Productivity and Efficiency of Leading European Electricity Utilities at a Time of Economic Downturn

Abstract

[eng] Purpose – This paper aims to assess the productivity and efficiency of a panel of 42 electricity generation utilities operating in ten EU countries plus Switzerland during the turbulent period 2003–2011. Design/methodology/approach – This paper applies Data Envelopment Analysis in the form of the aggregate-quantity framework of O'Donnell (2012a) to calculate productivity and its components for a selected group of European companies. Findings – It shows that constant growth in the productivity frontier until 2007 results from rapid technological change and improvements in scale-mix efficiency of magnitudes sufficient to compensate for the fall in technical efficiency. After the height of the financial crisis of 2008, the continued fall in technical efficiency, mainly caused by excess spare capacity, is the primary driver of a pronounced drop in productivity. Originality – To the best of our knowledge, this is the first study assessing the financial crisis effect on the European electricity generation firms' productivity and efficiency. Practical implications – The finding that changes in technical efficiency and scale-mix efficiency have played such an essential role in productivity decline after the height of the financial crisis may be cause for cautious optimism. That is, productivity improvements might depend not solely on further technical change but more prominently on better policies, better management of installed capacity, and broader adoption of best practices. Thus, this paper has important implications for subsequent crises, including the one occasioned by the current invasion of Ukraine.