Implications of liberalization policies on government support to R&D: lessons from electricity markets

Since the early 1980s, electricity industry reforms have been initiated in more than half of the countries in the world. Among the primary targets of these reform schemes, there has been an increase in efficiency of the sector; and it is implicitly assumed that government support to energy technology R&D will progress in line with the reform process as the former is required to sustain improved efficiency in the middle and long run. The paper reviews the relation between reform process in electricity markets and government support to energy R&D. Using panel data from 27 countries covering the period from 1974 to 2008, this study aims at finding out to what extent the expected correlation between reform process and government support to energy R&D has in practice been materialized so far. The findings suggest that, contrary to expectations, the progress toward electricity market reform is associated with reduced government support to a variety of energy R&D activities, which threatens sustainable efficiency improvements in the power industry.