daniel J. Tulloch

Daniel J. Tulloch

University of Oxford - Smith School of Enterprise and the Environment

Ivan Diaz-Rainey

University of Otago - School of Business

I. M. Premachandra

University of Otago - Department of Accountancy and Finance

Date Written: July 09, 2017

Abstract

The European Union’s (EU) energy sector is changing due to major policy reforms. In this article, we examine the impact of major legislative changes which were designed to induce competition in the energy sector: the three liberalization packages. Competition was expected to benefit the industry by phasing out inefficient firms. EU citizens were also expected to benefit as competition was likely to promote a more efficient energy sector and more consumer choice of energy products and services. However, this legislative change occurred during a period of extreme market turmoil. We examine the impact of all these changes on the risk profile of the sector. Our results show that the liberalization legislation significantly increased systematic risk exposure of the sector, reducing its role as a defensive investment asset. We also show that commodities had relatively little impact on sector returns, but this was expected as utilities can offset commodity risk in hedging markets. We compare our results to those obtained in neighbouring EU sectors and find the impacts are isolated to the energy sector. This article makes a major contribution to energy policy by empirically showing the change in risk as a result of sector liberalization.

Keywords: Asset Pricing, Systematic Risk, Energy Utilities, Commodity Risk, Liberalization

JEL Classification: G12, G38, Q40, L43

Suggested Citation

Tulloch, Daniel James and Diaz-Rainey, Ivan and Premachandra, I. M., The Impact of Regulatory Change on EU Energy Utility Returns: The Three Liberalization Packages (July 09, 2017). Applied Economics, DOI/10.1080/00036846.2017.1346366, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3019087

Daniel James Tulloch (Contact Author)

University of Oxford - Smith School of Enterprise and the Environment ( email )

United Kingdom
1865614934 (Phone)

Ivan Diaz-Rainey

University of Otago - School of Business ( email )

Dunedin
New Zealand

I. M. Premachandra

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

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